Martin Lewis has urged savers to check over their accounts (Image: ITV)
Martin Lewis has issued a call to action for savers as they could be missing out on an income boost. He said it’s especially important to check if you are on certain DWP benefits.
The consumer advocate shared the advice after a question on his BBC podcast from a couple about when they would have to pay tax on their savings. The married couple, who were in their 50s, said their only income was through the Employment and Support Allowance Support (ESA) Group and from Carer’s Allowance.
They explained that they also have £150,000 in savings, and were earning £2,300 in interest each year. They wanted to know if they would have to pay tax on their savings.
In response, Mr Lewis said that he thought they were potentially asking the “wrong question” here, given their interest earnings. He said of their £2,300 earnings: “That’s just not enough interest. There are lots of savings accounts paying you over four per cent, some at 4.5 per cent.”
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Mr Lewis said it’s especially important for the couple to act given their personal situation. He said: “I suspect life is quite difficult, because I know that Employment and Support Allowance is a benefit for people who have a disability or health condition that limits your ability to work. So it’s really important that you make those savings work as best as they possibly can for you.”
£2,700 savings boost
He said they could potentially be earning nearly £5,000 in interest if they moved their cash into an account with a more competitive rate. This would mean an extra £2,700 compared to their current £2,300 earnings.
If you had £150,000 in savings earning 4 per cent, you would earn £6,000 of interest over the year. At 4.5 per cent, you would earn £6,750 in interest annually.
Mr Lewis urged the couple: “The most important start point is you that you should be in savings accounts that pay more.” Mr Lewis said one option to shield their savings from paying tax while getting a better rate would be to put them into an ISA.
Each person can currently deposit up to £20,000 a year each into ISAs, and this can be divided between cash ISAs and stocks and shares ISAs, as you decide.
He said that beyond this, they could put their funds into a competitive easy access account, where you can currently get rates up to 4.5 per cent. Mr Lewis said it’s worth checking the savings market as there are “loads more” accounts paying over 4 per cent.
Tax allowances
On the tax question, he said that given they were on ESA and Carer’s Allowance, they would likely be on an income of around £220 to £230 a week, the same as around £11,440 a year or £11,960 a year.
This means they would each be below the personal allowance, which allows an individual to earn up to £12,570 a year without paying income tax, including their savings interest earnings. However, Mr Lewis pointed out there is an extra allowance on top to be aware of.
Each person also gets a starting rate for savings, an extra £5,000 allowance on top of your personal allowance for your interest earnings. This is reduced by £1 for each £1 of income you have above the personal allowance, meaning you get no starter rate once your income reaches £17,570 a year.
Separate from this, a basic rate taxpayer can also earn up to £1,000 in interest tax-free each financial year.