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Changes aplenty for savers

By our guest writer, personal finance journalist, Andrew Hagger

Changes aplenty for savers in the coming months – here’s what you need to know

There are some key changes happening over the course of the next six months that will have an impact (mostly good) on UK savers.

So whether you’re a regular ‘squirreler’ with a healthy five figure balance or someone that puts a little away when you’ve got some cash spare at the end of the month, here’s a flavour of what’s around the corner.

Financial Services Compensation Scheme
From 1st January 2016 there will be a reduction in the Financial Services Compensation Scheme (FSCS) limit - this is the maximum account balance per person per provider that the government guarantees in case an authorised financial firm goes bust.

The current limit is £85,000 per person (£170,000 for joint accounts) per authorised savings provider but is being cut to £75,000 (£150,000 for joint accounts) from January, so if you’ve got more than £75,000 in your sole name then it’s worth thinking of moving some to another provider if you’re looking for 100% safety for your cash nest egg.

Personal Savings Allowance
The next change is more positive and altogether more rewarding for many savers. As announced in the last budget, the Chancellor is introducing a new ‘Personal Savings Allowance’ (PSA) with effect from 6th April 2016, the start of the 2016/17 tax year.

From this date Banks and Building Societies will no longer deduct 20% tax from savings interest paid to customers up to the specified limits. 

The great news is that under the terms of the PSA, basic rate taxpayers will be allowed to earn up to £1,000 in interest tax free while higher rate tax payers will benefit too but with a lower annual allowance of £500.

Innovative Finance ISA
A further boost for savers also comes into play from 6th April next year when any new savings with a Peer to Peer provider, such as Crowdstacker, will qualify for tax free returns (up to the specified limits) when the ‘Innovative Finance ISA’ is introduced.

Currently it’s only cash savings and stocks and shares that can be sheltered legitimately from the taxman in an ISA, but from next year monies held with the rapidly growing Peer to Peer sector will be eligible too.

So overall it looks like a pretty good few months for savers particularly as they’ve had to put up with miserly returns over the last five or six years while the government has kept interest rates subdued to help the economic recovery.

Cutting the FSCS allowance may a bit of a nuisance for those affected, but at least they can get round it by spreading their cash between different providers. 

On the other hand the new personal savings allowance and Innovative Finance ISA are both welcome initiatives that will hopefully see people end up with more money in their pocket. 

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15th October 2015