Low interest rates have been a fact of life for a number of years now and anyone who is trying to save for the future will find their money isn’t making them a fortune. But how can you make your money work well when interest rates are low? And are there any benefits to those low interest rates?
Tax and savings
Due to low interest rates, tax doesn’t have to be taxing! Quite simply, the less money you make in interest, the less you will have to pay on that money. Currently, if you have a taxable income of less than £17,000, you won’t pay any tax on savings from interest and those with an income up to £43,000 a year can have a £1000 tax free Personal Savings Allowance. This means they can save up to £1000 each year without paying any tax on it. There is an allowance for those earning up to £150,000 but this just £500 a year. there is also a tax-free ISA allowance which for 2016-17 is up to £15,240.
If you are over £1000 and face paying tax on your interest or other savings, then getting good advice/assistance will help simplify your tax returns. Tax is always a complicated process and if you have a large amount of savings, say from an inheritance or from an investment you have made, then an accountant can help you with the tax implications of your investments. No-one wants to have to lose a big chunk of savings to the tax man but it is better to pay what is owed that face a worse encounter!
Should you still save?
For some, there seems to be little point in saving when the interest rates are so low. Effectively, you receive almost nothing in interest. But there is more to savings than just accumulating interest. By having savings, you are in a better position to make a change in your life, be it personal or business.
If you are self-employed or have your own business, those savings could help you expand your business, add a new product line or a new property. Even the experience you gain could help make your kids more entrepreneurial too when they realise that being careful and clever with money can have such benefits.
Shop around for products as even though rates are low, there are still variations out there and it is possible to get a better deal for your savings with a little work. Don’t forget that some current accounts also offer interest on money paid into the account so consider these when looking at options to deposit your money.
Don’t forget a good accountant is always useful to help you understand the implications of your savings, tax that it due and other issues. It is often better to invest a little money in accountant’s fees than to pay a big fine to HMRC for not declaring something or declaring something else too much – it does happen to people every day!