Just because you are on a low income, doesn’t mean you can’t save money. In fact, if you are claiming benefits then you could save with what is the best savings account available today: the government Help to Save scheme.
Yes, I know what you’re thinking ─ “When has the government ever done us any favours?” But there is no catch with this savings scheme. It really does what it says on the tin, with no catches. For every pound you save over four years, the government will give you 50p.
I often warn people if something sounds too good to be true, it probably is. This is the exception that proves the rule. Here’s all you need to know about this incredible savings opportunity for low-income earners.
The government’s Help to Save scheme is the best savings account available today.
It could be perfect for you if you are a low-income earner and claiming certain benefits, to help you develop a savings habit and build a cash fund.
You could earn bonuses of 50%, paid on highest balances over the course of one to two years and three to four years.
What Is the Help to Save Scheme?
The government has finally woken up to the fact that life is easier if you have a few quid in the bank.
The Help to Save scheme is its attempt to encourage low-income people and families to start saving, develop a savings habit, and build an emergency cash fund.
How Does the Help to Save Scheme Work?
Unlike traditional savings accounts, the Help to Save scheme doesn’t pay any interest. It’s a four-year savings plan that pays a 50% bonus on what you have saved at the end of two years and four years.
How much you get is calculated as follows:
- 50% of the highest balance saved in your Help to Save account during the first two years
- 50% of the difference between highest balance saved in your account in the last two years and the first two years
The bonuses are paid into your bank account.
The scheme is managed by HM Revenue & Customs (HMRC), and you can access your account through the government app. The account is maintained by National Savings and Investments (NS&I).
How Much Can I Save, and How Much Could I Get?
You can deposit a maximum of £50 each calendar month ─ a maximum of £600 per year, or £2,400 over the four years if you don’t make any withdrawals.
If you do this, you’ll receive a bonus of £600 paid into your bank account at the end of the first two years, and then a second bonus of £600 at the end of the fourth year.
What If I Need to Withdraw Money – How Does It Affect My Bonus?
The account is fully accessible, so you can withdraw money at any time. But – and here’s one of the fantastic features of this account – the bonus you’ll receive is not paid on the balance in your account at the end of each two-year saving period. It’s paid on the highest balance you saved during the period.
So, to get your bonus in the fourth year, the highest balance must be higher than the highest balance in your account in the first two years. Here’s an example:
- Let’s say you save £50 per month for the first 12 months. That’s £600.
- Then you save £50 per month for another 6 months. Your balance has grown to £900.
- You then need to withdraw £500. Your balance falls to £400.
- You deposit nothing for the next 6 months, but keep the account open.
You receive a bonus of £450 (50% of your highest balance of £900) paid into your nominated bank account.
- You resume deposits of £50 at the beginning of year 3.
- After 18 months, your balance has built up to £1,350.
- You then withdraw £250, to leave a balance of £1,100.
- Through to the end of the fourth year you make no further payments into your Help to Save account.
You receive a final bonus of £225 (50% of the difference between the highest balance in the first two years ─ £900 ─ and the highest balance in the second two years ─ £1,350) plus the remaining balance of £1,100.
Your total bonus is £625, on total deposits of £1,800. This is equivalent to 35% of all your deposits, instead of the 50% you would have received if you had made no withdrawals.
Bonuses Are Tax Free!
This scheme just keeps getting better. Your bonus doesn’t count toward your taxable income. That’s right, it’s completely tax free!
Am I Eligible?
A possible 50% on £2,400 cash savings over four years, backed by the government. What isn’t there to like about this scheme?
All savvy savers will want to get in on this, but you can only do so if you are resident in the UK and over 18, and receiving any of the following benefits:
- Working Tax Credit
- Child Tax Credit and you are entitled to Working Tax Credit
- Universal Credit and you (and your partner, if you are claiming jointly) had net pay of £722.45 or more in your last monthly assessment (April 2023 tax rules)
If you open a Help to Save account and then no longer qualify for the above benefits, you can still save into it and receive the bonuses!
Will My Benefits Be Affected?
More good news!
Because the bonuses you receive won’t count towards your income, your benefits won’t be affected.
However, what you have saved in your account will count towards your total savings. If this total is above £6,000 then your entitlement to benefits may be affected.
How Do I Apply for a Help to Save Account?
It’s easy to open a Help to Save account. All you need to do is:
- Sign into your Government Gateway account or use the HMRC app if you have it.
- If you don’t have access to a computer, you can open an account by phone.
- Supply a few personal details, including your National Insurance number and nominated bank account.
- Pay into your account by standing order, debit card, or bank transfer (Bonus tip: set up a standing order to leave your bank on the day you get paid – always pay yourself first!).
- You can make as many deposits as you like in any one calendar month, providing you don’t pay in more than £50.
- You’ll receive a welcome pack with your Help to Save account number and sort code.
You can’t open a joint Help to Save account. But you can open two single accounts if you and your partner meet the eligibility requirements. Over four years, you could deposit £4,800 between you and get £2,400 in bonuses. What a nice little earner!
If you’re not sure about your eligibility, don’t worry. When you apply, your eligibility is automatically checked.
When Should I Apply?
If you don’t have a Help to Save account and you qualify for one and can afford to save, apply now so that you don’t miss out. If you don’t currently qualify but do become eligible, you should also apply.
All good things come to an end, and at this time the government has said that Help to Save accounts can only be opened until April 2025. In short, if you don’t use it, you’ll lose it.
Should I Close My Help to Save Account Early?
No! If you close your account before a bonus is paid, you’ll lose the bonus. Plus, and this is a big one, you can only open one Help to Save account. If you close an account or it expires, you cannot open a second.
Can I Afford to Open a Help to Save Account?
Okay, you might be very enthusiastic about opening a Help to Save account at this point. But you have a nagging worry. Can you afford to save?
Saving is a mindset. Budgeting to pay yourself (put savings aside) first is crucial. Experience has taught me that even the smallest changes to spending habits can make a significant difference.
I used to buy my lunch from a sandwich shop and treat myself to a barista-made coffee every day. When I switched to taking a packed lunch to work and a jar of coffee, I was stunned at the amount I saved each month.
Today, a simple change like this to your daily routine could save you more than £100 per month, easily. But why stop there? We’ve published three articles that could help you save hundreds, if not thousands of pounds every year:
- How to save Money: Discover tips to reduce your spending
- Cheapest Supermarket in the UK: Where should you be shopping?
- Budget Planning: Learn to budget like a pro to pay yourself first
Shouldn’t I Pay Off My Debts First?
Normally, I would say that you should pay off your debts before salting money away. However, if you deposit £50 per month in a Help to Save scheme for four years, you’ll receive £1,200 in bonuses. That’s equivalent to 19% annual interest on a regular savings account.
You could use your bonuses to pay down debt, though it is a balancing act that you’ll need to consider. If you have a financial emergency, you can use some of the money you have deposited instead of borrowing, and still get a bonus on the highest balance.
The choice is yours. If you can be disciplined with your spending and your debt is cheap to maintain, then a Help to Save scheme makes sense. If you would feel happier paying off your debt, then that’s the right thing to do.
What Are My Options at the End of Four Years?
After four years, you could have £3,600 in your pocket to do with what you wish. If you are a couple each with a Help to Save account, you could have £7,200. (This assumes, of course, that you have saved your bonuses and not spent them.)
That kind of cash saving is liberating, and opens a world of opportunity for you. What would you do with this?
- Fritter it away on a once-in-a-lifetime holiday and go straight back to square one?
- Open ISAs with Moneybox or robo-advisor Wealthify, and benefit from tax-free income and capital gains?
- Invest in a Lifetime ISA and get a 20% bonus as you save toward your first home?
Challenging choices to make. But what a good challenge to have. All thanks to opening a Help to Save account and keeping the discipline to save.
What If I’m Not Eligible for a Help to Save Account?
Shucks, you’re not eligible. But this doesn’t mean you should give up. Your road to wealth and becoming a millionaire starts with saving, and, with interest rates on the rise, the environment for savers is the best it has been for years, if not decades.
Read our top savings accounts article to discover which accounts are paying premium interest rates, and to learn how to decide which type of savings account is best for you.
The Bottom Line
If you are 18 or older, a UK resident, and claiming certain benefits, you can open a Help to Save account:
- You can deposit up to £50 per month, and make withdrawals should you need to.
- You don’t receive interest on the money you have saved in your account, but you will receive bonuses of 50% on your highest eligible balances at the end of year two and year four. These will be paid into your nominated bank account.
- The bonuses you receive aren’t treated as income, so won’t affect your benefits. However, if the total of all your savings including in your Help to Save scheme exceed £6,000, your benefits claim may be affected.
Finally, whether you can apply for a Help to Save account or not, don’t delay your first step on the path to wealth. Open your Help to Save account or traditional savings account today.
Where to Find More Information About Help to Save
For more information about the Help to Save scheme, visit the ‘Get help with savings if you’re on a low income’ on the GOV.UK website.