We have a huge mortgage, three costly children and 101 other monthly expenses. Despite this, I do like to save whenever I can. However, it’s been pretty dire for savers for the last few years with historically low interest rates. There is some good news on the horizon for savers though with the introduction of the Personal Savings Allowance.
Personal Savings Allowance
From April 6th 2016, basic rate taxpayers (those with taxable income of between £17,000 and £43,000 a year) will be able to earn up to £1,000 in savings income tax free. Savings income means interest from banks and building society accounts, credit unions and National Savings and Investments. This is called the Personal Savings Allowance (PSA). Those earning between £43,001 and £150,000 will still have a Personal Savings Allowance of £500 per year.
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ISAs and Savings Accounts
ISAs (Individual Savings Accounts) are tax-efficient savings vehicles. The allowance for the 2015/2016 tax year is £15,240 and this total can be invested in a cash ISA, Investment ISA or a combo of the two. This means you can invest up to this amount without paying a penny of tax on your interest. Great right? Well kind of. The best rate on an easy access cash ISA at the moment is 1.45%. That’s pretty rubbish.
I have a cash ISA but was so disappointed by the plummeting interest rate that I looked for something else. I found the Santander 1-2-3 account to be brilliant. It’s not actually a savings account, it’s a current account (so money is not locked in), but it pays 3% on balances over £3000 (just the sort of sum you might have earmarked for an ISA). There’s a £5 monthly account fee, but this can be offset by the cash back that the account gives you on many household bills. I really love it and it’s doing a lot more than my ISA. However, I, like other basic rate tax payers, am currently paying 20p in every pound on any interest I make.
Children and Saving
I’m trying to get my children into the saving habit. We’re currently doing the 365-day penny challenge, which you can read all about on my blog for Habyts.
Further information can be found at GOV.UK