The government is keen to encourage those on lower incomes to save money. It’s a good idea because we all need to have a little put by to deal with domestic emergencies or appliance breakdowns. Even if you rent a home and don’t need to worry about building repairs, you will still need to replace or repair things when they break. How long could you manage without the washing machine or the kettle? Ideally, everyone would have a few hundred pounds available all the time for these mini emergencies. It’s sensible money management and means that you can shop around for the best deal when something breaks rather than having to think about finance or getting a high interest loan.
So how is the government encouraging people to save?
The main way is through the Help to Save Scheme. It’s a government backed scheme and they will pay a generous bonus to those who are able to keep their savings intact for a four year period.
Can all low income people join the scheme?
Sadly not and for me this is one of the drawbacks of the scheme. Essentially you need to be working and claiming either Tax Credits or Universal Credit. The trouble is that this excludes anyone on a low income who isn’t working, which will include the sick and the disabled. People without a job still need some modest savings to deal with things that come up and it seems shortsighted not to include them.
The good news is that you only need to be eligible when you join the scheme, so it’s worth joining up even if you are only meet the criteria for a short time.
Will it affect your benefits?
Savings can affect benefit payments, but only if you go over £6000 (if on Universal Credit or claiming Housing Benefit) and there is no issue with Tax Credits.
How much can I save?
£50 a month is the maximum allowed within the scheme. This totals a maximum of £2400 over the course of the 4 year scheme.
How much bonus can I earn?
The maximum is £1200, but to achieve this you will need to pay in the maximum and not touch your money until the end of the 4 years. You will get the first half of your bonus (up to £600) after 2 years and the remaining bonus (again up to £600) after 4 years. You can keep and use the first payment of bonus money without affecting your 4 year bonus.
This method of bonus calculation encourages long term savings, so it would be better to have a separate emergency pot of money. Obviously, that is easier said than done on a low income.
Is it safe?
It can’t really get any safer as it’s backed by the government.
Can I beat that rate of return?
Not easily and not without taking a lot of risks. This is a guaranteed return and it’s a great rate of return.
If you are eligible for the Help to Save Scheme and can save some money, even if it’s much less than £50 a month, it’s well worth considering taking advantage of the scheme.