BBC Moneybox expert warning to some with more than £11,000 in savings accounts
By Google News Category Saving ·
A warning has been issued to anyone with money held in bank or building society accounts following the Bank of England's decision to raise interest rates last week. The Bank of England lifted interest rates for the first time in over three years, cautioning that inflation is on course to climb to approximately 5%.
Policymakers at the central bank announced they were pushing up borrowing costs in an effort to tackle the rising cost-of-living burden facing British households and businesses. The Bank's Governor Andrew Bailey also cautioned that further increases are likely should the Iran war remain unresolved.
Radio 4's Moneybox p rogramme was informed that while this may appear to be welcome news for savers, it could also push them into a tax liability – and in last month's Budget, Chancellor John Healey raised tax rates on savings interest.
Rachel Springall from financial data firm Money Factors, commenting on the Bank of England committee's unanimous decision to raise rates, told Radio 4 listeners: "It's a huge impact and gives us more of an indication of where rates might go.
"I've had a look through a lot of the columnists' opinions on this one and they are expecting another rate rise unfortunately probably by the spring and there are some murmurings about another one later in the summer." "So it's not over yet.
But as the Bank of England estimated, because of the uncertainty over the war, that's the path, and the worry about prolonging inflation, and if we prolong inflation, we could get more interest rate hikes." Presenter Paul Lewis noted that the committee had also indicated it anticipates the inflation rate climbing to 5%, which carries significant implications for savers.
Ms Springall commented: "Next year there's a lot going on for savers. We're getting an increase in savings tax by around 4% across the board. So having higher interest rates can feellike a good thing because you're getting more return. "But higher inflation means your money doesn't go as far and potentially breaching your thresholds for your personal savings allowance.
And when you do that you get taxed so this is why cash ISAs and sotcks and shares ISAs because you can protect your money from that." Mr Lewis enquired about the most competitive savings rates currently available. Ms Springall responded: "So if you're looking for a variable rate you're looking at about 5%. A lot of those deals have bonuses so you're not going to get 5% for a whole year potentially.
If you're looking at fixed you do want over 5% for the top fixed rates but if you're looking at a branch-based account then potwentially look at building societies.
They're offering some of the best branch-based rates at the moment." During his address, Mr Healey referred to a 'further 2%' for savers - with BBC Radio 4's Moneybox programme disclosing that this was in addition to an increase already set out by his predecessor Rachel Reeves.
Basic rate taxpayers (20%) are permitted to earn up to £1,000 in savings interest tax-free each year, higher rate taxpayers (40%) can receive up to £500 in savings interest tax-free annually, while additional rate taxpayers are liable for tax on all savings interest.
This means a basic rate income taxpayer can hold £22,222.22 in savings at a 4.5% interest rate before they become liable for tax on their savings interest. A higher-rate taxpayer, by contrast, needs only £11,111.11 in savings at a 4.5% interest rate before tax on savings interest becomes due From April…
Originally published by Google News Category Saving
