Is your bank pocketing your new interest tax allowance?
Posted by: sjbabbey on 23 March 2016
Just received a letter today from Sainsbury's Bank telling me that w.e.f. 1st June they will be reducing the interest rate payable on my savings account by approx 20% which, of course equates to the standard rate of UK income tax paid on savings interest. This means that the gross amount of interest paid to savers will equate to the net amount previously paid i.e. the bank are pocketing the tax allowance on my interest.
Does anybody think that this is a coincidence?
Depends what rate you're getting now.
Most banks already pay 'too much' interest on many of their accounts. With low interest rates, the margins are so low that there is little, if any, profit in traditional savings and mtg businesses. Traditionally margins need to be between 1.5 and 2% as a minimum. Your mtg shoppers only want to pay 3 to 4% for their mtg, so not much wriggle room. Still they have to attract some money in to be able to do other things with it to make a profit. Anything higher than whatever anyone else is doing is a loss leader to that effect (e.g. the 123 account)
I see what you are saying but the timing seems to be a bit cynical to me. Having taken tax payers' money to bail out the banks, it seems a bit much that our tax allowance is being hijacked as well.
I think we can rely on the banks to ensure that they will hi-jack just as much as they can get away with.
If it is not illegal - whether ethical or not - you may be sure that they will do it for the benefit of their owners, and their customers will be paying - one way or the other ...
We live in a topsy-turvy world,
ATB from George
Well if that were the priority they could have done it this year with the £5000 savings allowance introduced last April for those earning less than £15,600. Trouble is barely anyone realises it exists. Do you?
Folks need to realise that banks are lousy places to get growth from your money. Always have been in the main. They exist to make profit for their owners not their depositors.
I bet though the biggest complaints will come when people twig they have to sit down and use their brains to work out if they have to pay tax at all and then fill in a tax return to do so!
Strictly speaking you've never had it so good, 0.3% inflation, 1% interest. Better than 6% interest and 10% inflation.
Dear Jamie,
An interesting point, but if you are earning in the region of £15 K PA, then you are most unlikely to be saving anything significant in any case!
I know this well enough from the practical point of being there!
Best wishes from George
PS: I am able to save a small amount each month, but this requires a will of steal to avoid even buying more than a handful of DVDs or CDs in the course of a year. In ten years time I may be able to afford a new high class bike, if I want to blow everything saved in one go ...
Ah but believe me there are many, many people who have saved and/ or retire and/or inherit and who do have substantial amounts of savings George and now earn less than 16k pa post retirement. Probably even people you may know. I speak to them everyday and believe me, most folks with savings behind them tend to be very discrete about it
Dear Jamie,
I am sure that you are right that such people exist. What anyone might call many is something hard to pin down.
In truth I know no-one in that position. Mostly staggering from month to month is more common than my position of being in gradual increase - month by month - except when something goes wrong. But I am iron -willed regarding spending money.
My father went bankrupt when I was eighteen. I had left school at sixteen to work the farm [single handed except for casual staff in busy times] between my father’s sole paid employee leaving in May 1977 and the insolvency in 1980. In that interval no doubt I could have got some quite good qualifications! I got three A-levels at the age of forty, so I’d have done better then. Maths, Physics and Electronics. Good subjects, which I leave off my CV as they are an absolute bar to getting a job if you do not also have a degree! Strange how doing the right thing is sometimes exactly the wrong thing in practice. I am fifty five this year, and will happily say that I am cruising till retirement. There is no room for people like me these days, when monkey jobs can so easily be filled with EU migrants to the UK.
Therefore I am very careful with the job I have!
Best wishes from George
PS: During my work [full time] I was not paid a penny. In those days farmers’ sons frequently worked for the privelege of boarding in the farm house! I started working on the farm aged eight, feeding cattle before going to school! Naturally not paid. I was learning the ropes!