At the time of going to press with this article the Bank of England base rate is 4%.
For someone with £100,000 of savings, that would mean annual interest of £4,000, before tax, if your bank account paid interest that matched the base rate.
Irritatingly, the main high street banks have taken full advantage of their dominance of the UK banking network to keep the interest rates they offer to savers on the floor.
Despite this, for those who can spare the time to set up a savings account with another bank, there are plenty of banks offering relatively attractive rates.
For example, NS&I (which is government backed) offers 2.6% on taxable easy access bank accounts and the projected prize rate for Premium Bonds (which pays tax free prizes) is 3.15%.
NS&I have also just launched a one year fixed rate account paying 4%.
It is worth remembering that the FCA’s financial services compensation scheme (FSCS), which was set up in the aftermath of the Northern Rock collapse, protects deposits of up to £85,000 in sole bank accounts and up to £170,000 in joint bank accounts.
Tax implications
In recent years, with interest rates being so low, very few of our clients have received sufficient bank interest to take them over the annual tax free interest allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. We expect this to change in the current tax year and we also expect HMRC to be far more vigilant about policing unreported bank interest as a consequence.
When it comes to collecting your paperwork for your 22/23 tax return you should make sure that you check carefully what amount of interest has been paid by your bank account(s) to reduce the risk of an enquiry by HMRC.