This article is to provide customers with some useful savings guidance/information when it comes to savings.
If you’re finding that you’re just not getting rewarded for your good saving habits, and that savings accounts just don’t seem that encouraging anymore, you’re not alone.
Here, we look at what alternatives there are for people who are fed up of seeing little return for saving money.
New ISA stands for Individual Savings Account and is a tax free savings account where you earn interest for your savings which isn’t taxed. You can put up to £15,240 this year into a New ISA but you can only have one New ISA per person per financial year.
As these savings aren’t taxed, your money could grow at a quicker rate than if it was in a normal savings account, which is subject to tax. However, you should compare interest rates against savings accounts to find the best rate.
You can choose to have access to the money you put into your New ISA, or to lock it away for a set period. If you choose to lock your savings away, generally you get a higher rate of interest. However this means that you don’t have access to this money until the term of your New ISA has been completed. If there’s an emergency and you need some money, you may not have access to your account, or forfeit your interest rate if you withdraw your money early.
What’s more, if you decide to move your New ISA and place your money into a savings account, you will have to pay tax on those savings.
Stocks and Shares New ISA
This is an investment account- the savings stored are used to invest in stocks and shares such as government bonds, corporate bonds (where your money is lent to a business for a set time) and shares.
A stocks and shares New ISA enables you to save tax and therefore your savings grow quicker. You can also have access to your money at any time.
There are some tax implications, however.
- You won’t pay capital gains tax on gains made on the New ISA
- There is a 10% tax on dividends (like interest on a savings account) but you only benefit from this if you’re a higher rate taxpayer.
- Finally, you don’t pay any income tax on interest made from corporate bonds in a New ISA.
Premium Bonds are a savings account where the interest paid is determined by a prize draw.
Every pound you put into Premium Bonds is worth one Premium Bond. So, put £500 in and you get 500 bonds which are worth £1. These bonds are then entered into a monthly prize draw where you could win between £25 and £1 million, all tax free.
The more money you put in, the more chances you have of winning. Your savings are entirely safe and you can withdraw them at any time. However, you may go some months without winning anything, so if you’re looking for regular interest, this may not be for you.
Premium Bond sites you may be interested in include:
Believe it or not, some current accounts are offering a much higher interest rate than savings accounts. There are catches, however. For some, you need to already be a customer and for others, the accounts come with a monthly charge of £5. Plus, you have to pay income tax on these savings.
Peer To Peer Lending
Peer to Peer lending is where you lend money to people without using a bank. Borrowers will repay you monthly for the money you’ve lent, the repayments consisting of interest and capital. For savers, it means that as there’s no banks involved, they can get a better saving rate.
This is a relatively new way of saving money and therefore there are risks. Although the industry is FCA regulated, there is no savings safety guarantee so you could lose your savings. What’s more, not only will you get taxed on your savings, but on the interest your savings earn, too. On top of this, you’re responsible for declaring tax for your savings, which ultimately means paperwork.
Alternatively, money.co.uk has the top 10 peer to peer savings accounts here.
Before You Commit
Before you decide to change your savings account, make sure you know the full implications. For example if you move your ISA to a standard savings account, these savings will then be subject to tax.
Ensure you understand what the new account offers and any potential pitfalls. For example, if you decide to invest in Premium Bonds, you may not win any interest for a couple of months or much longer. With Peer to Peer Lending, your savings are not protected like they would be when using a bank.
You could also incur penalties for switching accounts early. Make sure you understand any risks involved before making a decision.