Smart Cash Management: 4 Tax-Efficient Strategies to Maximise Your Savings
NS&I, Savings Platforms & Gilts Explained
In a recent blog, we highlighted common investment pitfalls such as chasing dividends, home bias, and doubling down on employer shares. You can read the full blog here.
However, one important pitfall we missed was failing to give proper attention to cash management within a financial plan.
The Role of Cash in a Financial Plan
Whilst investing provides greater scope for long-term growth, cash remains crucial for several purposes:
As an emergency fund for unforeseen expenses
For short-term goals (typically within 3-5 years), or
As part of a retirement 'bucket approach', where you might hold 12-18 months of spending in cash to draw upon during inevitable market downturns.
The Problem: Cash Inertia
However, we regularly encounter clients holding substantial sums in accounts that barely keep pace with inflation. Common examples include current accounts paying minimal interest, or 'stale' savings accounts that once offered competitive rates but have gradually been eroded—banks and building societies rely on the status quo, rather than customers actively seeking better returns.
We also frequently see cash held in joint names or solely in the name of the higher-earning spouse, missing opportunities for tax efficiency.
Making Cash Work Harder
The good news is that these funds can generate significantly better returns without climbing the risk ladder into bonds or equities. In this blog, we'll explore practical options to maximise your cash returns while maintaining the security and accessibility that cash provides.
1. Structure Savings in the Name of the Lower-Earning Spouse
One of the most overlooked yet straightforward strategies is ensuring cash savings are held in the name of the spouse with lower taxable income. This simple restructuring can deliver immediate tax savings without any additional risk.
Consider the following worked example:
Consider Hugo and Libby, a married couple where income levels differ significantly:
Hugo earns £150,000 annually, placing him in the additional rate tax band (45%)
Libby is currently a homemaker with no taxable income
They hold £100,000 in cash savings earning 5% interest (£5,000 annually). These savings are currently held jointly - they each receive £2,500 in interest income
Libby's £2,500 falls well within her substantial tax-free allowances
Hugo's £2,500 attracts 45% tax, costing £1,125 annually
As a non-earner, Libby can receive up to £18,570 in savings income completely tax-free, comprising:
Personal Allowance: £12,570
Personal Savings Allowance: £1,000
Starting Rate Band for Savings Income: £5,000
The solution: transfer to sole ownership. By transferring the savings into Libby's sole name, the full £5,000 interest income would fall within her tax-free allowances, eliminating the £1,125 annual tax charge entirely.
The annual saving of £1,125 in this example represents an immediate 22.5% boost to after-tax returns—demonstrating how tax efficiency can be as valuable as chasing higher gross rates.
2. Cash Savings Platforms
For those with substantial cash reserves, savings platforms such as Hargreaves Lansdown Active Savings, Flagstone, Raisin, Insignis, etc., can be a good option, combining convenience with competitive returns.
How They Work
You deposit funds into a single holding account with the platform provider, which then acts as a gateway to multiple banking relationships. From this central hub, you can allocate money across various sub-accounts with different banks and building societies, each offering their own rates and terms.
This structure can provide visibility of your entire cash portfolio in one location, whilst allowing you to monitor different maturity dates and interest rates across institutions. Crucially, you can easily ensure deposits remain within the £85,000 Financial Services Compensation Scheme (FSCS) protection limit per authorised institution.
The Benefits
Such cash savings platforms offer various benefits:
Rate optimisation: Unlike traditional banking relationships where inertia often works against savers, these cash savings platforms actively encourage rate optimisation. They have no vested interest in keeping your money in lower-yielding accounts—they make a small margin from the interest paid. As such, the platforms typically display rates prominently and make switching between accounts seamless, often requiring just a few clicks. This creates an environment where you can respond quickly to rate changes across the market, rather than being tied to a single provider's offerings.
Centralised oversight: You can monitor your entire cash portfolio through a single dashboard, regardless of how many underlying institutions you use.
FSCS protection on larger sums: You can spread larger balances across multiple institutions while staying within protection limits.
Tax administration: You will receive consolidated tax certificates at year-end, eliminating the need to chase multiple institutions for documentation.
The result is typically higher net returns with considerably less administrative effort—a compelling combination for anyone serious about maximising their cash efficiency.
3. NS&I Premium Bonds
Premium Bonds remain a perennial favourite amongst our clients, and for good reason. These government-backed securities from National Savings & Investments (NS&I) offer a unique proposition that becomes increasingly attractive as your tax rate rises.
How They Work
Each person—including children—can hold up to £50,000 in Premium Bonds. Your capital is fully protected by the government guarantee, but rather than earning traditional interest, you're entered into a monthly prize draw with awards ranging from £25 to £1 million. We’ve written about this in more detail previously - click here.
The headline prize rate currently stands at 3.60%, but this figure can be misleading as it's inflated by the two monthly £1 million jackpots. A more realistic measure is the median return—what someone with average luck might expect to receive over time. This currently sits at approximately 3.30%.
Crucially, however, all prizes are completely tax-free.
The tax advantage in practice
As such, to compare Premium Bonds fairly with traditional savings accounts, we need to calculate their gross equivalent yield for different taxpayers:
Basic-rate taxpayers (20%): Premium Bonds offer a gross equivalent yield of 4.13%. With current market-leading rates of around 5% (source: Moneyfacts Compare), traditional savings accounts still edge ahead.
Higher-rate taxpayers (40%): The gross equivalent jumps to 5.50%—now Premium Bonds become genuinely competitive with top-paying accounts.
Additional-rate taxpayers (45%): The gross equivalent reaches 6.00%—making Premium Bonds highly attractive compared to taxable alternatives.
That is, for higher and additional-rate taxpayers, Premium Bonds likely deliver superior after-tax returns versus traditional savings accounts.
They’re also fun(!!). If you hold the maximum £50,000, probability suggests you'll win something most months. That text message announcing a prize—however modest—genuinely brightens people's day in a way that predictable interest payments simply don't.
4. UK Gilts
For higher and additional-rate taxpayers, low-coupon UK gilts present a compelling opportunity that many overlook. The strategy exploits a unique tax advantage: the 'pull to par' effect that generates tax-free capital gains.
Understanding gilts
UK gilts are government bonds issued by HM Treasury to fund public spending. Each gilt promises fixed six-monthly coupon payments until maturity, when holders receive a final coupon plus return of the principal—always £100 per unit, known as the 'par price'.
Why gilts are attractive now
During the era of historically low interest rates, the government issued gilts with minimal coupons. When rates rose sharply in 2022, these existing gilts fell dramatically in price—many now trade well below their £100 redemption value.
This creates a powerful tax opportunity: whilst coupon payments attract income tax at your marginal rate, there's no capital gains tax when gilts are sold or redeemed. The bulk of your return comes as tax-free capital appreciation as the price of the issue climbs to £100 by its redemption date.
The mechanics and tax benefits of gilts are best explained by way of an example:
Worked Example
Consider Juliet, an additional-rate taxpayer holding £300,000 in cash reserves ahead of major home renovations planned for 2027-28. She invests in the 0.375% gilt maturing October 2026, currently trading at £96.09.
The numbers:
Initial investment: £300,000 at current market price
Maturity value: £312,207 (at £100 per unit)
Tax-free capital gain: £12,207
Taxable coupon income: £1,171
Income tax due on coupon (45%): £527
Net return: £12,851 (4.28% after tax)
In terms of tax efficiency, to compare fairly with traditional savings, we calculate the gross equivalent yield:
Higher-rate taxpayers: 7.13% equivalent
Additional-rate taxpayers: 7.78% equivalent
That is, for Juliet to match this return through conventional savings, she'd need to find accounts paying nearly 8%—not available in today's market (as noted earlier, the current market-leading rate is around 6%).
Understanding the risks
To date, the UK government has never defaulted on its debt and has never missed an interest payment, with all bonds redeemed in full. Whilst no investment can be deemed completely risk-free, UK sovereign default is considered extremely remote—particularly as the Bank of England can print currency to meet obligations if required.
The primary risk for gilt holders is interest rate movement affecting market prices before maturity. However, if you hold to maturity, you're guaranteed to receive the full £100 per unit regardless of interim price fluctuations.
Our gilt service
We can now facilitate gilt portfolios directly for clients seeking this sophisticated cash alternative. For those holding substantial reserves and paying higher or additional-rate tax, gilts may offer superior after-tax returns whilst maintaining the security of government backing.
If you'd like to explore whether gilts might enhance your cash management strategy, we'd be delighted to discuss how this could fit within your broader financial plan.
Summary
Too often, cash is the forgotten piece of an otherwise well-structured financial plan—left languishing in low-yield accounts or taxed inefficiently. But with a little bit of planning, it’s possible to turn idle reserves into a more meaningful contributor to your long-term goals.
Whether it’s restructuring accounts between spouses for tax efficiency, using cash savings platforms to secure best-in-market rates, or taking advantage of tax-free returns via NS&I Premium Bonds or UK Gilts, the right strategy can materially improve after-tax outcomes—often with minimal effort and no increase in risk.
If you’d like help optimising your own cash position—or simply want a second opinion on what you’re currently doing—we’d be very happy to help.
Please note, The Financial Conduct Authority does not regulate tax advice. Levels, bases, and reliefs from taxation may be subject to change, and their value depends on the individual circumstances of the investor.
Happy Thursday!
Kind regards,
George
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Regulatory Information
Blincoe Financial Planning Limited is an appointed representative of Sense Network Ltd, which is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales (No. 14569306). Registered Office: Star Lodge, Montpellier Drive, Cheltenham, GL50 1TY.
Important Disclaimer
This blog is for general information only and is intended for retail clients. It does not constitute financial or tax advice, nor is it an offer to buy or sell any specific investment. Since I don’t know your personal financial situation, you should not rely on this content as tailored advice. While we aim to provide accurate and up-to-date information, we cannot guarantee that all details remain correct over time. We are not responsible for any losses resulting from actions taken based on this blog’s content.
