Savers will be able to invest up to £15,000 of cash or shares a year in a new super Isa unveiled by Chancellor George Osborne as he told Britons hit by years of rock-bottom interest rates the Government is "on your side".
From July 1, stocks and cash individual savings accounts (Isas) will be merged into one single allowance of £15,000, which will scrap current rules that mean savers can only put half of their £11,520 entitlement into a cash Isa, while they could invest the whole allowance into a stocks Isa.
It comes after mounting calls for Isa rules to be relaxed, backed by Nationwide Building Society, which published research this week showing that one in eight (12%) of people aged over 45 with a stocks and shares Isa have considered transferring these funds into a cash version, even though they cannot do so under current rules.
Promising to help pensioners who have suffered five years of record low interest rates, Mr Osborne also unveiled a new savings bond for those aged 65 and over.
Pensioner savings bonds will launch next January and are expected to pay out interest of 2.8% over one year and 4% over three years
Offered through National Savings & Investments (NS&I), the maximum amount that can be invested in each bond will be set at £10,000.
Mr Osborne also said the 10% starting rate for savings income will be axed altogether to support the lowest earners, while NS&I premium bond limits will also be raised from £30,000 to £40,000 this year and £50,000 next year.
He said: "Hard working people keep more of what they earn and more of what they save.
"You've earned it and you've saved it and this Government is on your side."
The Government said its new Isa (Nisa) will help around 24 million people who have the tax-free savings products.
With Isa limits set to rise to £5,940 for cash savings and the overall allowance including stocks and shares due to increase to £11,880 from April, the Nisa will offer an increase of £3,120 when it comes into effect.
Banks and buildings societies cheered the move, with Nationwide hailing it as "much-needed support for ordinary savers".
Halifax said it could "substantially boost the UK's savings culture".
But Moneysavingexpert.com founder Martin Lewis said the benefits of the Nisa would be significantly held back by paltry interest rates available on cash deposits.
He calculated the additional tax gain from the increased limit would work out to just £19 a year more on the best deal in the market, which pays 1.65%, for basic rate taxpayers who invest the full £15,000.
He said: "While it's a good long term gain, dig through the current numbers and the advantage of increasing the cash Isa limit from £5,940 to the new Nisa limit £15,000 isn't as big as many will think.
"This is because you can't ignore the fact that cash Isa rates are at all-time lows."
The new rules mean any combination of stocks and cash can be invested up to the full £15,000 and any money held in a shares Nisa can be transferred into a cash version.
Graham Beale, chief executive of Nationwide, said the Nisa will "reduce confusion on the differing amounts which could be saved in cash and stocks and shares and more importantly give people more flexibility to earn tax-free interest".
He added it would likewise help first time homebuyers to save for deposits through Isas.
The Government also said it will raise the limits for Junior Isas and Child Trust Funds from £3,720 to £4,000 from July 1.
And for the first time, Isa eligibility will be extended to peer-to-peer loans and the Government added it was considering extending the regime to include debt securities offered by crowdfunding platforms, which allows firms to raise finance online by asking large numbers of people to act like Dragons' Den-style investors.
Peer-to-peer lender Zopa said with rates of 5% available, the ability to include returns in an Isa wrapper will be "transformational".
Around 1.5 million low earners are also expected to benefit from the decision to scrap the 10% starting rate of tax, with an average gain of more than £150 a year, according to the Treasury.
Those with a total income of less than £15,500 a year will see the 10% starting rate cut to zero, while the band of savings eligible for the starting rate will be increased to £5,000 from £2,880.
The Budget will also create more Premium Bond millionaires after Mr Osborne announced that, as well as lifting the investment cap for the first time since 2003, it will also double the number of £1 million prizes each month to two, starting with August's draw.
Campaign group Save Our Savers welcomed the Budget announcements, but cautioned that low interest rates mean savers are "still heavily disadvantaged compared to borrowers".
It added: "Despite today's Budget, it remains impossible for savers to stop their cash being eaten away by inflation.
"This will continue as long as the Bank of England persists with its low interest rate policy, believing, against all the evidence, that undermining savings and boosting borrowing will somehow lead to a sustained recovery."