Martin Lewis has issued an alert to people with savings and told people about the ‘£1,000 rule’. Mr Lewis who is a personal finance expert was speaking on his BBC Podcast in an episode which has been released this month.
A listener was asking him about savings and what they should do with it – amid concerns that money could be lost in tax.
The issue of savings tax is one Martin Lewis has returned to many times – and he has emphasised people should be aware that any tax comes on savings interest rather than the lump sum – and he spoke about the risks of this changing.
On the podcast listener Luke asked: “I’m seriously thinking about putting any extra cash under my mattress because I fear it will be taken or taxed if I do anything else. Am I being too cynical?”
Martin replied that he shouldn’t think at all that his actual money is at risk: “I never think anyone is being too cynical but I think we have to temper our cynicism with practicality. I presume you’re not talking about money that you’ve earned and you have to pay income tax on. This is money that you already have.
“If you put money in savings, for example, your savings are not taxed. It is the interest you earn, the extra money that savings generates you that are taxed. So you’re not going to lose money from tax on savings.
“You’ll just lost some of the interest.”
On the issue of tax Mr Lewis said it works exactly the same for if the money is put into investments, for example stocks and shares: “The same is true if you invest it – it’s the capital gains tax – the amount you pay on the profits. You might also pay income tax on the dividends as well.
“But it’s on what you make – it’s not on the amount that you have.” He did not think it was likely that the government was likely to change to people being taxed on their lump sums: “You might be saying are they going to change that? Well I think that would be absolutely radical, virtually unthinkable and probably getting close to riot in the streets territory.”
Martin’s key advice came around the other options for what to do with your money – including ‘putting it under the mattress’ and he said there was a key £1,000 rule which meant it really is a ‘no brainer’. He said: “So I think probably not. Let’s just do a practical comparison. If you put money in a UK regulated savings institute, so pretty much all the bank accounts and everything I ever talk about, then you are protected up to £120,000 per person per financial institution.
“If you put money under your mattress and someone breaks in and steals the money even the best home insurance police only covers you for £1,000 worth of cash. Also you’re having to pay for the insurance policy to cover you for £1,000 of cash.
“Whereas money in a bank or financial institution that is paying you interest you are being paid effectively for putting your money there and you get the protection on top.
“So if we’re just talking really sensibly on a like for like comparison between keeping money under your mattress and putting it in a savings account it is an absolute no brainer – put it in a savings account.”
To listen to the podcast, click here.
