Money tip #134 – Save As You Earn (SAYE) Schemes – the risk-free investment opportunity
I always remember my dad giving me one piece of advice when I started working. It was 'if your employer runs a Save as You Earn (SAYE) then join it - they are win-win'. So I did, and do you know what? He was right
What is a Save As You Earn scheme?
A SAYE is a savings-related share option scheme. It gives employees the right - known as an 'option' - to buy shares in their company with their regular SAYE savings for a discounted price (up to 20% below the market price) that's fixed at the start of the scheme.
You can save up to £250 a month under such scheme out of your take-home pay. At the end of your savings contract (three, five - or sometimes seven - years) you can use the savings to buy the shares.
So why are they so good?
Well they give you a risk free way of investing your money in shares, and at a discounted rate. If at the end of the term the share price is lower than the originally agreed discounted fixed price you can simply have your money back (tax-free) plus a nominal rate of interest!
Not only that but the interest and any bonus you receive at the end of your savings scheme is tax-free - unless you cash it in early.
Also you don't have to pay Income Tax and National Insurance contributions on the difference between the price you pay for the shares when you use your option (i.e. agree to buy the shares) and what they're actually worth.
In fact you only pay tax (Capital Gains Tax) when you come to sell the shares on. But even then you won't pay any if you put the shares into an ISA or a pension as soon as you buy them.
How good is that! So if you work for a listed company which offers an SAYE scheme then count yourself lucky and seriously look into exploiting what is just about the only risk-free route into the stock market.
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