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£1,000 Personal Savings Allowance Negated by NS&I

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So, following the trumpeting of his new Personal Savings Allowance, you naively thought Osborne was giving you the opportunity to retain more of the miserly interest your UK savings earn in 2016-17? Well, if you save with NS&I (an executive agency of the Chancellor of the Exchequer) you can forget it, because by applying their usual, cynical 'give with one hand, take back with the other' scam that UK governments are so fond of, NS&I have already clawed back the 20% tax saving, or more!

From 6 June 2016, NS&I have reduced their interest rates. This reduction in interest rates completely negates the 20% tax saving for basic rate taxpayers on their first £1,000 of interest.
NS&I Direct ISA - currently 1.25% tax-free/AER - reducing to 1.00% tax-free/AER (interest rate reduced by 20%)

NS&I Direct Saver - currently 1.10% gross/AER - reducing to 0.80% gross/AER (interest rate reduced by 27.3%)

NS&I Income Bonds - currently 1.25% gross - reducing to 1.00% gross/AER (interest rate reduced by 20%)
If you're lucky enough to have £80,000 invested in an NS&I Income Bond, at the present interest rate of 1.25% you would receive interest of £1,000 p.a., which would be completely tax-free for basic rate taxpayers under the new Personal Savings Allowance scheme. However, at the new (reduced) interest rate of 1.0%, that same £80,000 will result in an interest payment of only £800, which is 20% less (I've ignored the minor concession that the NS&I May interest payment for 2016-17 will still be at the present rate of 1.25%).

Basically, Osborne puffs up his chest and announces his great new incentive of allowing savers to keep more of their meagre interest, and NS&I promptly ensure that savers will be no better off by paying at least 20% less interest. Isn't that always the UK way?

Stand by for money-grubbing banks and building societies to follow suit.
_____
Razoo
«13

Comments

  • Krash420
    Krash420 Posts: 151 Forumite
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    Rates have been going down consistently for the past couple of years. It's not due to this "change" that the rates have lowered, its lowered because the BoE base rate has been soo low for soo long that banks no longer need our money in the same way that they did before.

    For example mortgage interest rates have lowered substantially some to below 2% - they make very little profit if they're giving loans of less than 2% and paying interest of 1.25%. The margins are very squeezed and that's not taking into consideration the other costs of a business.

    The expectations of interest rates at the moment are very low which has led to very low mortgage rates which have driven interest in accounts to also be lowered. As soon as the base rate starts jumping up, expect interest rates to follow suite after a few months.

    The simple fact is if the rates are lowered to a level you're not happy with - move to another which gives better rates.

    The rate of 1.25% for the ISA isn't good as it is, you can do much better than that in the current market (I believe 1.6% is available in Bank of Punjab should you live near one), and that's not taxed so if they were "reducing" it because of the new allowances they wouldn't change ISA's because ISA's aren't taxed in that way anyway.

    Also just to iterate - this change makes no difference for banks. They previously gave 1.25% gross 20% of which to the tax man, and 80% to you. Now they just give 100% to you. For them it doesn't make any difference and they're not trying to short change us thinking 'oh now that they pay less tax we can get away with reducing rates'.

    I can understand your frustration, I've seen my ISA rates dwindle till it's almost as much as my savings account rate, but this change does mean that I can save a fair amount of money on my Santander 1-2-3 account which is not reducing the interest rates available. You can easily save around £590 in interest for a single account if you have £20k invested. If you're part of a couple, open a joint one as well and you'll already be above the £1000 savings limit on only £40k.

    And that's the lazy example of only having two banks. Opening more and using the 4%/5% accounts you can get a lot more!
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    Razoo wrote: »
    So, following the trumpeting of his new Personal Savings Allowance, you naively thought Osborne was giving you the opportunity to retain more of the miserly interest your UK savings earn in 2016-17? Well, if you save with NS&I (an executive agency of the Chancellor of the Exchequer) you can forget it, because by applying their usual, cynical 'give with one hand, take back with the other' scam that UK governments are so fond of, NS&I have already clawed back the 20% tax saving, or more!

    From 6 June 2016, NS&I have reduced their interest rates. This reduction in interest rates completely negates the 20% tax saving for basic rate taxpayers on their first £1,000 of interest.
    NS&I Direct ISA - currently 1.25% tax-free/AER - reducing to 1.00% tax-free/AER (interest rate reduced by 20%)

    NS&I Direct Saver - currently 1.10% gross/AER - reducing to 0.80% gross/AER (interest rate reduced by 27.3%)

    NS&I Income Bonds - currently 1.25% gross - reducing to 1.00% gross/AER (interest rate reduced by 20%)
    If you're lucky enough to have £80,000 invested in an NS&I Income Bond, at the present interest rate of 1.25% you would receive interest of £1,000 p.a., which would be completely tax-free for basic rate taxpayers under the new Personal Savings Allowance scheme. However, at the new (reduced) interest rate of 1.0%, that same £80,000 will result in an interest payment of only £800, which is 20% less (I've ignored the minor concession that the NS&I May interest payment for 2016-17 will still be at the present rate of 1.25%).

    Basically, Osborne puffs up his chest and announces his great new incentive of allowing savers to keep more of their meagre interest, and NS&I promptly ensure that savers will be no better off by paying at least 20% less interest. Isn't that always the UK way?

    Stand by for money-grubbing banks and building societies to follow suit.
    _____
    Razoo

    Hysterical rubbish. Why don't you grow up?
    Free the dunston one next time too.
  • vmp
    vmp Posts: 37 Forumite
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    This could be an excellent article for the Guardian :D
  • Archi_Bald
    Archi_Bald Posts: 9,681 Forumite
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    vmp wrote: »
    This could be an excellent article for the Guardian :D
    Or The Morning Star.
  • Razoo
    Razoo Posts: 126 Forumite
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    kidmugsy wrote: »
    Hysterical rubbish. Why don't you grow up?

    Thank you for your intelligent and reasoned response. It's always a pleasure to converse with someone who has an IQ lower than their shoe size.
    _____
    Razoo
  • Razoo
    Razoo Posts: 126 Forumite
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    Krash420 wrote: »
    Rates have been going down consistently for the past couple of years.

    They certainly have!
    It's not due to this "change" that the rates have lowered, its lowered because the BoE base rate has been soo low for soo long that banks no longer need our money in the same way that they did before.
    So NS&I (an executive agency of the Chancellor of the Exchequer) reducing their interest rates in such a timely manner to effectively recover the 20% the government would have otherwise have lost due to the new Personal Savings Allowance is pure coincidence? I really should buy myself some rose-tinted glasses :)
    The expectations of interest rates at the moment are very low which has led to very low mortgage rates which have driven interest in accounts to also be lowered. As soon as the base rate starts jumping up, expect interest rates to follow suite after a few months.
    Or longer! The "base rate jumping up" seems to be a distant dream for savers.
    The simple fact is if the rates are lowered to a level you're not happy with - move to another which gives better rates.
    Well obviously, but finding one is the challenge.
    Also just to iterate - this change makes no difference for banks. They previously gave 1.25% gross 20% of which to the tax man, and 80% to you. Now they just give 100% to you.
    I do realise that.
    For them it doesn't make any difference and they're not trying to short change us thinking 'oh now that they pay less tax we can get away with reducing rates'.
    Banks would follow suit because they can, especially now NS&I have set a precedent. The 'difference' would be the less interest banks pay, the more profit they make and the better able they will be to sustain their obscene 'reward for failure' bonus culture (think Co-op Bank).
    I can understand your frustration, I've seen my ISA rates dwindle till it's almost as much as my savings account rate, but this change does mean that I can save a fair amount of money on my Santander 1-2-3 account which is not reducing the interest rates available.
    Sure, but you'll still be 20% down on any NS&I savings interest you might be due, which will offset any potential Personal Savings Allowance gain.

    Anyway, Santander recently hiked their monthly fee by 150%, rendering their 123 account unviable for anyone saving less than about £9,000. I know several people who have now dumped their 123 account.
    You can easily save around £590 in interest for a single account if you have £20k invested. If you're part of a couple, open a joint one as well and you'll already be above the £1000 savings limit on only £40k.
    And my return from my NS&I savings will still be down 20%! I already have two Santander 123 accounts, both joint.
    And that's the lazy example of only having two banks. Opening more and using the 4%/5% accounts you can get a lot more!
    Sure, I accept that if you have the time you can spend all your waking hours juggling money in an attempt to secure a better return on savings. You have to remain constantly vigilant and the returns are still fairly meagre for the amount of effort involved, IMO.
    _____
    Razoo
  • Archi_Bald
    Archi_Bald Posts: 9,681 Forumite
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    Razoo wrote: »
    So NS&I (an executive agency of the Chancellor of the Exchequer) reducing their interest rates in such a timely manner to effectively recover the 20% the government would have otherwise have lost due to the new Personal Savings Allowance is pure coincidence?

    Your theory seems based on the assumption that most people's savings is in NS&I savings accounts. What evidence to support this assumption can you provide?
  • Razoo
    Razoo Posts: 126 Forumite
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    Archi_Bald wrote: »
    Your theory seems based on the assumption that most people's savings is in NS&I savings accounts. What evidence to support this assumption can you provide?

    Your assumption of my assumption is incorrect.

    My point is that *Osborne has introduced the much trumpeted Personal Savings Allowance for 2016-17 - potentially good news for savers, but obviously it will cost the government money in lost tax revenue.

    However, by 'coincidently' reducing their interest rates by 20% (or more), NS&I (an executive agency of the *Chancellor of the Exchequer) have totally offset the cost of the scheme as far as NS&I savings accounts are concerned, thereby saving the government some of the scheme's cost.

    My post was a heads-up for those people who do save with NS&I (as I do), and who may be disappointed to discover that their anticipated gain from the Personal Savings Allowance has been completely negated by the reduction in NS&I interest rates.

    Regardless of how a person spreads their savings across various account providers, the fact is that the interest from any savings with NS&I will be down by 20%, or more, for 2016-17 when compared with 2015-16. If a person only saves with NS&I, they will in effect gain nothing from the Personal Savings Allowance! Read into that what you will, but I subscribe to the cynical view!
    _____
    Razoo
    *Spotted the connection? :wink:
  • PeacefulWaters
    PeacefulWaters Posts: 8,495 Forumite
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    There's no link between the PSA and low interest rates at NS&I.
  • CLAPTON
    CLAPTON Posts: 41,865 Forumite
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    Razoo wrote: »
    Your assumption of my assumption is incorrect.

    My point is that *Osborne has introduced the much trumpeted Personal Savings Allowance for 2016-17 - potentially good news for savers, but obviously it will cost the government money in lost tax revenue.

    However, by 'coincidently' reducing their interest rates by 20% (or more), NS&I (an executive agency of the *Chancellor of the Exchequer) have totally offset the cost of the scheme as far as NS&I savings accounts are concerned, thereby saving the government some of the scheme's cost.

    My post was a heads-up for those people who do save with NS&I (as I do), and who may be disappointed to discover that their anticipated gain from the Personal Savings Allowance has been completely negated by the reduction in NS&I interest rates.

    Regardless of how a person spreads their savings across various account providers, the fact is that the interest from any savings with NS&I will be down by 20%, or more, for 2016-17 when compared with 2015-16. If a person only saves with NS&I, they will in effect gain nothing from the Personal Savings Allowance! Read into that what you will, but I subscribe to the cynical view!
    _____
    Razoo
    *Spotted the connection? :wink:


    as I recall, over the last few years interest rates have fallen on many occasions, without the chancellor providing a compensating tax change
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