Financial guru Martin Lewis has issued a stark warning to Britons considering stashing their cash at home, after a listener revealed they were so worried about tax they planned to put savings "under the mattress".
The 'mattress money' myth and tax reality
During an episode of The Martin Lewis Podcast, available on BBC Sounds, Apple Music, and Spotify, the Money Saving Expert tackled a common misconception. A concerned saver had asked: "I fear that it will be taken or taxed if I do anything else. Do you think I'm being too cynical?"
Lewis provided a crucial clarification that cuts to the heart of the issue. "Your savings are not taxed, it is the interest you earn, the extra money that savings generates you, that are taxed," he stated plainly.
He emphasised that this principle extends to other investments. "You're not going to lose money from tax on savings, you will just lose some of the interest. The same is true if you invest; it's the capital gains tax on the profits, and you might also pay income tax on dividends. But it's on what you make, not on the amount that you have."
Why hiding cash at home is a 'no-brainer' to avoid
Lewis strongly advised against the 'mattress' method, highlighting significant financial and security risks. He pointed out that standard home insurance policies offer minimal protection for cash kept in the home.
"If you keep money under your mattress, and somebody breaks in and steals the money, even the best home insurance policy normally only covers you for up to £1,000 worth of cash," he explained. Policyholders also pay premiums for that limited cover.
In contrast, he outlined the benefits of using a regulated savings account. "Whereas money in a bank or financial institution that is paying interest, you are being paid effectively to put your money there, and you get the protection on top."
His conclusion was unequivocal: "So if we're just talking really sensibly on a like-for-like comparison, between keeping money under your mattress and putting it in a savings account, it is an absolute no-brainer. Put it in a savings account."
The vital protection savers get in the bank
Lewis detailed the key safeguard for UK savers: the Financial Services Compensation Scheme (FSCS). This protection applies to cash held with any UK-regulated provider.
He confirmed the compensation limit is now up to £120,000 per person, per institution, a significant increase from the previous £85,000 threshold. This government-backed scheme ensures savers' money is protected if their bank, building society, or credit union fails.
The expert's advice serves as a timely reminder for all savers to review where they keep their money, prioritising security and legitimate returns over fear of taxation on their initial capital.
