The government’s Help to Save Scheme is designed to make saving accessible to those on low incomes, enabling this group to save between £1 and £50 every month.
A 50 per cent bonus is then added at the halfway point and at the end of the four years based on the highest balance saved.
People can save up to £2,400 over four years resulting in a maximum bonus of £1,200, giving an overall total of £3,600.
The bonus is paid into the individual’s bank account, not the Help to Save Scheme, giving people immediate access to free money.
Unusually for government savings schemes it is very flexible and allows individuals to withdraw their savings at any point for any reason although doing so will affect the amount of bonus payable. If individuals stop claiming benefits they can still use the Help to Save Scheme.
There are limitations to the scheme.
The maximum an individual can save is £2,400 which in the grand scheme of things is not a huge amount, and the scheme is only available for four years.
However, for individuals on low income and benefits, setting money aside after paying bills can be challenging, but the 50 per cent bonus as well as the flexibility of the scheme should incentivise those with little or no savings.
Getting people in the savings habit will ultimately help them in the longer term and hopefully encourage them to consider other savings such as workplace pensions and Isas.
In the current low interest rate environment, cash saving will not always feel rewarding, but with the government bonus, this scheme is clearly very attractive.
Kate Smith is head of pensions at Aegon
