Savers, can you use gilts to earn 8%? | Standing charge to be scrapped & budget preview

This week on The Martin Lewis Podcast, Martin dives into two big money stories making headlines: the government's plans to cut standing charges from gas bills and what could be coming in the next Budget. The week's main topic tackles short-dated gilts. Many investment advisers are recommending them as a potentially more lucrative alternative to savings, and done right, the returns can be the equivalent of earning around 8% in a savings account. Martin is joined by a specialist expert to explain how they work, the risks to watch for, and to answer your questions. Then it's over to your stories in our Tell Us feature, where we're asking: when did taking a different financial route from the norm pay off for you? From using a 0% credit card instead of a loan to leasing rather than buying, we'll hear the unconventional decisions that saved listeners money. Mastermind combines student finance and Star Wars. And, because no episode would be complete without a surprise or two, Martin Lewis sings. Yes, really.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 1:48Martin Lewis?

  That is a 10.1% total gain over two and a quarter years.

• 1:52Speaker 04

  Put that money to work harder for you in a stocks and shares ISA.

• 1:55Speaker 05

  I was gonna put some romantic music on, but it means nothing to you.

• 1:58Martin Lewis?

  Which would be a terrible disincentive for people investing in private pensions. It's a complicated thing to do, but it's doable. Unjustifiable. I think it's a breach of natural justice. As I say, what is sexier than a fiscally prudent man, eh?

• 2:11Martin Lewis?

  Hello, I'm Martin Lewis, and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. And this is our big topic episode, where each week we lead on one main subject to help you save. Now, usually, most of it comes from my BBC Radio 5 live show with Adrian Charles, but there's also bonus money-saving tips and tricks for you lucky, lucky podcast listeners. This week's big topic is nothing to be guilty about. It's all about buying short-dated UK gilts. Now, many investment advisers will suggest clients look at this as a more lucrative alternative to savings, so I want to bring it to you as well. Done right, you can get the equivalent returns of 8% in savings. And I'm joined by a specialist to go through it in detail so that you'll

• 2:53Martin Lewis?

  understand it and hopefully get your questions answered. Plus, we'll talk about the government's plan to scrap energy standing charges on gas at least, and a budget preview too. This week's tellers is when did taking a different financial route to the norm pay off for you? E.g. used the 0% card for a loan, leased instead of bought, got a gilt instead of savings. And Mastermind is all about student finance with a Star Wars bent. Meta force, bear with you. Play the theme tune.

• 3:41Speaker 05

  What's the first album you ever bought, Martin? We're talking about albums today.

• 3:45Martin Lewis?

  Oh, Adrian, I've never bought an album.

• 3:48Speaker 05

  Okay.

• 3:48Martin Lewis?

  So Radio 2 once did an entire week on the fact that I didn't listen to music. I have bought for my daughter, and I do listen to more music now because she's an incredible singer. And so I listen to music because of her. But I was always into information and data. Even as a kid, I liked sports, I liked news. I didn't really put music on.

• 4:06Speaker 05

  Oh, I expected nothing less of you. I'm impressed by that, Martin.

• 4:10Martin Lewis?

  And I have to say-

• 4:11Speaker 05

  There's a purity about it.

• 4:12Martin Lewis?

  I did it on Radio 2, that thing, and everyone, they were all shocked on Radio 2.

• 4:16Speaker 05

  Perhaps you could, if there's what, Martin, I know what I'm gonna get. If I say recommend one album for Martin to listen to, I'll get a load of pawns.

• 4:22Martin Lewis?

  I mean, literally-

• 4:23Speaker 05

  It will be money for nothing or awesome.

• 4:24Martin Lewis?

  Literally, Radio 2 did an entire week. I went on three times in a row where they had a competition of what one album, I think they ended up with the Beatles' White Album, I think was the winner.

• 4:33Speaker 05

  And did you ever sit and listen to it?

• 4:35Martin Lewis?

  They never gave it me. They just said that's the one they would get me.

• 4:38Speaker 05

  I'll send it to you then. Okay.

• 4:41Martin Lewis?

  Now, just to interrupt myself there, my suspicion is, if I am going to find any other people who are in sync with me who don't listen to music, they are probably listening to this podcast. So just so I can have some ammunition to take back to Adrian on this, if you are like me, it's not that you're anti-music, I'm not anti-music, I don't mind it being on in the background, I like to dance when I go out somewhere where that's appropriate, not when I'm sitting in the studio, all is good. But if you're not a listener to music, feel free to let me know at [email protected].

• 5:15Speaker 05

  Standing charge then. What do we need to know about what the PM said yesterday?

• 5:18Martin Lewis?

  Well, let's have a listen. I think we've got the clip of what he said.

• 5:20Speaker 06

  They will also allow us, Mr. Speaker, to do more to help people with bills. I can tell the House today that I have asked the Chancellor and the Energy Secretary to look at whether we can remove standing charges from gas bills and to report back to this House at the earliest opportunity.

• 5:42Speaker 05

  Right, so he likes to send out vibes as the Prime Minister, and he's gonna deliver on some of them, I assume. Is this gonna be one of them?

• 5:50Martin Lewis?

  Almost certainly, yes, I would think so. So let's just break down what the standing charge is. When you pay your gas and electricity bill, there is a standing charge, which is the daily charge you pay just for the facility of having gas and/or electricity. And then there is the unit rate, which you pay for each unit kilowatt hour of electricity or gas that you use. Now, the standing charge currently for someone on direct debit or prepayment is £308 a year for gas and electricity. £108 of that is gas, £200 of that is electricity. I have long campaigned against such high standing charges for a number of reasons. First of all, I think it's a poll tax on having gas and electricity. It's a flat rate,

• 6:32Martin Lewis?

  it's regressive, it doesn't work particularly well. But second, it is a moral hazard and a disincentive for lower users to reduce their usage, because so much of their bill is made up of this flat standing charge. It is also near universally hated. If I look at my mailbag, or my email bag is probably a better way to describe it, which is very large in my social media feed, it is the single biggest complaint that people have across all the different sectors I do, the standing charge. I have been telling governments of every hue about this for the last number of years and saying to them, if you want something that's electorally advantageous, you get rid of the standing charge. Well, they don't have much money to spend in the budget, and this is electorally advantageous.

• 7:15Martin Lewis?

  In fact, I did a poll on social media about it a couple of weeks ago, where I very specifically said, if they were simply to remove the cost from the standing charge and add that cost to the unit rate, so you know, net zero change, I don't mean net zero in the energy, say in the, in the green sense, that was bad phrasing, net zero change in terms of the costs that you're paying, which would mean lower users would pay less and higher users would pay more. So I've made it very plain, you know, what the shift is. I did it across all my social media. I think it was 30,000 or 40,000 votes in, it's not a statistically representative sample, but it is a poll. It was over 90% of people supported it. The

• 7:57Martin Lewis?

  standing charge is hated on principle. I am unsurprised. I mean, it's the first thing I mentioned when I went to see the Chancellor, when I met him, when he first came in office, and I was talking about easy wins that they could do. I am very unsurprised to see Andy Burnham, who has, you know, he's quite good at understanding the small things that annoy people. As you know, I've got Charity Institute dealing with that at the moment, that they're looking at doing this. They've chosen gas, I think because electricity is more complicated. It's worth me explaining to people, normally Citizens Advice and I are in sync on most things on policy. This is one of those where we are not in sync. And that's because we tend to have slightly different constituencies that we look at, not in an official sense.

• 8:38Martin Lewis?

  I'm very much mainstream. Citizens Advice is focused on the vulnerable. And the problem with this move, and the problem with getting rid of standing charges without any other change, is that there are a small number of vulnerable high users, especially on electricity, people who have dialysis machines, who have to charge wheelchairs or other things, who would be disproportionately affected, because if you put up the unit rate, they would pay more. That's what stopped this happening. I've been lobbying it with Ofgem and otherwise. So I understand, I absolutely with Citizens Advice on those problems, but I think the wrong way to deal with this is by not getting rid of the standing charge. What we need to do is give specialist support to those individuals and get rid of the standing charge for the mainstream. That is happening. So let me, can I do some crystal ball gazing for you?

• 9:22Speaker 05

  Yeah, please do.

• 9:23Martin Lewis?

  So I'm, hopefully I can take people along my logical thought path on this. I think because if you get rid of standing charges on gas, there is a distributive issue that means 60% of people would be better off, 40% of people would be worse off. Most of the 40% of people would be worse off are higher earners. That's the way it works, but some are lower earners and vulnerable. And the government, because of the representations and the right representations of Citizens Advice and others, the government will worry about that, that the few people it really hurts. So the fact that they are looking to get rid of the standing charge on gas also therefore signals to me, because we are potentially

• 10:03Martin Lewis?

  going to see a 25% rise in the cost of the energy price cap or more in January, I know it's horrible going up by a quarter, it's that level. You wouldn't do the standing charge changes unless you were also announcing increasing support for the vulnerable. So what this leads me to conclude, and I may be adding two and two getting five here, is there is probably an intervention package coming in the budget for vulnerable people. My totem would be, let's say we're talking doubling the Warm Home Discount from £150 off bills to £300 off bills. If you did the standing charge change at the same time as that, you could therefore say that because the standing charge on gas is £108, it is mathematically impossible

• 10:46Martin Lewis?

  for anyone, even a vulnerable customer and a high user, in totality, to be worse off with the two support packages. Of course, everyone will be worse off because the cost is going up in total, but the relative worse off, everyone who's vulnerable, if you got the Warm Home Discount support package, would be better off because the £150 that they would add extra, more than outcomes, whatever you're doing on the standing charge, so that support package alone would be good enough to offset criticism. Which leads me to believe, in next week's budget, we will hear a standing charge announcement, probably coming in sometime in the middle of 2027, maybe the April price cap, maybe the July price cap, maybe the October price cap. It won't be coming in in January, they couldn't organise it that quickly, and we will also be hearing that there'll be some form of increased interventionist support package for vulnerable

• 11:31Martin Lewis?

  people to deal with the 25% hike in January. If right, and I got all of that right, then maybe I should do Celebrity Traitors next year and I should go in because I will get the traitors out if I've got that detective level right on this.

• 11:45Speaker 05

  Anything else you particularly got a feeling for in the budget?

• 11:48Martin Lewis?

  Well, not so much got a feeling for. I will tell you the three things that I am looking out for that are not generally being talked about. Now, there's lots of mainstream stuff that everybody's talking about, so I'm going to give you the sort of the me stuff that isn't being talked about. Number one was standing charges, and so therefore I think we now know what's happening, so I'm pleased, I'm really pleased. I mean, it's only on gas, but I think it's a totem, we might get electricity in future. Number two is I want to see a reversal in the Plan Two repayment freeze, which I think is morally unjustifiable, I think it's a breach of natural justice, to increase the cost of student loans to people who've already signed up to a contract with the government is a unilateral breach of contract in my view, not legally but morally, and I think

• 12:32Martin Lewis?

  it should be reversed, and I think it's incredibly unpopular. And the third thing I'm looking out for that isn't being talked about much, and in fact, I might just ask her a question as she's here with me now, we've got Hilary Wynn, who's Investment Director at AJ Bell, see if there's, you get one budget thing, I'm giving you a warning so you can think about it now, but my third one is, we know that next year, the full new state pension, and not everyone's on the full pension, not everyone's on the new pension, the full new state pension will be above the personal allowance. We know, because I asked last year, Rachel Reeves has promised that nobody who is only on the full new state pension will pay tax. The Treasury has confirmed that what Rachel Reeves said will continue, but what they haven't said is what happens to those edge cases.

• 13:17Martin Lewis?

  So just to try and explain what I'm talking about to people here, let's say full new state pension is £13,040-ish a year, and the personal allowance is £12,570. So you're roughly £500 above it, which means there'd roughly be £100-ish of tax to pay. If you only get the state pension, you wouldn't pay tax. What about somebody who has a £1 a month private pension, so they get £12 extra earnings, so they're earning £13,052, would they therefore have to pay tax on all the £500 quid? So they'd pay £100 tax because of the £12 income, which would be a terrible disincentive for people investing in private pensions. So I'm waiting to see how they will tackle that rather difficult promise that they've

• 14:02Martin Lewis?

  made in a technical sense. Did you follow that, Adrian?

• 14:05Speaker 05

  I followed that, Martin.

• 14:07Martin Lewis?

  Shall we ask Hilary while she's here?

• 14:09Speaker 05

  Let's ask Hilary.

• 14:10Martin Lewis?

  Hilary, go on, what's your budget thing you're watching out for?

• 14:12Speaker 04

  So obviously I'm watching out for the taxation on share trading as well, that would be quite lovely, I don't think that's going to...

• 14:20Martin Lewis?

  What, to reduce it?

• 14:21Speaker 04

  That would be nice on there. It's all frictional, isn't it? And you want, you know, we want UK shares to be traded, and we want to make it as easy as possible for people to do that, and that would be lovely. I am not expecting that in any way, shape or form, but I'm also, obviously, we were very teed up on that, so that's what we're waiting for.

• 14:40Martin Lewis?

  Okay, thank you. Going to hear more of Hilary, who is from AJ Bell, in a moment. So at that point on Five Live, we nicked across to Stefan Schemelt for an update on the cricket, no point playing that for you because it'll now be out of date, but we had a nice little ending on the back, and I got to sing, and I just felt, I mean, I couldn't, I couldn't cut that out. How could we, how could we not give you that pleasure?

• 15:02Speaker 07

  And also, I'm really excited to be on the radio at the same time as Martin Lewis.

• 15:08Martin Lewis?

  Oh, Stefan, thank you so much, I'm loving the cricket. Once I've finished this, I'm going to be focusing on that, so thank you so much.

• 15:15Speaker 07

  We're two men who spend our lives looking at a lot of numbers.

• 15:17Martin Lewis?

  I know, it's nice.

• 15:18Speaker 05

  Do you listen to music, Stefan?

• 15:20Speaker 07

  I do, yes.

• 15:21Speaker 05

  All right, thank goodness for that. What's your favourite album that you listen to without skipping through?

• 15:25Speaker 07

  Oh, Abbey Road, I think, by The Beatles, that'd be up there.

• 15:30Speaker 05

  I sometimes give Octopus's Garden a miss.

• 15:32Speaker 07

  Why?

• 15:33Speaker 05

  I just don't like it. I like to be under the sea in an octopus's garden in the shade.

• 15:41Speaker 07

  Don't skip that, it's a great track.

• 15:42Speaker 05

  Very good. Okay, Stefan, I look forward to speaking to you later. Another Martin Lewis fan, they're just everywhere, you can't move for them. Guilt then, Martin.

• 15:55Martin Lewis?

  Okay, so what I'm going to do, I'm going to give you a brief overview, and then we're going to get on to Hilary with the specifics to answer your questions. So a gilt is a loan to the UK government. You can buy it today and the government promises to pay back £100 on a fixed date. It will also pay you a small fixed amount of interest. That interest is called the coupon, and it pays the coupon twice a year. But what we're specifically talking about today is short-dated guilts, which are those that are due to be repaid within a few years. And the reason for that is, think of it a bit like fixed rate savings. It means you know exactly what you'll be paid back, and you know exactly when you'll be paid it back. Now, the thing about guilts is, especially over the last few years, people aren't really

• 16:39Martin Lewis?

  buying them for the interest. It's about the fact that you are buying them for less than you will get back in future. They'll pay back £100 in future, so you might buy one for £95. And the reason that this is important is while the interest on guilts is taxable, just like savings interest, so if you have used up your personal savings allowance and you're not doing it inside an ISA, if you're a basic 20% rate taxpayer, if you get a pound of interest, you would get 80p on it, if you're a higher rate taxpayer, a pound of interest, you'd get 60p on it, if you're a top rate taxpayer, a pound of interest, you would get 55p on it. The gain that you make from it being paid more than you bought it for is free of capital

• 17:22Martin Lewis?

  gains tax, and that is the big change. It's automatically free, it doesn't need to be in an ISA to do it, if you're buying a gilt, it is free of capital gains tax. Capital gains tax is the tax that you pay on profits when you buy something, so if you sell something for more than you bought it for, you normally pay capital gains tax. That does not apply specifically on guilts. Guilts are UK government bonds. It does apply on bonds from other countries, we're only talking UK here. So let me give you a bit of maths so you can start to see where this works, and we're going to go through it slowly. So, I looked at a gilt this morning that matures on the 31st of January 2029. Hilary is mouthing that in the background because it's one of the best available at the moment, isn't it?

• 18:02Speaker 04

  Yes, it is.

• 18:03Martin Lewis?

  Okay, so that is about two and a quarter years away. The coupon, the interest is half a percent. So over the next two and a quarter years, you're going to earn roughly 1.25% total interest over two and a quarter years. Of course, that's taxable, so if you're a higher rate taxpayer, you'd only get 0.75% back, but we're not really focused on that. That gilt today, and it may have moved a bit since I last checked, but within pennies, costs £90.80, and at maturity, you will get £100, it always works on the £100. So that is a 10.1% total gain over two and a quarter years. Now, some people are probably asking, hold on, it was £90.80, surely that is a 9.2%

• 18:48Martin Lewis?

  gain? No, because it isn't what comes off the 100, it's what gain would you have to get to turn 90.8 into 100, and it would have to add 10.1% to it. So the total gain from the capital value increasing is 10.1%. That is tax-free, totally tax-free. You add the interest gain, it's about 11% or a little bit less than that if you were paying tax on the interest, might be 10.8, 10.7%, which works out to a total gain over the two and a quarter years of 4.7% a year. And I phrase it in per year because that's how savings are done, they're done per year. But that's 4.7% a year after tax. So now let's just think about it for a second.

• 19:33Martin Lewis?

  4.7% a year after tax. You'd need a savings account paying over 6% as a basic rate taxpayer. If you're going to pay tax on your savings to get that gain. As a higher rate taxpayer, you'd need 7.8%. As a top rate taxpayer, you'd need over 8% to give you the same money in your pocket as buying a gilt. And that is why it's so powerful. It's all about the tax status on capital gains. Few more little points. Because there's not that much tax on the interest. If you've got other better reasons like investing for your ISA, you probably want to use your ISA for investing and not for guilts. And I would say I'm talking about guilts as an alternative to saving, not to investing. If you're putting money away for more than five years that you don't need, you probably want to look at investing rather than guilts. This is on the safer side of that. So we're not talking about it that.

• 20:17Martin Lewis?

  Unlike fixed savings, you can get your money out early. You can sell your gilt. But then if you're selling it, you don't get a defined return. And gilt prices move, they move depending on the bond markets at the time. So you have a get out of jail free card, but you might not be lucrative if you do so. Hilary, agree on that?

• 20:34Speaker 04

  I definitely agree on that. And sometimes it can sting.

• 20:37Martin Lewis?

  And it can sting. So you're generally buying these to hold to maturity, but in an emergency, you could get your money out is the best way. You shouldn't be getting a short dated gilt with the idea, oh, I'll get out of it early. You're getting it to hold it, but there is a little bit more rigmarole than fixed savings where you can't get it out at all. It isn't, they're not particularly good for people whose interest isn't taxed. So this is for people who've got more. They're not that good for smaller sums because of dealing costs. So we're generally talking about bigger amounts. So I make no apology. We normally do smaller savings and we do that and we do lots of other subjects. We are trying to help people who are looking at what to do with their money at the moment.

• 21:11Speaker 05

  So what's the kind of minimum then?

• 21:13Martin Lewis?

  Hilary, minimum?

• 21:14Speaker 04

  Minimum, I think you should be looking at already using your ISA. So you should be maybe looking at a minimum of, say, £50,000.

• 21:22Martin Lewis?

  You could go for 10, couldn't you?

• 21:24Speaker 04

  You could go for 10. You can absolutely go for 10. But it depends on the dealing costs and where you're doing.

• 21:29Martin Lewis?

  Yeah.

• 21:30Speaker 04

  And the purpose.

• 21:31Martin Lewis?

  But if we're going through and you know, the type of platforms like yours at AJ Bell or Hargreaves Lansdown or others, the dealing costs on guilts are not particularly heavy.

• 21:38Speaker 04

  No.

• 21:38Martin Lewis?

  I personally think you can still do very well at 10.

• 21:40Speaker 04

  You can.

• 21:41Martin Lewis?

  But below that, it's getting a bit fiddly.

• 21:43Speaker 04

  Yeah, below that, below that, you're losing every time you trade. So you don't want to do that.

• 21:47Martin Lewis?

  One other thing, just because I probably, I've bought guilts myself. Sometimes there are things called strips listed where guilts are listed. And they look like guilts, but they're not guilts, are they?

• 22:00Speaker 04

  No, they're stripping out income. So when you're looking at the strips, you don't want to do that. You want to buy the actual gilt.

• 22:06Martin Lewis?

  Just make sure you're buying an actual gilt. Right, and you've got to be really careful on that. Right, Adrian, you know, we've got loads of questions. Did you get it, Adrian? Do you see what we're doing here?

• 22:14Speaker 05

  I can absolutely see what you do. I mean, my question was, when you, in the example you gave.

• 22:21Martin Lewis?

  Yeah.

• 22:21Speaker 05

  From who are you buying it from? From direct from the government or from somebody who's selling that gilt? That's the bit I don't.

• 22:27Martin Lewis?

  You can legally buy it direct from the government, but it's quite a faff. I mean, basically there are a number of different platforms that you can go to. I've mentioned a couple of them already. You're buying them a bit like you buy on the stock market. You set up an account, you go and look up the gilt, you find the gilt that you want, and there are lists of guilts out there. And working out the return can be a little bit complicated. If you're good on the spreadsheet, I might build a calculator on it quite soon so that people can do it for themselves, which I think will be very helpful, but I haven't done it yet. And what you do is then you literally just go like you're buying a fund and you do a deal. How much do I want? You buy it, you've got a rate, you know what the return will be, you know what the coupon will be.

• 23:02Speaker 05

  So that's a market then, so there's a seller for that gilt. Somebody is selling it.

• 23:07Martin Lewis?

  Yes, in a much as when you're buying a share, you're not buying off a seller. You're going to a trading platform saying, what's the price at the moment? I'm buying shares and you're buying off a platform. Technically underlying it, there is a seller somewhere, but you're going to a platform and pressing buy and you get your gilt. Good question. It was interesting. Yeah.

• 23:21Speaker 05

  John says, sort of similar risk, question mark. Surely there's no risk at all in a savings account up to 120K anyway?

• 23:29Martin Lewis?

  Well, there is no risk at all in a savings account up to 120K because a savings account is backed by the Financial Services Compensation Scheme, which is backed by the UK government. Over 120K, there's no protection, whereas in guilts, all of it is backed by the UK government. This is the key, Hilary. Is this equivalent to saving or is it riskier than saving?

• 23:50Speaker 04

  It is absolutely an investment.

• 23:52Martin Lewis?

  Right.

• 23:52Speaker 04

  So it is, you know, when you, if you're buying it for a specific reason, you know, you're going to hold it to maturity. It is still an investment. It's not a deposit based side of the world. But it comes, as you say, with the British government backing it. So you could look at it and say it's very low risk, but you are still investing.

• 24:14Speaker 05

  But if you lose it all, that would essentially mean the government's gone completely bust. So I mean, it might be the last of your problems at that point.

• 24:21Speaker 04

  Yeah, we'd have bigger problems if we did. Exactly.

• 24:24Martin Lewis?

  The UK government has never not paid out on a gilt, has it?

• 24:28Speaker 04

  Correct. Yes.

• 24:29Martin Lewis?

  Right, never in history, never not paid out on a gilt. So I just, I absolutely understand the categorization different, that this is a form of investment, not a form of saving. Because saving is defined of having deposit protection, which is a technical thing. But ultimately, the deposit protection is provided by the same people who are promising to pay your gilt. So in tactical manifest risk difference, what is the risk on a gilt that you don't have in savings? If you're going to hold it till maturity?

• 25:02Speaker 04

  And that's the big caveat. If you're going to hold it to maturity, you're literally just taking one step.

• 25:07Martin Lewis?

  So let me, let me just, because I want to make this and turn this into personal finance rather than technical, right? So if we are going to take an analogy, I have a choice between a fixed rate savings account where my money is locked away and I can't get it out. And a gilt where in my head, my money is locked away and I can't take it out. What is the difference in risk? So what I'm doing is I'm deleting your, if you try and sell it early, there is an investment risk. Let's delete that. This person is holding till maturity. What is the risk difference?

• 25:38Speaker 04

  So if all of those conditions were fulfilled, there's very little difference on there, de minimis on there. It's just literally what you've gone through to put the money in. So you've traded on a platform for the gilt and you've gone to a bank for that fixed rate savings account. And the key difference though is, as you say, midway through, if you need that money out, your cash in the bank, you know, it's moved up, whereas a gilt.

• 26:04Martin Lewis?

  So arguably, it's the extra flexibility that you're getting that you're saying is a risk. Well, one could also argue the other way around for one's own finances, the fact that they have ability to get it out. I mean, listen, if I were to get really, I'm just playing it the other way because I want people to understand it. And ultimately you listening, your decision on the risk basis. But if I have a fixed rate cash ISA, by law, a fixed rate cash ISA must allow me to access my cash for a withdrawal penalty. Now, I understand the withdrawal penalty, it's a, it can be 180 days worth of interest, is a pre-announced amount. But ultimately, you're getting, you know, there's a similar idea with a gilt here. If I'm going to take it early, while the penalty I might pay for taking it out early is an unknown, and that's what gives the risk element. There is an analogy within that, isn't there?

• 26:49Martin Lewis?

  It's sort of similar.

• 26:50Speaker 04

  It is, it is. But I would say, you know, there are events every so often that can really hit guilt.

• 26:57Martin Lewis?

  Like we're in one now.

• 26:58Speaker 04

  Yeah, possibly. And yes, we are. And you know, also when you look back, 2022, guilts were hurt quite badly at that point. So I think you can say, if you're holding to maturity, you're there or thereabouts. But if you need it beforehand.

• 27:13Martin Lewis?

  And I would just say, my entire premise today is about buying short dated guilts to maturity. It is not about trading in guilts. It's not about long or non-ended dated guilts. It is short dated guilts, which will define as, let's say, five years or less. Because if you're going over five years, you want to be looking at investing anyway. And that's the premise that we're in. It isn't the same as savings. Most people won't feel that comfortable doing it because they don't have, you know, it's not what they're used to. But it's absolutely, and it's the premise I started with, when you go to an investment advisor and you've got money and they say, oh, you've got quite a lot in savings. The first thing they say is, why don't you have some of that in guilts? It's a similar risk profile and you're going to earn more because you're a higher or top rate taxpayer. That's what they say, isn't it?

• 27:55Speaker 04

  Exactly. It's exactly that.

• 27:57Martin Lewis?

  And that's why I'm discussing it here today, so that you get that even if you haven't gone to one of those people.

• 28:00Speaker 05

  I'll put the questions in, decide amongst yourselves who's best equipped to answer it. So Charlie wants to understand how I can invest in something like this within a stocks and shares ISA. I have one, but I don't understand how I'm meant to use it. And I'm looking to do some drip feed investing.

• 28:15Martin Lewis?

  So as I mentioned earlier, Charlie, whether you should actually be using your ISA for guilts, because there's not much tax on them. There's only a little bit tax on the income, not on the main gain, is a question. But you can just buy it on an investment platform, the same as a stocks and shares ISA. Just don't necessarily use your ISA for this. You'd be better to use that for straight investing. Some of the places, I mentioned AJ Bell and Hargreaves Lansdown. There's also Inter Interactive Investor and Fidelity and Free Trade and Moneyfarm. All of those places allow you to buy UK guilts. So you could go to any of those. Stocks, shares ISA, what would you say?

• 28:48Speaker 04

  I wouldn't do a gilt in a stocks and shares ISA. You could, as you said, you can absolutely put that money to work harder for you in a stocks and shares ISA.

• 28:55Martin Lewis?

  Yeah, cool.

• 28:56Speaker 05

  Okay, a lot of acronyms for you to unpack in this from Alan. T?

• 29:03Speaker 05

  Two one two.

• 29:04Martin Lewis?

  That's trading two one two, who's a platform for buying and selling shares and funds.

• 29:08Speaker 05

  Only has gilt ETFs.

• 29:12Martin Lewis?

  Yeah, exchange traded fund. It's like a fund of gilts as opposed to buying an individual gilt.

• 29:17Speaker 05

  Okay, what are positive negatives of buying gilts in an ETF like VGOV?

• 29:22Martin Lewis?

  Okay, so this is a Hillary one. I mean, am I right? If you buy a fund, there isn't, you would pay capital gains tax on it?

• 29:30Speaker 04

  Absolutely.

• 29:30Martin Lewis?

  Okay.

• 29:30Speaker 04

  On there. So the benefits of going through that route are that it's cheap. You know, that VGOV one you mentioned, Adrian, is 0.05% in terms of charges. It is diversified, so instead of buying one gilt, you're buying 65. But we're talking about short dated gilts today. In that 65, you can go from the really, really short dated gilts, i.e. maturing in the next three months, all the way through to 50 years. So you're losing some of that known benefit of knowing that you're going to get paid that £100 when it matures.

• 30:02Martin Lewis?

  So therefore it's higher risk because it's more of an investment then, is it? That you're going to get more price fluctuation?

• 30:07Speaker 04

  Absolutely. You are more exposed to the market and you're exposed to it over a longer timeframe. So you're much more sensitive to interest rate changes as well, which is important. But if you buy it in a fund, it does suit that ISA question that we just had, because of course there are no tax benefits if you buy it in a fund in terms of that capital gains tax.

• 30:27Martin Lewis?

  I suspect you won't like my phrasing here, Hillary.

• 30:29Speaker 04

  Oh, really?

• 30:31Martin Lewis?

  Because you're right. But in a way, is it more that a short dated gilt held to maturity is more akin to saving, but if you're buying a gilt fund, it is more a form of investment because there's more volatility over long term and there's no end date. Conceptually, not exactly, not in a regulated sense, but in a conceptual sense.

• 30:50Speaker 04

  Yes, you're totally right. I didn't like the phrasing. But no, you are correct. In kind of behaviour, yes, that makes sense.

• 30:58Martin Lewis?

  Okay, quite.

• 31:00Speaker 05

  Right. The Duke of Dench, I mean, it's slightly political, this question. Why would anyone buy UK gilts? Treat the UK like a business and it's a bankrupt mess. It taxes ambition, disentervises hard work, punishes earners and funnels capital into all the wrong places. You're not investing in growth. You're underwriting decline.

• 31:17Martin Lewis?

  You're not investing in it, you're buying a bond, you're buying a promise. So the question isn't, do you like the company? If you like, the question is, is it going to pay me back? Where are you on this, Hillary? I mean, everybody, it was worth noting. Everybody's talking about bond market crisis and bond rates on the up. How does that actually affect short dated gilts?

• 31:36Speaker 04

  So it does have an impact, particularly if you're going to sell it before it matures, but we're not talking about that. So in reality, you are buying the bond, you're buying the interest that's been promised and also the payment back at redemption. So in reality, whether you like what the UK government is doing or not, as long as you believe that they're going to pay you, which, as you said, they haven't defaulted on.

• 31:59Martin Lewis?

  Then nothing in life is guaranteed, but it would be more than a big issue. It would be an economic catastrophe for all of us, even those who don't have bonds.

• 32:08Speaker 04

  Correct. So in reality, it's not a call on the politics. It's a call on will this pay out in the short term.

• 32:13Martin Lewis?

  And does what's going on in the bond market at the moment, where yields have gone up, so interest rates have gone up, does that mean the price you can buy a short dated bond at has gone down? So actually, buying right now, arguably, people who are buying short dated gilts are benefiting if you're buying right now?

• 32:30Speaker 04

  Technically, yes.

• 32:31Martin Lewis?

  Okay.

• 32:32Speaker 05

  Chris says more information, he wants more information on gilt ladders to use in pension planning.

• 32:38Martin Lewis?

  This isn't when you promised your neighbour, you know, I'm going to give you a ladder back for Christmas and you don't do it. That would be it anyway.

• 32:44Speaker 05

  Oh, I thought that's what it was.

• 32:45Martin Lewis?

  Yeah. So a gilt ladder, I'm going to leave this to Hillary, is basically where you buy lots so they mature at different times. So you've got a constant income flow, isn't it?

• 32:51Speaker 04

  Absolutely. So it's all about managing income. You know, you usually look at buying this when you're approaching the perfect retirement or looking at starting to turn on your retirement income. And you can control kind of how much and what timeframe you're looking to. Usually people do this with advice helping there, but you know, a good spreadsheet and mathematics.

• 33:13Martin Lewis?

  So basically, it's like saying, well, I'm going to need income every six months. So I'm going to buy these bonds that mature on six monthly periods over the next sort of 10, 15 years. I've got a constant flow of income, looking, putting my money in a way that will keep the the income that I'll need, factoring in inflation and that. It's a complicated thing to do, but it's doable.

• 33:29Speaker 04

  It is very doable, but you're right, it is complicated.

• 33:32Martin Lewis?

  And it's a retirement thing because you don't normally need the income as much if you've got this type of money when you're working, yeah.

• 33:38Speaker 05

  John says, it's another question I think needs some translation. He says, do you argue the quote unquote crash buffer logic? Or just purely yield? For a younger saver, is the duration risk worth it over a high interest account right now?

• 33:53Martin Lewis?

  So I think crash buffer means that you might go into it as the fact that if the stock market went down, gilts might become better value. And so they work in a counter cyclical way, I think. Is that what he means there? And pure yield is just as a straight investment. Hillary?

• 34:09Speaker 04

  Well, it's quite an interesting one, actually, because of course gilt should protect when equity markets have their moments on there. But the reality is they don't always do it. So we have to be quite alive to that. It's a case of when yields do rise, though, that they'll bite. As a young investor, though, I would, as you say, it's about retirement in that gilt example we were showing through. As a young investor, I think you've got to be quite wary of not taking enough risk so your savings don't work hard enough for you.

• 34:38Martin Lewis?

  So you've got, you know, we've got savings, we've got gilts, which hopefully if you're, I mean, it's really, if you're not paying tax on your savings, it is quite a complicated way to go unless you've got a lot of money.

• 34:46Speaker 04

  Exactly.

• 34:47Martin Lewis?

  Right. And actually, again, more than five years, you'd look at straight investing, equities as well as this. And you know, there might be some gilts if you bought a managed funds, they might already be incorporated in there. But it's both, isn't it? It depends on what you're trying to do it for.

• 34:59Speaker 04

  And how, you know, what makes you sleep at night and whether it's for a specific purpose as well.

• 35:03Martin Lewis?

  Let's try and give an example. If you had money put aside that you needed in four years' time because you've got a 10-year cheap fixed rate mortgage that was maturing in four years' time, and therefore you're going to want to reduce the amount that you're borrowing in four years' time, would, and you're paying tax on your savings, would buying a gilt that matures in three and a half years, assuming it's a good payer, that would be the type of thing you'd use it for, wouldn't it?

• 35:26Speaker 04

  It would be totally logical to go down that route, absolutely.

• 35:28Martin Lewis?

  Rather than savings, because with the tax gain, if you're, especially if you're a higher rate taxpayer, it could be beneficial. I mean, it's not for everyone. It's not saying we should replace savings with it. It's saying it's something else you should look at in your arsenal if you're keeping a lot of cash aside for a specific purpose, that you're going to need that money in the next. You know, you might have sold a house and be want to buy in two years' time. You might be moving abroad and want to come back in two years' time and use that money to buy a house, all those types of cases. I hope everybody's understood it. I just felt it was the type of thing we've never talked about that is a real live option for many people that they won't know about in many cases unless they go to an investment advisor. Hillary, you've been brilliant. Thank you.

• 36:05Speaker 04

  Well, thank you.

• 36:05Speaker 05

  Hillary, thanks very much. Can you tell us what your favourite album is that you listen to without skipping before you go?

• 36:11Speaker 04

  I'm in Martin's Camp.

• 36:13Martin Lewis?

  Oh, well, you see, it's probably not a coincidence, is it?

• 36:16Speaker 05

  Another no music financial person.

• 36:19Martin Lewis?

  Has anyone messaged in? Have we got any other Luddites like us or music Luddites out there?

• 36:23Speaker 05

  There's one or two. I think they all work in financial services. That would be my, that's what I would surmise. Hillary, win. Thanks very much.

• 36:33Martin Lewis?

  We have great spirit but no soul, obviously.

• 36:35Speaker 05

  AJ Bell.

• 36:39Speaker 05

  Tell us about your, tell us now.

• 36:40Martin Lewis?

  When did taking a different financial route to the norm pay off for you? E.G. you used a 0% card for a loan, you leased instead of bought, you got gilts instead of saving, and how much better off were you? Why don't you start, Adrian?

• 36:51Speaker 05

  Okay, Emma. I do my food shopping with gift cards bought from a cash back app. In four months, we've made £90 plus just from regular shopping. You didn't see much at the time, but now we have a full week shop thanks to cash back. I'm not sure, can you just explain that to me, Martin?

• 37:08Martin Lewis?

  I'm presuming she's talking about the cash back sites like Top Cash Back and Quidco and is getting, you know, is buying a gift card and getting £10 cash back for doing so. And therefore effectively, if it all works and the cash back gets paid through, she's buying a £100 gift card at 90 quid. And if you know you're going to spend it, never hold on to gift cards for long in case the company goes bust, they're not worth anything. But if you were going to buy in three days' time something costing £100 and you can get a £100 gift card for a net cost to you of £90, you're up. Sam, bought an expensive diamond eternity ring for my wife using Tesco Clubcard vouchers. I remember when this was big. This was back in the days when Clubcard converted to Goldsmith vouchers at quite a good rate. It was actually four to one. So if you had £100 worth of gift card of Tesco vouchers, you could get £400 in Goldsmiths.

• 37:52Martin Lewis?

  She had to be measured for the ring, so knew how I was paying for it. I don't think she minded. We're still married. I have had so many people, I remember, I actually had it in a show in about 2007, 2008 because people would effectively shop at Tesco, have £500, £600 worth, Hillary's face has gone, eyes have gone wide, £500, £600 worth of Tesco vouchers, convert it into Goldsmiths and have £2,000 they could spend on an engagement ring. Why not? I love it. I mean, as I say, what is sexier than a fiscally prudent man, eh?

• 38:23Martin Lewis?

  Adrian.

• 38:24Speaker 05

  I was gonna put some romantic music on, but it means nothing to you now.

• 38:27Martin Lewis?

  I'm very romantic, thank you.

• 38:28Speaker 05

  Um, Bill says stumbled across you in the mid noughties, that would be you. Did your, can't remember what it was called, lifestyle laundry?

• 38:36Martin Lewis?

  Money dot, I think.

• 38:37Speaker 05

  Yeah, you framed it as give yourself a pay rise. I said, overpaying my mortgage. Mortgage free by oh nine, started investing, retired at fifty five last year.

• 38:46Martin Lewis?

  Oh, that's really lovely. That's all I'm saying. Um, Sarah, I used three credit credit cards at zero percent purchase rate to buy a car. Worked out how much I'd pay on a typical loan and divided that between the cards. So same monthly cost, zero percent interest. Again, there can sometimes be a credit card fee. If you've got a good credit score and you're disciplined and you know what you're doing, because credit cards are open ended, that's the worry. But, but then interest free is cheaper than paying interest. Simple as that. Brilliant. Jackie also bought a car with two interest free credit cards with intention of transferring balance to another card. Made the same payments as higher purchase would have been. Oh, very interesting. They're both doing the same thing. What you don't do if you use a zero percent card as a loan is you don't pay willy nilly.

• 39:31Martin Lewis?

  You, you treat it like a loan with a fixed repayment, mentally self disciplined. Made redundant after being on furlough, which was good luck as I was about to leave anyway. So paid them off fully one month before the zero percent ended. Probably saved a fair amount and I immediately got another job. Love it. Why don't we do one more, two more and then we-

• 39:49Speaker 05

  Okay, I just need to tell you that Alison in Northampton is a financial advisor and she doesn't listen to music either. Oh, she's not a financial advisor, she shouldn't listen to music either.

• 39:59Martin Lewis?

  So it's not just us.

• 40:00Speaker 05

  Fair enough, Alison.

• 40:02Martin Lewis?

  They're all listening to Five Live, that's why.

• 40:03Speaker 05

  Well, that's why, yes. Karen, the Virgin One mortgage, an offset mortgage. So you kept your savings and mortgage in one account. Any savings you had offset the debt and you only paid interest on the difference. E. G. A hundred thousand pounds mortgage, but forty thousand savings. But you only paid mortgage on sixty thousand, calculated daily too. But you had to be super organised with finance. Otherwise you thought you had a lot of money spare to spend or save thousands and more importantly, years.

• 40:29Martin Lewis?

  And saving years saves you thousand. Look, so there's offset mortgages, people often ask me about them. So the rate tends to be higher than a normal mortgage. So you really need to be keeping a substantial amount of savings in them so that the gain on the savings outweighs the increased cost on the debt. But if you do that, then it can be very lucrative, even as much as, let's say your salary, you've got three grand a month coming in. While the salary is in there, it is reducing your mortgage by three grand. And obviously as you spend it, then it's reducing it by less. But even that can be a gain, but it only tended to work if you had big enough savings to keep in there to offset the increased debt. Trevor, switch a large purchase sofa and small solar installation onto Virgin three year interest free balance transfer.

• 41:13Martin Lewis?

  Then place the cash I had to pay for it in a two year fixed interest account at four point seven five percent. So that's stoozing, it's known as. Brings the solar payback down by several years. And we've only got one more, so why don't you do that while I find my mastermind file.

• 41:26Speaker 05

  Okay. Richard says my mortgage insurance would only cover one year's repayment. So I overpaid the mortgage over time by the equivalent sum and cancelled the insurance, saved on premiums and reduced the capital sum. Smart move if you can do it.

• 41:43Martin Lewis?

  Yeah, interesting form of self insuring and those payment protection only paid out for a year anyway. That was one of the whole parts of the scandal that we had when they were massively over expensive. So we are going to do mastermind now. Before we do Adrian, I need to say Hillary's still here. You are not allowed to ask her for help, but we might ask her if she wants to answer at the end. Okay. But you can't, that's cheating.

• 42:01Speaker 05

  Okay.

• 42:01Martin Lewis?

  Play the mastermind theme tune.

• 42:10Martin Lewis?

  Hello, welcome to Martin's Money Mastermind. Adrian, you have got twenty five right and forty four wrong in this three option multiple choice quiz, which means hurrah, you are-

• 42:25Martin Lewis?

  Better than random chance. And you could actually get the next five wrong and still be B R C. It's unprecedented. This is your best run ever.

• 42:33Speaker 05

  Yeah, you're gonna make this one particularly hard. I know you are. I know what you're like, you know music cruel man.

• 42:39Martin Lewis?

  A long time ago, well, March nineteen sixty seven. In a maternity ward not far, far away, Quinton Birmingham. A small child cried its first cry. Already it sounded mildly disappointed with life. Now, gazing at two identical newspapers, twin sons. Adrian contemplates his future. I fancy a change of direction, back to university perhaps. I'm torn between econometrics, as I love Money Mastermind so much, and Jedi studies because it looks cool. A glowing figure appears. Adrian. I am, oh, no one can oblige.

• 43:19Martin Lewis?

  Down one path lies regression analysis, standard deviations, the dark side of the spreadsheet. Down the other, lightsaber theory, a module on the force and a dissertation on whether Jabba ever paid his council tax for his hut. I've got a bad feeling about this, yet even a Jedi needs funding. So all that, Adrian, was a setup for this question.

• 43:48Speaker 05

  It's, what's it, a long walk up a steep hill for a very small picnic.

• 43:53Martin Lewis?

  Adrian, you start a three year degree now, aged fifty nine, taking out fifty thousand pounds total in tuition fees and maintenance loans under the English Plan Five rules, which are the rules for current English starters of university. If you still owe money when you reach state pension age, sixty seven for you, what happens to your repayments? A, they would have already stopped at sixty five, a new hope. B, they stop when you reach state pension age, return of the pensioner. C, you keep repaying under the usual income rules, the empire strikes back. So you've taken out at fifty nine, you're sixty seven, you know, you've still got money owing on it.

• 44:38Martin Lewis?

  Would they, it have already stopped at sixty five? Would it stop at state pension age? Would you keep repaying even though you've now hit state pension age?

• 44:46Speaker 05

  Um, I'm amazed I could get a load at this age anyway. Can I definitely get one?

• 44:51Martin Lewis?

  Not only could get a loan, and because you're under sixty, if you did it very quickly, you could actually get a maintenance loan as well, not just tuition fees. If you've, as long as you're first time going to university and you've not been before. So you can't do a second first degree if you're not, I mean.

• 45:05Speaker 05

  Well, I have been before.

• 45:06Martin Lewis?

  But yes, I know, but not for the setup of the question, Adrian.

• 45:08Speaker 05

  Okay, all right, all right. You could have told me.

• 45:10Martin Lewis?

  Also, we don't actually have a live Jedi.

• 45:13Speaker 05

  I think it go-

• 45:14Martin Lewis?

  You know, there was some fiction in the setup.

• 45:17Speaker 05

  I think it's C.

• 45:18Martin Lewis?

  So you keep repaying under the usual income rules, the empire strikes back. We've got Hillary here, we're gonna put you on the spot. It's not what you do, so you don't worry if you get it wrong. I mean, your colleagues will make fun of you, but otherwise you'll be fine.

• 45:27Speaker 04

  They will and they'll love it. Um, I would go with B.

• 45:30Martin Lewis?

  Okay, so now this is a really interesting question. Because when your student loan is wiped, depends on which student loan plan you have. For example, if you started between nineteen ninety eight and two thousand and five in England, Wales and Northern Ireland, your loan is wiped when you hit sixty five. If you started after than that, then it may be thirty years or twenty five years after the, the April after you start, after you left university. On the Plan Five loan, which we're talking about here, the rules are the student loan is wiped forty years from the April you were first due to repay. Adrian staggeringly beat Hillary, play the hallelujah and made history.

• 46:15Speaker 05

  If I'm beating Hillary, that's worth double points.

• 46:17Martin Lewis?

  Surely. I'm almost tempted, half point. I'm almost tempted to give you, but this is what's really interesting about this, of course, is the amount you repay depends on your income. Even on the Plan Five student loan system, you are repaying nine percent of everything you earn above twenty five thousand pounds. So the key for many people who take loans later and student loans later is when your income drops, you may have less income than the threshold. So you would in practice, unless you had quite decent pension income coming in, stop repaying anyway. It's just your loan isn't wiped for forty years. And, and that sort of makes sense, you know, somebody goes and does a degree at age sixty two and then, you know, happens to have a lot of wealth in their retirement.

• 47:00Martin Lewis?

  Why would they not be contributing back to the system? But it is interesting, we do see many older people who've not gone for a degree towards the end of life or even once they're in retirement, you can no longer get a maintenance loan, but you can still go to university. You could start university with pension income under twenty five thousand pounds and know you'll never be repaying a penny if you took the loans. That's just how the system works. So there you go. Which one are you going for? Econometrics or Jedi studies, Adrian?

• 47:23Speaker 05

  Do you know what? I've never seen Star Wars.

• 47:25Martin Lewis?

  Goodness me, and you had a go about me and music.

• 47:28Speaker 05

  Well, you're right, but I've got a rectify, I've just never seen it. I'm not trying to make a deliberate point and I-

• 47:32Speaker 04

  That's homework, yeah.

• 47:33Speaker 05

  Well, it is homework.

• 47:34Martin Lewis?

  Use the force, Adrian.

• 47:36Speaker 05

  I always get confused about where I'm supposed to start because it's not, it's sort of the third or the-

• 47:40Martin Lewis?

  As an adult, you start on the new hope, you don't start on number one. You've got it because you don't, they might put you off. You wanna start on the original Star Wars, the nineteen seventy whatever edition. I prefer Star Trek, but I still like my-

• 47:49Speaker 05

  I'll do that if you listen to all of Lamb Lies Down on Broadway by-

• 47:53Martin Lewis?

  Sorry, I couldn't hear that, the sound's-

• 47:56Speaker 05

  Okay, thanks, Martin.

• 48:00Martin Lewis?

  And that's it. Well, normally at this point we do pod extras, but I think we managed to cover everything. Hillary was great on Guiltz, I'd love to get your questions in on that. I hope you managed to understand it. Again, it's a little bit niche, but I think it's the type of thing we need to talk about more so people know what is available for them out there. Thanks to everybody who got in touch. That is it for this week. We tend to put out a new episode every Thursday and Monday, which is our Question Time podcast, where you can ask me absolutely anything and everything, open brackets, within reason, close brackets. If you've enjoyed today's show, please tell your friends you've been listening to the Martin Lewis podcast. And why not subscribe and leave us a review? Then your pockets will be pleased with you and we will be too. And if you haven't enjoyed it and you've been listening this long, well, frankly, I think you should feel a little bit guilty.

• 48:45Martin Lewis?

  After all, you made your own decision, you made your own bed, no one else to blame.

• 49:05Speaker 07

  Martin Lewis is the founder of MoneySavingExpert.com. But of course, other consumer and price comparison websites are available. You can get in touch with Martin's podcast production team by emailing [email protected]. The offers and rates mentioned in the podcast are correct at the time of recording. However, if you are listening on demand, it's worth double checking as details can date. Remember to subscribe on BBC Sounds and leave us a review however you listen.

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