Taking an interest in interest rates
Savings account interest rates have started to creep up with banks finally offering some return on cash held with them. Bank interest is paid gross, but it is taxable if the amount you earn exceeds certain limits.
Now may be a good time to review your savings and see if they can be made to work harder for you.
What do I need to look for?
Basic Rate and non-tax payers can earn up to £1,000 of interest tax-free using their personal savings allowance. This can potentially be more if they have unused personal allowance and/or are able to make use of the starting rate band for savings.
For higher rate taxpayers, the tax-free allowance is £500. Additional rate taxpayers receive no personal savings allowance.
Only the first £85,000 of cash held with a UK bank (or banks sharing one banking licence) is protected under the Financial Services Compensation Scheme. The difference between the best and worst interest rates can be large. Banks have not traditionally rewarded customer loyalty.
How could this affect me?
Whilst it is convenient to have a current account with a high street bank, larger sums held in longer-term savings may provide a greater return if you shop around for a better interest rate.
Along with potentially poor investment returns, a banking group that holds more than £85,000 cash for an individual cannot offer full protection in the (unlikely) event of the bank becoming insolvent.
Tax due may be reduced if assets can be held in ISAs or other tax-efficient wrappers. Where the rate of interest is lower than the rate of inflation, the future spending power of your savings will reduce.Read more in our Interest Rates on Savings Fact Sheet
What can I do about it?
Our in-house Financial Advisers can give advice on investments and cash management services that take all of the work out of shopping around for better interest rates.
An initial meeting with an adviser can be arranged at no cost to you, where a range of topics can be discussed and your questions answered.