Savings account interest rate cuts could bring tax relief Go compare with our comparison table

Savings account interest rate cuts could bring tax relief

02 February 2010 / by Andy Davies

Falling interest rates on savings accounts could tip some savers below their annual tax-free threshold, Moneynet.co.uk has claimed.

According to Moneynet.co.uk's spokesman, Andrew Hagger, elderly savers in particular rely on the interest from their savings to boost their pension incomes.

"Interest rates have fallen sharply over the last 18 months and will have undoubtedly caused financial hardship to those who depend on their savings income, sometimes just to make ends meet.

"Not only have these record low rates made ISA benefits barely worthwhile, and almost impossible to find a savings account that keeps pace with inflation, but it could also have an impact on the tax status of savings interest for some people," he said.

Research by the comparison website has revealed that plummeting interest rates could in some cases, reduce earnings by a half.

For example, a single pensioner aged 75 or over with savings of £60,000 could earn around seven per cent interest prior to rates falling, while a typical rate now stands 3.5 per cent.

Commenting, Mr Hagger said: "Because the rate cuts have been so drastic, it could mean that the total annual income for some consumers has now fallen below the tax-free threshold (£9460) which could entitle them to receive their interest income without tax deducted."

According to Moneynet.co.uk, the total annual income based on pension income and earnings from savings for a typical pensioner aged 75 and over stands at just over £8000 – compared to just over £10,000 when interest rates were higher.

He added: "Savings income is a vital lifeline for some people, so qualifying for interest free of tax will at least go some way to offsetting the sharp fall in interest rates."

© Fair Investment Company Ltd