Savings rates hit 6% – but beware of the tax bill
Savers can now receive 6% interest if they lock up their money for a year – a rate not seen since 2008: but watch out for the tax bill
Savers can now get 6 percent interest if they lock up their money for a year – a rate not seen since 2008.
Charter Savings Bank has launched a one-year fixed-rate deal, meaning those with £10,000 in the account will earn £600 in interest over a year. The savings provider also launched a two-year deal, paying 6.1 percent.
Savings rates have risen at a relentless pace in recent weeks, with providers scrambling over each other to grab the top spot on best-buy lists and entice savers.
Boost: Savings rates have risen at a relentless pace in recent weeks
Challenger bank SmartSave raised its one-year, fixed rate 14 times last month alone as it sought to become the market leader. However, Anna Bowes, co-founder of interest rate regulator Savings Champion, believes that rates on fixed-rate deals are nearing their peak.
“Savers might want to consider putting some of their money aside for a little longer at the rates available now because they could be lower in a year’s time,” she says.
However, as rates rise, savers are at greater risk of being hit with a tax bill on their interest.
That’s because the personal savings deduction allows basic rate taxpayers to earn just £1,000 tax-free interest each year, while higher rate taxpayers only get a £500 supplement and supplementary rate taxpayers get no supplement at all.
A basic rate taxpayer would breach their allowance with more than £16,667 in the best-buy Charter Savings Bank account. An additional taxpayer would breach it with more than £8,333.
Large savers can opt for a cash Individual Savings Account (Isa) where all interest received is tax-free. The most competitive one-year fixed rate Isa is again offered by Charter Savings Bank. It pays 5.2 percent.