Surprise surprise! Yet another damp squib of a budget for savers, as allowances have remained frozen yet again and some highly anticipated changes to the Lifetime ISA did not materialise.
National Savings & Investments (NS&I)
The biggest news was from NS&I.
Firstly, the Chancellor announced that a new British Savings Bond will be delivered through NS&I, which will be launched in April this year.
What this actually means is that NS&I will be re-issuing its 3-year Guaranteed Income and Guaranteed Growth Bonds offering savers a chance to deposit between £500 and £1million, whilst keeping the lot protected, as all deposits made with NS&I are guaranteed by the Treasury.
The rate has not yet been released but NS&I has already announced that it will be ‘priced mid-market’ so it’s unlikely to be very exciting.
NS&I’s net financing target for the new tax year has also been announced and it’s been increased from the current level of £7.5 billion, to £9 billion.
This target is the amount that the Treasury-backed savings provider has been tasked with raising for the Government. Whilst an increase would normally be good news for savers, as it would ordinarily indicate that NS&I may need to raise savings rates in order to raise more money, the possible fly in the ointment this time is that the forecasted net amount raised for the current tax year is expected to be £10.9 billion – far above the target of £7.5 billion. So, NS&I is already awash with cash, which could mean more cuts rather than any increases any time soon. We’ll have to wait and see.
Allowances frozen
The Personal Savings Allowance (PSA) has remained the same since it was introduced in April 2016 – giving basic rate taxpayers £1,000 of tax-free interest per year and higher rate taxpayers £500. While this appeared pretty generous when it was launched, as savings rates have increased the PSA is being used up with less and less cash on deposit. In April 2016 the top paying easy access account was paying 1.45%, so you would have needed a deposit of £68,966 to breach the £1,000 PSA (assuming you held no other savings accounts). Today, if you were to open the top easy access account paying 5.11%, a deposit of just £19,570 would earn more than £1,000 in gross interest.
This is why cash ISAs have become so important once again – savers can earn tax free interest, regardless of the amount.
Which is why it’s so disappointing that the cash ISA allowance has also remained frozen. The Chancellor announced a new British ISA allowance – so an extra £5,000 can be sheltered from tax, but this is only for those happy to put money into British investments – it’s not an extra allowance for cash savers.
The Junior ISA allowance will also remain at £9,000 and there will be no increase to the Lifetime ISA limit, which is £4,000. Added to that, it’s disappointing that the 25% penalty charge for a withdrawal before the age of 60 for anything other than buying your first home has not been reduced, as was widely expected. And there has been no change to the upper value of the property that can be purchased – it will remain at £450,000.
The 'starting rate' for savings has been frozen again too at £5,000. This allows those earning less than £17,570 from employment or pension, to earn up to £5,000 in savings interest before paying any tax on it. This is in addition to the Personal Savings Allowance.
According to the Budget documents, the freeze in just the starting rate for savings should earn the Treasury £95m by 2029!
While it’s disappointing that Jeremy Hunt has failed to help savers to keep more of the interest they are earning on their savings, this doesn’t mean that you can’t put more pounds in your pockets. There is still good competition in the savings market, so keep an eye on our best buy tables to make sure you are earning as much interest as possible.
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