The Government has announced a new Help to Save scheme aimed at encouraging those on low incomes to build a savings pot, following research which found that almost half of UK adults have less than £500 set aside for emergencies. But just what is the scheme, and how will it work? We take a closer look…
The Government scheme is designed to kick-start the savings habit, with the key being the bonus of up to £1,200. In a nutshell, anyone who is in work and in receipt of Universal Credit or Working Tax Credits – which means that up to 3.5 million people could be eligible – will be able to save up to £50 a month and receive a 50% bonus after two years, worth up to £600.
After that, the process is repeated: those who choose to continue saving under the scheme for another two years will receive another Government top up of £600. Essentially, this means that if all eligible workers saved the full amount each month and kept it invested for four years, they'd have a savings pot of £3,600 – with £1,200 of that coming from the Government.
Prime Minister David Cameron said that the scheme was all part of the plan to give "hard-working people the extra support they need to fulfil their potential", by "helping someone start a savings fund to get them through difficult times". Chancellor George Osborne added that the scheme will mean that "millions of low income savers across the country could now receive a Government bonus of up to £1,200 to help them build up their savings", with the Government being "determined to improve the life chances of the poorest in our society".
Precise details of how the scheme will work are set to be announced at the 2016 Budget on Wednesday with a consultation process to begin thereafter, but it's currently expected that the savings accounts will be available from April 2018. They'll come with no withdrawal restrictions, which means savers can access their cash whenever they need, and it's hoped that the promise of a Government boost will encourage would-be savers to get serious and start building an emergency fund.
However, while the premise sounds promising, critics have argued that all may not be as positive as it first appears: the cuts already made to the welfare system, together with the prospect of further cuts in the Budget announcement, mean that those on low incomes have difficulty even making ends meet, they argue, let alone having enough left over to save.
However, it's hoped that it'll at least be a good starting point. The incentive to squirrel away money – or the chance to receive up to £1,200 from the Government – could well encourage those who do have a few extra pounds at the end of the month to save rather than spend them, and while that probably won't be everyone who's eligible, even getting a few more people to have a financial buffer has got to be beneficial.
In the meantime, whether you'd be eligible for the scheme or not, why not start getting into the savings habit? Even saving small amounts could make all the difference, and over time it could build into a useful savings pot that could be invaluable should an emergency arise. Start by checking out the top easy access accounts, or if you're committed to your goals and are confident you can get fully immersed in the savings habit, see if a regular savings account could be suitable.
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