Want to save money? The government has set up a ‘Help to Save Scheme’ to encourage people to save your money better. In this article, Quick Loans Express explains everything you need to know about the government Help to Save initiative.
What is the Goal of the Government’s Help to Save?
Help to Save is a government-backed scheme whose aim is to encourage low-earners to put some money by every month. It was launched partly as a result of 2015-16 research into Britons’ saving habits. This found that almost half of UK adults had less than £500 put by in case of an emergency.
The scheme was designed to give people an incentive to save money but not for their long-term saving goals. Instead, it’s intended to make sure that people have a ‘rainy day’ fund in case of an emergency or unexpected expenses. With this emergency fund in place, low-paid workers are less likely to need expensive short-term credit facilities like payday loans from direct lenders or logbook loans.
This article also explains the scheme in detail: how it works, who is eligible and the reasons behind the scheme. We also offer advice for those who aren’t entitled to enrol in Help to Save.
How Will Help to Save Work?
Once workers have opened an account, they’ll be expected to make monthly contributions of £1 – £50 a month for at least 2 years. Once this term is up, they’ll be given a choice to sign up for another 2 years.
In return, the government has guaranteed that they’ll earn a 50% bonus on their contributions. This bonus payment will be completely tax-free. For someone who saves for the entire 4-year period of the scheme, it’s possible for them to earn up to £1,200 as a bonus.
The money in the account is easily accessible, and there are no restrictions on account-holders taking out their savings early. However, your bonus is calculated on the most you have ever had in your account.
Let’s say you save £600 during the first 2 years, but then you withdraw some money. At the end of the first 2 years, you have £350 left in your help to save account. You will receive a bonus, on the highest amount your account ever had which is £600 (a £300 bonus,) you once accumulated.
If you withdraw early you will lose out on boosting your savings and gaining the highest bonus possible. The bonus is paid into your bank account and not your help to save account.
Who’s Eligible for the Help to Save Scheme?
The government estimate that 3.5 million Britons will be eligible to take part in the Help to Save scheme if they wish.
The criteria are that applicants must be recipients of:
- Working tax credits
- Eligible for working tax credits and receiving child tax credits
- Claiming universal credit and working earning £569.22 a month and more
If you receive your payments as a couple, you can apply for an account seperately. If you stop claiming benefits, you are entitled to continue with the scheme. As a rule, your benefits will not be affected by these savings unless you have more than £6000 in savings.
You also must be living in the UK with the exception of:
- Crown servants, and their spouses or civil partner.
- Armed force members and their spouses or civil partner.
How to Apply for Your Help to Save Account
To apply for your Help to Save account, click here. You need to set up a Goverment Gateway ID and login and you will also need to provide your current bank account details on applying.
Criticisms of the Help to Save Scheme
Apart from criticisms over the delay in its roll-out, there have been worries that it would encourage people to opt out of auto-enrolment pension schemes. When living hand-to-mouth, often the more immediate gains are more attractive than long-term financial planning. This may result in people turning to online short term loans later on in life.
Others (including the StepChange Debt Charity) have criticised the length of the commitment to the scheme. They believe that 2 years is too long to wait for the ‘reward’ in the form of a bonus.
Also, there is the worry about whether some low-earners will be able to manage a £50 deposit every month. With wage/state benefit freezes and caps plus higher inflation, some critics wonder whether participants could even afford to save this relatively small sum.
What to Do If You Aren’t Eligible for the Help to Save Scheme
Even if you aren’t eligible for Help to Save, you should find out about other government-backed schemes such as Lifetime or Junior Isa. Both can give you an incentive to save. As can some Credit Union saving schemes.
Not being eligible for this scheme is no excuse not to get into the habit of putting a little money by every month as soon as you receive your pay. Put a budget in place and aim to save the equivalent of 3-6 months of your expenses gradually. This ‘rainy day’ fund will help you when you desperately need cash. You’ll be able to avoid the interest rates and fees from a payday loan lender.
Start Saving Today!
We should welcome any scheme which encourages Britons to change their spending and saving habits. It’s quite possible that because of this scheme, people will get used to saving that they’ll continue long after it ends.
Financial planning can result in significant savings in the long-term and avoid the use of quick loans online in times of emergencies. What are you waiting for? Start saving today!