With sufficient income, putting money into a savings account is a sensible goal for anyone. In the spring of 2023, the government announced that Help to Save accounts would remain available until April 2025. Help to Save provides a leg up to people who might not think saving is worthwhile or even possible.
As we approach retirement age, it can be daunting to think about relying solely on the state pension. Saving more can be challenging, but it could positively impact our quality of life in those later years.
Who might miss out on Help to Save?
You need to receive Working Tax Credit, Child Tax Credit (and be entitled to Working Tax Credit), or Universal Credit to be eligible for a Help to Save account. If you are not receiving these benefits, regardless of your income, you cannot participate in the scheme.
Even if you are eligible now, you will no longer meet the criteria once you can claim the state pension, which as of 2023 you can do from age 66. So it's crucial to consider applying before retirement.
You can only access the scheme if you have a UK bank account and live in the UK. There are slight caveats to that, including:
- You can apply for a Help to Save account as a Crown servant - or if you are the spouse of a Crown servant.
- You can apply if you are serving as part of the British armed forces or you are the spouse of serving military personnel.
If you’re missing out on Help to Save, plenty of other savings options exist.
Who can benefit now from the Help to Save scheme?
A Help to Save account is available if you are working and are entitled to receive one of these in-work benefits:
- Working Tax Credit.
- Child Tax Credit – and entitled to Working Tax Credit.
- Universal Credit (as a couple or individual) with take-home pay of £722.45 or more in the last monthly assessment period.
Are you eligible for Working Tax Credit, Child Tax Credit, or Universal Credit?
Policy in Practice states, '£7.5 billion of Universal Credit goes unclaimed by 1.2 million eligible households’. Quite a large number of people don't even realise that they could be claiming. You can check if you qualify using the gov.uk website.
Even if you can’t open an account right now, it’s useful to be aware of Help to Save in case you fit the eligibility criteria in future.
Once you have opened a Help to Save account, you can keep it for four years even if your financial circumstances change and you stop claiming in-work benefits.
Applying for an account while claiming Working Tax Credit
Child Tax Credit with Working Tax Credit tops up earnings for parents in work. The government began phasing out tax credits in April 2023, and Universal Credit will replace them entirely by the end of 2024. Currently, the government is migrating people to Universal Credit from Working Tax Credit, but this process is gradual and varies according to individual circumstances.
On Universal Credit, as of August 2023, you must earn £722.45 from work in the month before applying for a Help to Save account. Therefore, applying for a Help to Save account might be easier before you get your Universal Credit Migration Notice letter if you earn less than this.
Universal Credit eligibility threshold
If you are claiming Universal Credit, you can apply for a Help to Save account as soon as you have earned over the threshold amount of earnings (£722.45 as of August 2023) in your last monthly assessment period.
The threshold amount of earnings is the same for individuals and couples. If you are in a couple, each of you can open a separate Help to Save account. Joint accounts are not an option within this scheme, as the government have designed it to support individual financial growth and savings goals. This decision ensures people can tailor their savings strategy to their unique circumstances and aspirations.
Universal Credit payments and savings
Remember that any money saved may affect Universal Credit payments (and Housing Benefit) if total savings exceed £6,000.
Contributions into a private pension are disregarded as earnings for Universal Credit, so it's worth considering paying into a pension.
Saving while unemployed
The government recognises the financial challenges that unemployed individuals face, making saving money and covering essential expenses difficult. To ensure people view the Help to Save initiative positively and fairly, they have established the specific eligibility criteria previously stated.
What's so great about Help to Save accounts?
Help to Save account holders are rewarded with generous incentives in the form of two bonuses over four years.
Here is the government's example of a typical Help to Save bonus:
- You pay £25 every calendar month for two years. You do not withdraw any money. Your highest balance will be £600. Your first bonus is £300, 50% of £600.
- In years 3 and 4, you save an extra £200 to grow your highest balance from £600 to £800. Your final bonus is £100, 50% of £200. Even though you withdrew some money after your balance was £800, this does not affect your bonus.
With a cap on monthly deposits and the highest balance you can achieve, saving is manageable but beneficial for anyone receiving Tax Credits or Universal Credit.
Why do some people need more help with savings?
Plenty of disposable income makes putting a little money aside every month easy. However, when we find ourselves only just managing to cover the basics, it’s much harder to be disciplined about saving.
That's why a Help to Save account entitles you to bonus payments matching 50% of the highest amount saved.
Paying off debts first?
For many of us, saving a little every month is a considerable challenge if debts are a problem. It's better to focus on clearing debt with high-interest and priority debts.
Organisations like StepChange can offer advice about dealing with debts and creating a budget.
When to start saving
While a Help to Save bonus can be high, interest rates on debt could be eye-watering. The result is that debt repayments may far exceed anything you can save anyway.
A good rule of thumb is paying off high interest-bearing debt before paying into one of the Government’s Help to Save accounts. Over the longer term, you may be financially better off.
Once you have a Help to Save account, you can't get another later on, so it's important to pick the right time and not close the account early.
How does Help to Save work?
When you open a Help to Save account, you can save between £1 and £50 each calendar month. The maximum amount you can save in any year is, therefore, £600.
You’re not penalised if you don't save every month, and you can drip-feed your savings into your account as long as it does not exceed £50 in any one month. Paying money into a Help to Save account weekly, or as and when possible, might be easier for some people.
How much are bonus payments?
The interest, or bonus, earned on a Help to Save account appears at the end of the second and fourth years. You earn a bonus of ‘50p for every £1 you save’ This is calculated using the highest balance saved in those two years.
Years one and two
If your highest balance was £900 at one point in your first two years, but at the end of the two years, it's only £750, you still earn £450. Not to be sniffed at and a very healthy return in anyone's book.
The maximum bonus you can receive after two years is £600 if you have achieved the highest balance of £1200 by saving £50 per month.
Years three and four
If you continue to build on your savings in the third and fourth years, you will receive a final Help to Save bonus payment. The amount will be 50% of the difference between the highest balance in the first two years and the highest balance achieved during the second two years. For example:
- With savings after two years of £800, the bonus will be £400.
- With savings after four years of £1200, the bonus will be £200.
Therefore you only get a bonus on further savings.
How easy is it to apply for a Help to Save Account?
Opening a Help to Save account is simple but different from getting a regular bank account or savings account. Help to Save is administered by HMRC, and there's only one choice of bank - National Savings and Investments (NS&I). The savings account then links to a nominated bank account.
The process is like applying for government benefits. You will need your National Insurance Number and a Government Gateway User ID. If you don't have a Government Gateway account, you can set one up as part of the application.
Not sure if you're eligible? Begin the application process, and Government Gateway will let you know immediately if you can proceed.
Managing a Help to Save Account
You need a regular bank account to operate and manage your Help to Save account. From this, you can pay money into your Help to Save account with a standing order or debit card and eventually receive the bonus. Help to Save accounts can also be managed online through Government Gateway or the HMRC app.
It takes a few days to withdraw money from Help to Save. Withdrawals are paid into your nominated bank account. Withdrawing money in cash is not an option.
Unless all the money is untouched, achieving the maximum bonus will be much more challenging.
Will Help to Save make a difference to people over 50?
Overall, the maximum bonus money available in Help to Save is £1,200 - on savings of £2,400 over four years. A full commitment to Help to Save could grow £3,600, a useful amount as a lump sum, but it would not provide a life-changing income for more than a year of retirement.
If you have a particular purchase or experience in mind or want to cushion an initial drop in income on retirement, saving on a low income through Help to Save could be handy.