Save-as-you-earn Schemes

The government sponsors two special schemes for regular savers which give a return to an investor which might be higher than a commercial organisation could afford, depending on changes in interest rates in the market over the next five years and the rate of inflation over the same period.

SAYE (2nd issue)

This scheme is operated through building societies and the National Savings Bank. You have to enter into a commitment to save from £1 to £20 (the maximum) a month for five years. You receive no payments of interest, but at the end of five years a bonus is added to your investment free of tax. The bonus is equivalent to an annual compound rate of 11.86% to a basic-rate taxpayer.

Your contributions cease at the end of five years, but if you then leave the investment intact for a further two years a second bonus is added, again free of tax. Over the seven years the bonuses are equivalent to a compound interest rate of 12.31% a year gross to a basic-rate taxpayer. If interest rates in the money market were to fall significantly in the near future this could prove to be a worthwhile investment since the return is guaranteed for the whole period.

If you fail to keep your savings commitment during the first year you get neither bonus nor interest, but you get your contributions back. If you drop out after one year but before five years you get no bonus but are paid interest on your contributions at the rate of 6% tax free.

National Savings Certificates

National Savings Certificates, which can be bought or repaid over the counter of any bank or post office, are a very different animal from other forms of cash deposit investments, for they do not earn interest at all. Instead, their repayment value increases year by year, at an escalating rate, and (most important) their increase in value is entirely tax free to everybody.

Comparing the yield on National Savings Certificates from that on other money deposits is a tricky business, for the rate of growth in value starts quite low and builds up to the maximum in the fifth year. The table below... see: National Savings Certificates

Personal And Business Finance 2018

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