Martin Lewis appeared on The Emma Barnett Show on BBC Radio 5Live yesterday, answering questions from members of the public. Among the callers was a man who has recently received a lump sum of money, following a mis-sold Payment Protection Insurance (PPI) claim.
Having asked the financial journalist for his opinion on options out there, Martin turned his attention to savings accounts – suggesting this could be a good place to put the lump sum while Paul decides what to do with the payout.
And, during this time, the financial journalist highlighted the easy access savings option which is currently paying a market-leading interest rate.
“So look, the first thing to say: The top paying easy access savings account on the market right now is NS&I which is the state-owned one – so total safety as well – that pays 1.16 percent,” he said.
“That’s the top easy access. So while you’re thinking, put it in there.
“As for the rest of it, if you don’t need access to it, it’s always good to have access to some of it for a rainy day – three to six months of bills especially in the current environment.
“You might want to look at putting it in a fix and earning more.
“I mean there’s other things you can look at doing with your money. I mean, how old are you?”
Replying, Paul revealed that he is 50-years-old.
Considering different options out there, Martin responded: “50, I don’t know if you’ve got a pension – you could put some in your pension. Depending on your tax situation that may be effective. You could invest some of it.
“But, just at the moment, get it into the top easy access savings account while you can.”
However, that’s not all the financial insight which Martin had to share.
“One quick question, while you’re on it. So this payouts just happened – do you have any other savings?” he enquired, before asking the rate at which Paul pays tax at.
Paul explained he had some savings, but “not a great deal”, and added that he is self-employed and a basic rate 20 percent tax payer.
“Well, in that case, you’re allowed to earn £1,000 of interest a year tax-free on savings,” the financial campaigner said.
“Now you might be earning some of that. But, the thing that people don’t always realise is tax is taken off your PPI payment.”
Martin explained that Paul would also get back statutory interest. He added: “It’s a bit like saying, ‘We need to put you in the position that you would have been in had you not done this.'”
Paul explained he got the policy in the 1990s, to which Martin replied: “Oh my word, well this is going to be big. So the statutory interest is eight percent a year, non-compounded.
“Let’s say it’s £3,000. So you get that £3,000 and they count that like savings interest, so it can count towards that £1,000 a year you get tax-free and it counts in this tax year – the year you got the payout.
“Here’s the but: but they automatically take 20 percent off it. When you get paid savings interest they don’t take any tax off it because you’re allowed to earn tax-free but PPI payouts, the tax is automatically taken off.”
As such, Martin said that it may be likely that Paul would be able to claim “about £800/£900 of tax that was taken off it that you shouldn’t have paid as well”.
“So there’s more money to come,” he concluded.
Published at Tue, 16 Jun 2020 11:47:00 +0000