The Government is increasingly looking at ways to encourage people to save - either for a rainy day or their pension. For example, opt-out schemes and workplace pensions are now beginning to make a difference to people’s pension pots. They encourage individuals to start saving for their retirement far earlier in their careers. But, the Government also has other initiatives in place that can help those further down the line saving for retirement. Help to Save is one such scheme that may be suitable for those looking for a way to help make up a shortfall in any retirement savings.
What is Help to Save?
Help to Save is a savings account that only certain people who meet specific criteria can open. The interest rate earned on the savings within the account is exceedingly attractive, particularly given how low rates are on traditional savings accounts at banks. With a Help to Save account, holders can earn 50p for every £1 they save over four years. Importantly, those savings are all backed by the Government and therefore secure.
Of course, as ever with money and savings products, the terms and conditions may not make the product suitable for you. When it comes to Help to Save, many cannot even open an account as only those claiming certain benefits are eligible.
However, the underlying premise behind it is pretty basic. If you can open a Help to Save account, you can save between £1 and £50 each calendar month. You are not penalised if you do not save every month, which offers a tremendous amount of flexibility. The maximum amount you can save in any one year is, therefore, £600. However, you can drip feed your savings into your account - as long as it does not exceed £50 in any one month.
The interest, or bonus, earned on the account is paid at the end of the second and fourth years. You earn the bonus of 50p for every £1 you have saved on the highest amount achieved in those two years. So if your account balance was £900 at one point in your first two years, but at the end of the two years, it was only £750, you would earn £450, which is not to be sniffed at. That is a very healthy return in anyone’s book.
Significantly, you are not penalised for making withdrawals either. While withdrawals may impact the amount you earn overall in the four years you hold the account (as you get interest on the highest amount achieved - not the total ever saved), it’s comforting to know your money is not locked away. However, you can only withdraw money from your Help to Save account into your designated current account.
At the end of the four years, your Help to Save account will close. You cannot then reopen it or open another account either. You can also close your account at whatever point you choose before the four years. However, if you do that before the bonus payment dates in the second and fourth years, you will miss out on that payment. Plus, you will never be able to take advantage of a Help to Save account.
So who can take advantage of a Help to Save account? Anyone receiving or entitled to Working Tax Credit and receiving Child Tax Credit can open a Help to Save account. Or, if you are claiming Universal Credit and you (along with a partner in your household) earned over £617.73 in any one monthly assessment period, you can open a Help to Save. That money needs to have been earned from paid work.
You will also need to be living in the UK. There are slight caveats to that, though:
- You can apply for an account as a Crown servant - or you are the spouse of a Crown servant.
- You can apply for an account if you are serving as part of the British armed forces. Again, the spouse of serving military personnel can also apply.
If you are receiving benefits, you need to know how the Help to Save account can affect what and how much you receive from the Government. For example, if your Help to Save account pushes your household savings over £6,000, this could affect how much Universal Credit you receive. Given that the maximum bonus you can receive over the four years is £1,200, you may at some point see your Universal Credit reduced if you have savings elsewhere. However, should the amount be under £6,000, your Universal Credit payment will not be affected. The same is the case with Housing Benefit. However, Working Tax Credit is not affected by any savings or bonuses earned through Help to Save.
How much can you save in Help to Save?
Given how attractive the Help to Save bonus payments are, it could be tempting to save as much into these accounts as possible. But, sadly, there are limits on how much can be put aside within one. Over the four years, you can pay in £2,400. However, as stated, the most you can ever pay into an account each month is £50. And, if you do not pay in the whole £50 one month, the remaining balance does not rollover. That means you can never make a reduced payment in one month and then top it up later. However, if you pay in the full £2,400 over the four years, you receive £1,200 in interest, which acts as a good motivator.
What are the alternatives to Help to Save?
The interest earned on these accounts is, without a doubt, desirable and a significant benefit. But what are the alternatives? Are there other possibilities that offer a better return or more favourable terms and conditions?
Help to Save alternative #1: Savings accounts
Many types of savings accounts could provide an alternative to your savings outside of the Help to Save scheme. The Government protects the majority of them up to the value of £85,000, too. However, if you have savings up to that amount in an account, you are likely not eligible for the Help to Save account in the first place.
Savings accounts do have their plus points in general. They are safe, and there is a broad range of products, meaning there should be at least one where you meet the criteria. Savings accounts can vary according to how much you can save, so they may be more suitable if you think you will want to save more than £2,400.
However, they will not pay anywhere near as much in interest as the Help to Save does. Over the four years, a Help to Save account holder can earn a 23% interest rate. The highest interest rate on savings accounts at the moment is barely above 3%.
Help to Save alternative #2: Pension payments
Making extra payments into your pension pot is another alternative to paying into a Help to Save. Pension payments will bolster your pension pot and mean that you have saved enough to live on come retirement. The earlier you start saving for a pension, the better, as the cumulative nature of interest adds up over decades of saving.
However, much like interest on savings accounts, pension pot returns will rarely be the 23% that Help To Save enjoys. But there is a balance here. Pension payments come out of your salary before tax. So while the interest earned on a Help to Save account is tax-free, the tax savings on your pay going into a pension pot may make the pension payment more appealing to you.
Help to Save alternative #3: Paying off debt
Depending on the interest rate of any debt you have, it may be better to pay that off first before paying into a Help to Save. While the interest rate on Help to Save is exceptionally high, interest rates on debt can be eye-watering. The result is that debt repayments could far exceed anything you can save in a Help To Save anyway. A good rule of thumb is to pay off high interest-bearing debt first before paying into one of the Government’s Help to Save accounts. Over the longer term, you may be financially better off. However, that will depend on the interest rate on your debt and how much you already owe.
Help to Save alternative #4: Investing
Investing in stocks and other financial assets may work better for you than a Help to Save account. And, with the right investment, you could earn a return higher than the 23% maximum within Help to Save. However, there are considerable caveats to that. Firstly, such investments can go down as well as up - you could even stand to lose all your money. Secondly, investments are a more complicated means of making a return. You need to know what you want to invest in and why to time your buys and sells to make a profit. Finally, investing is subject to tax in certain situations, while Help to Save bonus payments are tax-free.
The bottom line to Help to Save
So often, the world of savings and investments is targeted at those with cash spare to save. This Help to Save scheme is excellent as it is aimed at those who struggle to have spare cash every month- yet it encourages people to make small savings between the dates they’re paid and take advantage of a great bonus scheme.
Therefore, it is an attractive option for those needing to fill a hole in their pension fund as they approach retirement. A return of 50p on £1 can make a big difference to those who need to make up a shortfall. And of course, at the end of the four years, that little pot of money can be invested in again to grow even further up until the day you do finally stop working.