I think it’s fair to say saver’s have struggled with the historically low interest rates the UK has had for over 8 years now. For borrowers – mortgages and personal loans have seen very advantageous rates and deals but for saver’s… not so much.
From easy access savings accounts, ISA’s, NS&I bonds and stock market investing, there are plenty of places people can stash their cash to try and grow their net worth. But with the historically low interest rates come the historically terrible savings rates which can translate to savings not even beating inflation anymore. And many people do not trust stock market investing (you should! It’s not scary! See our investment strategy for how two ordinary people make it work!), so all in all, it leads to a pretty bleak outlook for our savings pots.
There is however, another place people could look to for savings. However, this option isn’t open to everyone (unfortunately). What I’m talking about are workplace ShareSave schemes.
what are sharesave schemes?
You can look to the Money Advice Service’s handy guide on the topic but in a nutshell ShareSave (Save As You Earn – SAYE) schemes are either 3 or 5 years long and the employee can save up to £500 a month, every month for the length of the scheme. At the end of the scheme a tax free bonus is added to your pot and you then have the option to take the amount you saved + the bonus as cash or to use that amount to buy shares in the company.
Benefits of ShareSave schemes
- You’re saving! OK, stating the obvious but ShareSave schemes are a really great way to automate your savings. The amount automatically comes out of your wages each month without you even thinking about it.
- Tax advantages: You pay no tax on the bonus so long as you pay into the scheme for the full amount of time. And if you choose to buy shares at the scheme’s end, you do not pay Income Tax of NI on the profit you’ve made.
- Opportunity to get a better return on your savings than other savings vehicles on the market.
- The share price you purchase shares at once the scheme ends is set out clearly at the beginning of the scheme. Therefore, if the company does well in the intervening 3-5 years, you would be in the advantageous position of buying shares cheaply.
- The option to buy shares in a company is obviously a big decision and comes with risk as your shares are then liable to market fluctuations, meaning you can makes losses as well as gains.
- If you decided to opt to turn your savings in company shares but soon after decided you weren’t comfortable investing in the stock market and wanted to sell the shares, you could be liable to Capital Gains Tax (if capital gain is over the annual exempt amount for the tax year. You can circumnavigate this by putting the money into an ISA or pension).
our own experience
My own experience of a workplace ShareSave scheme has been a positive one, even though I’ll admit, I had no idea what they were until Mr. NC started at a new job in 2010.
With barely any savings to our name, we saw this as an opportunity to slowly begin to grow our net worth – and with our ISA interest rates plummeting, the ShareSave scheme was like music to our ears! He contributed £250 a month for 3 years and bought shares at the end of the term – 6,427 shares to be exact.
We saved £9,000 into the scheme and had a £25 bonus added to our total saved. So, we converted £9,025 into shares (6,427) which had an indicative value of £14,929.92. So, looking at it we made almost £6,000 on our £9,025 savings – obviously much better than an ISA!
Workplace ShareSave schemes may not be available at every workplace but where they are, I think they can be considered as a viable addition to other saving vehicles you may already have. I think the option to take the money out at the end without converting to shares is great if you become uncomfortable with this option at any point during the scheme. There are also other workplace schemes such as Share Incentive Plans (SIPs) and Workplace ISAs, so it’s worth checking out what your employer offers in terms savings options, as it could just give you a better return than the High Street.