Redundancy: looking after your cash

Last checked: 14 October 2026. We check this page regularly against official sources.

Losing a job is stressful, and a lump sum can arrive at the same moment your regular income stops. There’s no need to make every decision at once. Many people start by protecting their day-to-day finances, then decide what to do with anything left over once the next steps are clearer.

This page covers the cash side: what you may be paid, how it’s taxed, where it can sit while you look for work, and how savings affect benefits.

This is general information and guidance, not personal financial advice. ClearRates is not authorised by the FCA to give advice.

Step 0: worried about bills or debts? Please start here. Free, confidential help is available from MoneyHelper’s debt advice locator, StepChange and Citizens Advice. Speaking to them early, before missing a payment, often gives more options. MoneyHelper also has guides on losing your job, including budgeting after a drop in income. For questions about your rights at work, Acas gives free advice.

Know what you’re getting

GOV.UK says employees are normally entitled to statutory redundancy pay after 2 years with their current employer. It’s based on age, length of service (capped at 20 years) and average weekly pay. For redundancies on or after 6 April 2026, weekly pay is capped at £751 and the maximum statutory payment is £22,530. Many employers pay more under their own scheme.

Things to check in the paperwork:

• What’s in the package: statutory pay, any enhanced redundancy pay, notice pay, holiday pay, unpaid wages and bonuses can all be listed separately.
• Deadline: there are 6 months from the date the job ends to claim statutory redundancy pay. GOV.UK has a redundancy pay calculator.

How it’s taxed

GOV.UK says statutory redundancy pay under £30,000 isn’t taxable. Other parts of a termination payment, such as holiday pay, unpaid wages and bonuses, can be taxed like normal pay. Many people check the final payslip and ask payroll if anything looks wrong. If you stop working part-way through the tax year, you may be due a tax refund. MoneyHelper explains how to claim one.

Your buffer comes first

Redundancy money may need to cover living costs until new income starts. A common approach is to work out essential monthly spending, then decide how many months to keep instantly available. Things to consider:

• Easy access for the buffer: easy access accounts let you withdraw without penalties. Some limit how many withdrawals you can make, so check the terms.
• Money not needed for a while: a notice account or a short fix may pay more, but locks the money for a set time. Many people only do this once they’re confident it won’t be needed.

Compare types in easy access vs notice vs fixed.

Benefits: how savings count

If you’re thinking of claiming benefits, how much you hold in savings can matter:

• Universal Credit: payments are reduced if you have more than £6,000 in money, savings and investments (by £4.35 for every £250 between £6,000 and £16,000). You usually can’t claim with more than £16,000. A partner’s savings count too.
• New Style Jobseeker’s Allowance: based on National Insurance contributions. GOV.UK says your savings and your partner’s savings won’t affect the claim.

Use a benefits calculator to check what you could get.

Protection and tax on the interest

• FSCS: deposits are protected up to £120,000 per person, per banking licence. Redundancy is a qualifying life event for temporary high balance protection, so the FSCS may protect up to £1.4 million for six months from when the money is paid in. Moving it doesn’t restart the clock. See FSCS protection explained.
• Tax on interest: interest counts towards your Personal Savings Allowance (£1,000 basic rate, £500 higher rate, £0 additional rate). In a year with lower earnings, you may also get the starting rate for savings: up to £5,000 of interest tax-free if your other taxable income is under £17,570. See the PSA guide.
• Cash ISAs: you can pay in up to £20,000 across all ISAs in 2026/27, and the interest is tax-free. From 6 April 2027 the cash ISA limit is due to fall to £12,000 a year for under-65s. Compare cash ISAs.

Pensions and longer-term money

Some redundancy packages include pension options, or the chance to pay part of the payout into a pension. These choices can affect tax and are hard to undo. ClearRates doesn’t cover pensions or investing; Pension Wise and a regulated adviser are good places to start.

Work through the steps

What should I do with my savings? starts with bills and arrears, then a buffer and when you need the money. It is information, not a recommendation. The moment list on that page links back here.

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Written by ClearRates. General information, not personal financial advice. Rates change often, so check the provider’s terms before you apply. ClearRates may earn a commission from some links; this never affects how we rank rates. Last checked 14 Oct 2026.

Sources (all accessed 14 Oct 2026)

• GOV.UK, Redundancy: statutory redundancy pay (2 years’ service; 20-year cap; £751/week and £22,530 max from 6 Apr 2026; 6-month claim deadline): https://www.gov.uk/redundant-your-rights/redundancy-pay
• GOV.UK, Redundancy: tax and National Insurance (statutory redundancy pay under £30,000 not taxable): https://www.gov.uk/redundant-your-rights/tax-and-national-insurance
• GOV.UK, Calculate your statutory redundancy pay: https://www.gov.uk/calculate-your-redundancy-pay
• GOV.UK, Universal Credit eligibility (£16,000 limit): https://www.gov.uk/universal-credit/eligibility
• GOV.UK, Universal Credit: what you’ll get (£6,000; £4.35 per £250): https://www.gov.uk/universal-credit/what-youll-get
• GOV.UK, New Style JSA eligibility (savings don’t affect claim): https://www.gov.uk/jobseekers-allowance/eligibility
• GOV.UK, Tax on savings interest: how much is tax free (PSA; starting rate £5,000 / £17,570): https://www.gov.uk/apply-tax-free-interest-on-savings/how-much-is-tax-free
• GOV.UK, Individual Savings Accounts (£20,000 in 2026/27): https://www.gov.uk/individual-savings-accounts
• HMRC, Cash ISA limit reduction (published 17 Sep 2026): https://www.gov.uk/government/publications/reduction-in-the-cash-individual-savings-account-isa-limit/cash-individual-savings-account-isa-limit-reduction
• FSCS, Temporary high balances (redundancy a qualifying event; £1.4m; six months; page last reviewed 11 May 2026): https://www.fscs.org.uk/making-a-claim/claims-process/temporary-high-balances/
• FSCS, Deposit protection limit (£120,000 from 1 Dec 2025): https://www.fscs.org.uk/deposit-limit/
• MoneyHelper, Losing your job (loaded via fetch tool; curl returns 403): https://www.moneyhelper.org.uk/en/work/losing-your-job
• MoneyHelper, Pension Wise (eligibility incl. early retirement due to ill health): https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise
• MoneyHelper, How to choose a financial adviser: https://www.moneyhelper.org.uk/en/getting-help-and-advice/financial-advisers/choosing-a-financial-adviser
• Acas, Redundancy: https://www.acas.org.uk/redundancy
• FCA Financial Services Register: https://register.fca.org.uk/

Questions

Is redundancy pay taxed?

Statutory redundancy pay under £30,000 isn't taxable, according to GOV.UK. Other parts of a termination payment, such as holiday pay and unpaid wages, can be.

What's the most statutory redundancy pay I can get?

For redundancies on or after 6 April 2026, £22,530, with weekly pay capped at £751. Your employer may pay more under its own scheme.

Will my savings affect Universal Credit?

They can. Payments are reduced above £6,000, and you usually can't claim with more than £16,000. New Style JSA isn't affected by savings.

Is my redundancy payout protected if my bank fails?

Up to £120,000 per person per banking licence as standard. As a temporary high balance, the FSCS may protect up to £1.4 million for six months from when it's paid in.

Should I pay off debts with my redundancy money?

That depends on your situation, including how long the money may need to last. Free debt advice services such as StepChange and Citizens Advice can help you weigh it up.