Interest rates: Expert advises on savings and mortgages
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Recent figures from the Money and Pensions Service have revealed that 11.5 million people in the UK have less than £100 in savings. Furthermore, around nine million people are dealing with serious debt issues which no current savings product on the market caters for.
This comes ahead of the current cost of living crisis which has seen inflation hit a 30-year high of 6.2 percent and energy bills are set to rise by £693 for this year.
In light of this, many financial experts are calling for more to be done to help low income people become better savers.
Speaking exclusively to Express.co.uk, Stephen Holliday, the founder and CEO of fintech firm Level, shared why he believes “ISAs are for the wealthy” and why the UK has a poor savings culture.
Mr Holliday said: “The UK does have a savings culture, but is largely geared towards far off into the future, rather than short-term financial resilience.
“Over the past few years, the Government and employers have supported workers when it comes to pensions, ISAs and other long-term savings solutions, but saving for the immediate future does not seem to have been given the same care and attention.
“The question as to why that is the case is something we’re trying to find the answer to, since all the tools to create a short-term savings culture are there.”
The financial expert explained why he believes ISA accounts have become more for the “wealthy” in the UK rather than for low-income savers.
He added: “If you look at the current ISA system an adult in the UK can save £20,000. If they’re under 40, they can save an additional £4,000 in a lifetime ISA, and every child can save up to £9,000 annually.
“That means that for a family of four under the age of 40, they can save up to £66,000 per year. These high limits are indicative of the fact that ISAs are for the wealthy.
“The fact the term ‘ISA millionaires’ has become a fairly commonplace phrase – with the number of UK ISA millionaires surging by 69 percent last year – also shows that these products are not exactly designed for those on minimum wage.
“That doesn’t mean ISAs are not useful – in fact, they’re a great product. But they also cost the Government £3.3billion a year.
“If they’re not really creating savings buffers for the most vulnerable people in the UK, the question becomes: what’s the policy behind this?
“It’s also worth noting that until you earn £1,000 in interest, you don’t pay any tax anyway, so I’d argue a large part of that £3.3billion is skewed towards very large ISA savers.”
On what can be done to improve the situation for low-income savers, Mr Holliday added: “Employers are in a unique position to become part of the solution.
“They need to be encouraging their staff to save a small amount of money directly through salary-linked savings, and nurturing positive habits within their workforce.
“This is the first step in encouraging people to save for times of economic hardship. The next step could be Government involvement – more specifically, tax breaks.
“The average tax bracket in the UK is 23 percent so incentivising people to save £50 a month – £600 a year – would cost the government just £130 annually.
“This would be a distinct savings tax break for those on lower incomes and it would have an immediate impact.”
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