While low interest rates have been bad news for savers for some time, there have been significant changes in the way interest earnt on savings has been taxed in the last 12 months, all positive in theory.
Interest is now paid gross thanks to the personal saving allowance, meaning we do not have to use ISAs for tax free saving. ISAs still exist however, with an upgraded annual allowance. The new Lifetime ISA, allows savers to receive a generous government bonus of up to £1,000 every year they deposit £4,000.
The bad news (yes there always seems to be some) is that since the interest rates dropped from 0.5% to 0.25% last year getting any return on your savings is harder than ever – the newly launched Lifetime ISAs have a catch if you need quick access. They are intended to help first time buyers save for a deposit or individuals to save for retirement. Withdrawing the money at any other time will result in the loss of the government bonus and a 5% penalty.
It seems barely a month goes by without a story on interest rates, whether they will go up, down or stay the same. Even this week the Governor of the Bank of England, Mark Carney is keeping his cards close to his chest, saying they could go “in either direction” in 2017. Times are definitely more uncertain than 12 months ago, with Brexit on the horizon it could be the most interesting year for interest rates for a long time. Perhaps there is a light at the end of the tunnel for savers who have been suffering with low interest rates – the sceptic in me says be hesitant – what do you think?
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