Martin Lewis suggested how viewers may be able to make their money go further during The Martin Lewis Money Show tonight. During the episode, a mortgage free couple, told the financial journalist that they were wondering what to do with a hefty lump sum.
Paul explained that it is at present in a current account, adding: “It’s going to be distributed. It has to be done over a period of time.”
Mr Lewis then established that the couple were mortgage free and debt free.
He said: “So, first, in your current account, you’re earning diddly squat and we need to get it out of there.”
Elsewhere in the programme, while speaking to another person who has retired, Mr Lewis said: “If you get a lump sum, while you are deciding what to do with it, put it in the top easy access savings account, and then do your thinking.
“First thing, do not leave it in your bank account. I hear it so many times. People who are retiring, people who are selling their houses. If you get a lump sum, the top easy access account while you take your time to think. At least it’s earning as much as it can be for your thinking time.”
Later in the programme, Mr Lewis told Trisha and Paul: “Normal savings are taxed, cash ISAs aren’t taxed. But you both have Personal Savings Allowance.”
“What we now need to look at is, can we get better returns in ISAs than we can in savings after tax?”
Finding out more about the couple’s situation, Mr Lewis asked what rate of Income Tax the pair will pay.
They explained this was 40 percent for each person, to which he replied: “Wow, didn’t realise it would be that much. Good for you.”
He continued: “Normal savings are taxed. Cash ISAs aren’t taxed. But, you both have a Personal Savings Allowance. If you’re a higher-rate taxpayer, that means you can earn £500 of interest a year, tax free.”
The broadcaster went on to explain that basic rate 20 percent taxpayers get £1,000 interest a year tax-free.
“Just take that in,” he said. “It’s not the amount saved, it’s just the interest.
“It means you’d need more than £75,000 in top easy access savings before you pay tax on it.”
Applying his financial knowledge to the couple’s personal situation, Mr Lewis continued: “So what we now need to look at is, can we get better returns in ISAs than we can in savings after tax?
“Now most people don’t pay tax on savings, but you do pay tax.”
Elsewhere in their discussion, the couple asked for his thoughts on Premium Bonds.
“I’ve never been the greatest fan of Premium Bonds,” he said.
“Right now the Premium Bonds prize rate is 1.4 percent. But that doesn’t mean you will win 1.4 percent, because it’s a lottery.
“If you put the maximum £50,000 in, you’re getting closer to the mean average,” he continued. “If you’re going to do it, do the entire amount.”
“Premium Bonds are always, by definition, tax-free.”
Speaking directly to the couple about their savings circumstances, Mr Lewis continued: “You know I said you can earn up to £500 of interest? The key to a cash ISA and Premium Bonds, is the interest you get from those – or the prize you get from those – don’t count towards your £500.
“Because of your tax issue, Premium Bonds with typical luck if you max out £50,000 are likely to outpay an easy access account.”
The Martin Lewis Money Show continues on Monday at 8pm on ITV.