‘Rainy day’ savings scheme for working people on low incomes launched

A new savings scheme to help people on low incomes kick-start a “rainy day” fund and build up their financial resilience has been launched.

The Government initiative, which is available to working people on tax credits and universal credit, rewards savers with an extra 50p for every £1 saved.

Hundreds of thousands of working people are expected to benefit from Help to Save over the lifetime of the UK-wide scheme, although specific targets for take-up have not been set. Around 3.5 million people currently meet the eligibility criteria.

People saving the maximum of £2,400 into the Help to Save scheme over four years would receive a bonus of £1,200.

The money could give people a handy pot for household emergencies such as a broken boiler or savings goals such as a family holiday, for example. For some, it could be an alternative to taking on costly debts.

Help to Save accounts cannot be accessed by going into physical bank branches.

Money put into the accounts is held with Treasury-backed body NS&I.

They are online accounts, with telephone banking for people who cannot access the internet.

To apply, savers can visit www.gov.uk/helptosave or use the HMRC app.

Account holders can put away between £1 and £50 every calendar month and accounts last for four years from the date they are opened.

After two years, when people will have up to £1,200 in their pot, savers receive a 50% bonus on their savings.

Then, if they continue to save, another 50% tax-free bonus is available after four years.

How much is saved and when is up to the account holder and they do not need to pay in every month to get a bonus.

People can still receive bonuses even if they make withdrawals.

The bonus paid after the first two years equates to 50% of the highest balance saved.

After four years, the bonus equates to 50% of the savings paid into the account above the highest balance saved in the first two years. Bonuses are paid into savers’ bank accounts, not their Help to Save account.

Savers using the scheme can close their account at any time – but if they close their account early they will miss their next bonus and will not be able to open another one.

If a saver’s situation changes and they stop receiving working tax credit or universal credit, they can still save and receive any bonus they are entitled to.

The Government is working with housing associations and money advice organisations to raise awareness of the scheme.

A previous an eight-month pilot saw over 45,000 customers deposit a total of over £3 million.

John Glen, Economic Secretary to the Treasury, said: “Savings shouldn’t be a luxury, they are an essential part of planning for the future.

“But for some, putting away even a tenner each month can be a tough habit to get into. Whether you’re saving up to take the family on a much-needed holiday, or to take the next step in life, Help to Save is designed to make saving possible for every hard-working person in this country.”

The scheme was welcomed by StepChange Debt Charity, which said that for its clients, this type of saving may be particularly helpful to help build financial resilience for the future.

Phil Andrew, chief executive of StepChange Debt Charity, said: “98% of our clients have no savings at all at the point they turn to us, and only 1% have £1,000 or more.

“Yet we know that having £1,000 in rainy day savings virtually halves the risk of falling into problem debt, so helping lower income working households to build savings should be an important policy goal.
“We campaigned for Help to Save and it is a good scheme.”

He continued: “It’s vital for the Government to make a real effort to promote the scheme if it is to have the desired result, and for all of us who work with eligible households to support that effort.”