Help to Save: The Government Scheme With a 50% Savings Bonus
The Help to Save scheme is a government initiative that launched in September 2018 to assist low-income earners who claim working tax credit or universal credit to build some savings.
With so many Brits struggling with lost income as a result of the pandemic, there are more eligible candidates who could benefit from the scheme than ever. The first bonuses were paid in September 2020 as over 60,400 recipients completed their first two-year savings term, each receiving an average bonus payment of £378.
In short, the Help to Save scheme pays individuals a 50% bonus on any money they have saved, capped at a maximum of £1,200 over a four-year period. This can help recipients in any number of ways, including saving towards buying a property.
Snapshot of the Help to Save Scheme
Here are the key points to understand about the Help to Save scheme and how it works:
- You can deposit up to £50 in savings per month
- The savings remain easy to access, so that you can withdraw funds anytime
- You will receive your first 50% bonus after the first two years - the maximum you can receive is £600, calculated upon the highest balance recorded during the period
- You will receive your second 50% bonus after four years - this bonus is calculated on the difference between the highest balance in the first two years and the last two years of savings (again with a maximum bonus payable of £600)
To be eligible for the bonus, you must be a UK resident (or serving an overseas posting with the armed forces or as a crown servant) and be:
- A universal credit recipient with an employment income of £617.73 or more during the last monthly assessment period; or
- Eligible for working tax credit and be a recipient of working or child tax credit
To apply for Help to Save, visit the Government's Help to Save website and log in via your Government Gateway account. Alternatively, you can call HMRC on 0300 322 7093.
How does the Help to Save Scheme work?
Now that we've covered the key points, let's dive into it a little deeper.
Help to Save is essentially a savings account specially designed in collaboration with the government to assist low-wage earners in saving more.
It runs very simply. You don't have to save every month, but you can put away anything between £1 and £50 per month when you do. At the end of years two and four, you will receive a 50% bonus payment from the government, with a maximum of £1,200 available.
The great thing about this scheme is that the money remains easily accessible, so you can withdraw funds if you need to.
How are the bonuses paid?
As mentioned, you will receive your first bonus after the first two years. The government deposits this bonus payment into your nominated bank account instead of the savings account itself.
Once you have received this bonus, you can stop saving or continue for another two years, in which case you would be eligible for the second bonus at the end of year four.
How are the bonus payments calculated?
First bonus payment
The first bonus you receive is calculated upon the highest figure that you've held in the account at any point during the first two years. It's important to remember that it isn't based upon the balance at the end of the two-year term, even though that may be the figure used if it's the highest across the term.
For example, let's say you have saved £800, but you need to withdraw £100 before the two years are up. Even though your balance would be £700, you would still receive a bonus payment of 50% on £800, as this was your highest balance during the two years. Your bonus payment in this instance would therefore be £400.
Second bonus payment
The second bonus payment is also deposited into your own bank account but is calculated a little differently. This second bonus amount depends upon the difference between your highest balance in the first two years and the last two years.
More specifically (and in other words) the second bonus payment is calculated upon the amount by which your highest balance in the last two years exceeds your highest balance from the first two years.
For example, let's say that you saved a total of £700 in the first two years, made no withdrawals, and received a bonus of £350.
Then, in year three, you needed to make a withdrawal of $300 to cover some unexpected bills, leaving you with £400. From there, you began saving again and ended the fourth year with a balance of £1000. This scenario would mean that your second bonus would be £150 (£1000 - £700 = £300 x 50%).
How to know if you're eligible
It was originally estimated that approximately 3.5 million people would be eligible for the scheme, although that figure inevitably rose due to the pandemic conditions.
To qualify for the Help to Save scheme, you must be a UK resident (or serving an overseas posting with the armed forces or as a crown servant) and either:
- Be receiving universal credit and have an employment income during the last monthly assessment period of £617.73 or more, OR
- Be entitled to working tax credit and be the recipient of either working or child tax credit
The majority of eligible recipients will be working. That said, in some instances, those not working due to Covid-19 whose partners are still employed could still qualify.
Suppose you and your partner's combined income was above £617.73 in the last monthly assessment period, and you claim universal credit jointly. In that case, you will both be eligible to open up a Help to Save account - even if only one of you is currently working. However, you can't open a joint Help to Save account, as only one account is allocated per eligible applicant.
It's also worth noting that you can still save into the account if your circumstances change and you no longer qualify for universal credit or working tax credit. Eligibility is only accessible upon the initial application of the account.
Will Help to Save affect your benefits?
Not on their own, they won't - if they are the only savings you hold.
However, additional savings into the Help to Save account could push you over the £6,000 universal credit threshold if you have other savings elsewhere. The same would apply to the council tax reduction threshold.
For every additional £250 you hold in savings over and above the £6,000 threshold, you forfeit £4.35 of monthly universal credit and £1 of council tax reduction. Once you hold more than £16,000 in savings, you will no longer be eligible for either benefit.
Those in live-in partnerships need to remember that any savings your partner has counts towards the £6,000 threshold. In this instance, were you both to save the maximum in individual Help to Save accounts over a four-year term, your benefits could reduce, as your combined savings would exceed £6,000.
If you are the recipient of either working or child tax credit, the bonus you are paid via the Help to Save scheme isn't subject to tax. It, therefore, doesn't count towards 'other income,' meaning that your benefits shouldn't change as a result of the bonus in that tax year.
How to open a Help to Save account
If you'd rather be guided along the process by an adviser, then you can simply call the HMRC on 0300 322 7093, and a helpline assistant can walk you through it.
Alternatively, you can visit the government's Help to Save website. You will need to log in to your Government Gateway account. These log-in details will be the same as those you use to access your personal tax credits account. You can also access the application process via the HM Revenue & Customs (HMRC) app.
Applications will be accepted until September 2023. Any accounts opened up to that date can still run for their maximum four-year period.
You can deposit savings into your Help to Save account by bank transfer, debit card, or standing order. You can also make as many deposits as you wish, so long as the total amount paid during the month doesn't exceed £50.
ash withdrawals can only be made via your nominated bank account, although there are no restrictions as to how much or how often you can withdraw funds.
Even if you decide to withdraw your funds and no longer save, it's best to leave the account open. If you close the account, you will not be eligible to receive any bonus payment once the two or four-year term has ended.
Should you prioritise debt repayments over these savings?
This is a common concern regarding Help to Save accounts, as they can encourage those in debt to park their money away instead of reducing their debts. Of course, if your debts are substantial, it's best to focus on paying them down before saving money.
That said, this scheme does provide great flexibility. Not only can you withdraw as needed, but it rewards you based on your highest balance during the term, regardless of what remains in there at the end. This means that you can build up some savings, withdraw them, use the funds to reduce your debts, and still receive the relevant bonus applied to your highest balance before withdrawing.
Thinking of getting on the property ladder?
Whether you are considering using the Help to Save scheme to assist you in buying your first property or moving house, get in touch and see how we can help you! At Portico, we have mortgage and property experts on standby waiting to advise you.
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