Help to Save

New Government scheme offers a 50% savings bonus for low-income earners

The Government’s Help to Save scheme is designed to encourage people claiming working tax credit or universal credit to save. It pays a 50% bonus on the amount saved, up to a maximum of £1,200 bonus over four years.

It sounds like a no-brainer – a 50% bonus on savings is unheard of. But, if you're in debt, this scheme risks you misproiritising your cash when you should be paying off debt. We've the full info on the scheme, and who should and SHOULDN'T go for it, below.

In this guide...

  1. What is the Help to Save scheme?

    It is a new type of savings account specially designed for low-paid workers. On the face of it, it’s pretty simple. You can save between £1 and £50 each month, but you don't have to save every month. At the end of two and four years, you’re paid a 50% bonus, maximum £1,200. It’s easy access, so you can make withdrawals if you need to.

    A 50% bonus - sound great. What's the catch?

    No catch, though the bonus has a couple of strange twists. Here's how it works...

    At the end of two years, you'll get the first 50% bonus, paid into your bank account (not into the Help to Save account). Once that's been paid, you can stop saving and withdraw the cash, or you can keep saving into it for another two years, again saving between £1 and £50 a month. If you keep saving, you could get another bonus paid at the end of the four years.

    Two important things to note:

    • The bonus for the first two years is paid on the highest amount you’ve had in the account during the two years, not the amount that’s there at the end - though these could be the same.

      For example, if you'd managed to save £1,000, but needed to withdraw £200 before the end of the two years, you'd still get a £500 bonus.
        
    • The bonus in the second two years is paid on the amount that your highest balance in years three and four exceeds your highest balance in years one and two. This isn't very clear, so here's how it could work in practice...

      Let's assume you managed to save £500 in years one and two - you'd get a £250 bonus paid out at the end of the second year. But, you needed to use the £500 for car repairs, so withdrew it all. 

      Then, in years three and four, you found you could start saving again, and managed to save £750. In this case, you'd get a £125 bonus (this is worked out as £750 - £500 = £250, the bonus being 50% of the difference between your two highest balances).
  2. Am I eligible for Help to Save?

    It's estimated around 3.5 million people are eligible - you need to be a UK resident (or posted overseas as a crown servant or with the armed forces) and: 

    • Entitled to working tax credit and receiving working or child tax credit, or
    • Claiming universal credit and have an individual/household income from employment of £542.88 or more for the last monthly assessment period.

    Most eligible people will be working, but if you claim tax/universal credit as a household, and you qualify as a household, then both of you will be able to open an account, even if one partner doesn't work. 

    You won’t be able to open a joint Help to Save account, it's one per eligible person.

  3. Should I use Help to Save if I have debts?

    This is our one concern about the scheme. Here's Martin's view...

    'It's possible to get the best of both worlds'

    Regarding Help to Save, MoneySavingExpert.com founder Martin Lewis said: "The great concern with Help to Save was that it would encourage people to save when they should instead be paying off debts, including some extremely expensive ones like payday loans. Yet they have managed to work a structure that enables people possibly to have the best of both worlds.

    "The fact that you are given the bonus based on the highest amount you have saved, rather than the amount that you actually have in there means you can build up your savings until you have an emergency that you would otherwise have borrowed for and then use your savings instead of borrowing, but you'll still be rewarded for the fact that you saved in the first place.

    "It's a very clever scheme and one that will work for many people. Of course though, if you have extremely expensive debts, rather than saving, it's best to try and clear those first."

    If you've debt problems, whether you're struggling to meet minimum repayments, you owe more than you earn in a year, or it's affecting your ability to sleep at night, Help to Save isn't going to be the right answer. Instead, read our Debt Help guide

    Remember, you’ve five years in which to open the account so you could always start saving later if you manage to pay down your debts.

    • This depends on when your 0% offer runs out. If it's in two years' time or longer, and you plan to use the savings and bonus to clear the debt before you start paying interest, Help to Save could be a good savings plan - though always remember to pay at least the minimum payment on your credit card - check you can afford this and also to save.

      Shorter 0% periods may also work if you can save enough to pay off the card at the end of the 0% period. Remember, even if you've withdrawn cash before the end of two years, you'll still get a bonus on the highest balance you had in the account.   

    • If you've debts but you're paying them off, and want to know if this is a better option, read on. But before we get into the maths, it is worth saying that even if you’d be financially better off saving to get the bonus, – you may feel better psychologically if you’re paying down your debt, rather than waiting two years while the interest’s racking up all the time. If that’s the case for you, Help to Save isn't the right answer, paying off debt is.

      Let’s look at how Help to Save compares to a sample overdraft...

      Let’s assume you have a £1,200 overdraft charged at 19.9% EAR. Making no repayments, after 24 months you’d owe around £1,725. In Help to Save, after two years saving the maximum £50/mth, you'd have £1,800 (£1,200 saved + £600 bonus). You could then use the savings + bonus to pay off the debt.

      Alternatively, if you’d used the £50/mth to pay down the debt, at the end of the two years, you’d still owe around £340 on the overdraft (having paid just under £300 in interest).

      Of course, this is just an example assuming a constant debt and a large enough overdraft limit to accommodate the extra interest, which isn’t a likely scenario. So, we've run over a few ways to think about this that might help...

      Paying off debt vs Help to Save - rules of thumb
       

      1. If the idea of leaving your debt to rack up interest while you save scares you, DON’T DO IT. Pay down the debt. Remember, you’ve five years in which to open the account so you could always start saving once you’re debt-free.
      2. Our examples assume you save the maximum £50/mth, every month for two years, and get the max bonus. The less you can save, the lower the bonus, and the less debt it can offset.
      3. The more you owe the less likely it is that Help to Save will be the right choice.
      4. Debts with interest rates higher than around 20% - this includes many overdrafts, payday loans, home credit and some credit cards - will mean that the benefits of Help to Save will be marginal; interest rates over 50% mean you're always better off paying down the debt. 
      5. As we said above, the effective ‘interest rate’ on Help to Save is lower in years three and four if you choose to stay, meaning in almost all cases it’s better to pay off debt rather than save in years three and four, unless the debt is very small or the interest rate is low.
  4. How do I apply for a Help to Save account?

    You can apply through Help to Save on Gov.UK - it'll need you to sign in to your Government Gateway account (the same details you use for your personal tax credits account), or you can use the HMRC app if you have it.

    If you're not tech-savvy, you can call 0300 322 7093 and the HMRC helpline advisers will help you set up an account. 

    You can open an account up until September 2023, and once it's opened, you can keep it for up to four years.

    You can pay in to your Help to Save account by debit card, standing order or bank transfer, and can make as many deposits as you like each month, provided you don't pay in more than £50/mth overall. 

    • If you need to withdraw your cash, you can do this at any time, though you can only withdraw cash to a nominated bank account.

      Remember, even if you need to withdraw some cash, the bonus is paid on the highest balance you achieved over two years, so there's no need to feel like the cash is locked away. 

    • If you close the account before two years are up, you won't get any bonus paid out to you.

      Even if you do need to withdraw all your money, it's best to leave the account open, as the bonus is paid on the highest balance you made it to within the two years. So, even if there's nothing left in the account at the end of the time, you may still be due a bonus pay out. 

      If you do close your account, you won't be able to open another one later. 

  5. Will saving here affect my benefits?

    On its own, no – if these are the only savings you have. 

    If you’ve other savings, then saving here could have an effect if it puts you over the universal credit savings threshold of £6,000. Above this, you lose £4.35/mth of universal credit for every £250 you’ve saved over £6,000 (savings of more than £16,000 disqualify you from receiving universal credit).

    If you get working/child tax credit, the Help to Save bonus isn’t taxable so doesn’t count as 'other income' as normal savings interest would, which means you shouldn’t see any effect on your benefits in the year the bonus is paid. 

    Not sure if you're eligible for these benefits? Check our Tax Credits and Universal Credit guides, or our Benefits Calculator

  6. I'm debt free - can I beat the returns from this account anywhere else?

    In short – no. Or at least not without picking the next sure-fire big thing and investing in it. And if you know how to do that, please tell us.

    Outside of that, most top pick regular savings accounts, which is what Help to Save effectively is, pay between 2% and 5% - this account has an effective ‘interest rate’ of more than 37%.

    • In general, yes, as while the returns aren't quite as good - you only really get a maximum 25% bonus in years three and four, it's still likely to beat all the other savings options out there.

      Here's why it's not as lucrative in the second two years...let's take an example of someone saving the maximum £50 every month for the full four years:

      Save £50/mth for two years and you'll have a balance of £1,200, which means you'll get a £600 bonus paid out (50%).

      To get the maximum bonus after four years, you need to keep that £1,200 in the Help to Save account, and add £50/mth for the second two years, giving a total balance of £2,400. This gets you another £600 bonus.

      And while this £600 is 50% of the amount you've put in to Help to Save in years three and four, it's 25% of the total savings sitting in the account at the end of years three and four.

  7. Are my savings safe in a Help to Save account?

    Yes. The Help to Save account is run on the National Savings & Investment (NS&I) platform. NS&I is the Government’s savings provider, meaning your deposits are held in 100% safety (well, unless the UK itself went bust, in which case we've all got bigger problems). Read more in our Savings Safety guide.

SPOTTED OUT OF DATE INFO/BROKEN LINKS? EMAIL: BROKENLINK@MONEYSAVINGEXPERT.COM