If you're on a low income and struggling to save money, it could be worth checking out the government's new Help to Save scheme.
This new government backed scheme aims to help lower-paid workers get into the habit of putting away small amounts of money each month. In return, savers receive generous bonuses that can be used for any future financial needs.
For people who may feel saving is a luxury they can't afford, it's a great way of preparing for the future.
In this article, we explain how the scheme works, who's eligible and whether an account might be right for you.
What is Help to Save?
Help to Save is a type of savings account set up by the government for working people on working tax credits or Universal Credit.
For every £1 you save, you'll get a bonus of 50p. You can save up to £50 every calendar month for four years, so, if you save the maximum amount of £2,400, your overall bonus would total £1,200.
The bonuses are then paid into your normal bank account.If you're eligible, you have up to five years from September 2018 to apply for an account.
How does the scheme work?
Bonuses are paid at the end of the second and fourth years.
After your first two years, the bonus will be 50% of the highest balance you've saved. After four years, the bonus is 50% of the savings you pay into your account above the highest balance you saved in the first two years.
If your highest balance doesn't increase, you won't earn a final bonus.
Let's say you pay in £25 every month for two years. Your highest balance will be £600 so your first bonus will be £300 (50% of £600). If you save an extra £200 in years three and four, your highest balance will increase to £800 and you'll receive a final bonus of £100 (50% of £200).
You're allowed to withdraw money from your account, but this will make it harder to earn the largest possible bonuses. You can also close your account at any time, but if you do so you'll miss your next bonus – and you're not allowed to reopen your account.
After four years your account will be closed, and the money saved will be transferred into your bank account.
Who is eligible?
You can open a Help to Save account if you’re any of the following:
- receiving Working Tax Credit
- entitled to Working Tax Credit and receiving Child Tax Credit
- claiming Universal Credit and your household earned £604.56 or more from paid work in your last monthly assessment period
If you get payments as a couple, you and your partner can apply for your own Help to Save accounts. You need to apply separately.
Even if your circumstances change and you stop receiving Working Tax Credit or Universal Credit, you can still save into your account and receive bonuses.
Whether or not a Help to Save account is right for you depends on your individual circumstances. If you can afford to save regularly without it affecting your living standards, the account could be a useful way of starting to build up a nest egg. But if you're likely to find it harder to pay your bills and debts, it might not be the wise choice.
You can apply for a Help to Save account by using the HMRC app
For more information about eligibility and how the scheme works, visit the .gov website