Page 23 - Budget Newsletter - March 2023

If making the best of current interest rates is a concern to you:

• Make sure you take maximum advantage of your PSA and, where possible, your starting rate
band.

• Consider your cash ISAs, which pay interest tax free. However, do not assume a cash ISA will
always give a better return than a taxable deposit, especially if you are a basic rate taxpayer with
no PSA remaining. For example, NS&I’s Direct ISA pays 2.15% whereas its Direct Saver pays
2.85% gross, which equates to 2.28% for a basic rate taxpayer.

• Regularly check the interest rate on all your deposit accounts. It is especially important to watch
accounts with bonus rates – once the bonus period ends they can look very unattractive. Do not
simply wait for the next statement: if you are earning much below 3% you need to know now.
By a curious twist, the best NS&I variable offerings are Premium Bonds, which have a prize fund
(tax-free) rate of 3.30%, meaning that the once ubiquitous £25 is no longer the most common
prize.

• Consider investing in UK equity income funds, where yields of over 4% are widely available. You
will lose capital security, but your initial income would be higher and the dividend allowance in
2023/24 means you receive £1,000 of dividends before paying any dividend tax, regardless of
your personal tax rate (£500 from 2024/25 onwards). While dividend payments fell sharply in
2020 in the wake of the pandemic, they recovered strongly in 2021 and continued to rise by 8%
in 2022.

Planning Points

If you have not yet arranged an ISA or invested up to the 2022/23 maximum, think about doing
so. If you are unsure where to invest at present, you can always leave your money on deposit,
even in a stocks and shares ISA. And in 2023, you should earn more than negligible interest on
your ‘parked’ cash.

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