Savings Explained
What is a dormant account?
Dormant accounts are savings accounts that have money in them but have not been
accessed for a specific period. They are often accounts that are no longer available
to new customers and the rates of interest paid on them tends to be low.
So, if you’ve got money in an account you’d forgotten about, contact the British Bankers' Association for information
on how to trace it and move your cash to a better home.
How is interest paid?
Interest on savings accounts is generally paid either monthly, or annually. Those
that pay annual interest often offer a better deal if you are saving for the long
term – in other words if you will not need to make any withdrawals over the course
of a year.
If you expect to dip into your savings, however, you may well be better off with
a monthly interest payment.
One other point to remember about standard savings accounts is that any interest
you receive will be taxed as income.
If you’ve got money in an account you’d forgotten about, contact the British Bankers
Association for information on how to trace it and move your cash to a better home
The first £5,435 of income is tax free. You pay 20% tax on the next £36,000, and
40% on any income above that amount.*
But beware. Most savings income is automatically taxed at 20%, meaning you must
register to receive interest before tax (or claim back the tax you have already
paid) if you are a non-taxpayer.
You need to fill out an R85 form, to register for savings income to be paid gross.
If tax has already been deducted from your savings’ interest, you can claim it back
by completing an R40 form.
If you are a higher-rate taxpayer, you must pay the additional 20% tax through your
annual tax return.
*Correct for 2008-2009 tax year.
How is interest displayed?
Gross
This is the rate of interest, displayed as a percentage, before tax.
One other point to remember about standard savings accounts is that any interest
you receive will be taxed as income
AER
This stands for Annual Equivalent Rate. It is displayed as a percentage and indicates
what the rate of interest would be if interest was compounded. The AER will be higher
than the gross rate, if interest is paid monthly.
Continue to Page 8 to Regulation >>
