The Help to Save scheme will provide people on low incomes a new savings option. The tax-free Government account allows people entitled to Working/Child Tax Credit or the equivalent Universal Credit an online savings account that will be topped up with bonuses every 2 years.
The account allows a maximum deposit of £50 per month and can remain open for up to 4 years - with bonuses paid at the end of year 2 and year 4.
For example, someone taking full advantage of the account from October 2018 would deposit £50 a month. By October 2020 they would have a balance of £1,200. The government will top up the account with a 50 percent bonus based on the highest balance they achieved, in this case 50 percent of £1,200 means the account balance would be topped up to £1,800. The same person can continue to save for another 2 years so continues saving £50 and therefore receives another £600 bonus in October 2022. Overall they would have deposited £2,400 over 4 years and received total top-ups of £1,200. So upon closing, the savings balance would be £3,600.
Interest/bonuses received from the account are equivalent to 50 percent per year, although not compounded. The bonus is tax-free although deposits made by savers will be from post-tax income.
You can find the pre-tax cost of any expenditure using our Pre-tax Cost Calculator - for example someone earning £17,000 per year who already has expenditure of £1,000 per month and then uses part of their income for Help to Save at £50 per month would be using £73 of gross income to receive £50 after tax. You can see this example and try your own by clicking here.
The account has a few caveats: