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Savings accounts and how they work for retirees

Journalist: Rachel Wait, Freelance

ended 09. October 2024

Looking for financial planners, savings experts etc to talk about the different savings account types and how they work, how they can be useful for retirees.

Specifically:
Any stats around how many people have different kinds of accounts out there and how they might not be used in the most effective way

- Easy access accounts
- Fixed rate
- Notice
- ISAs
- Regular savings (may be the same as others)
- Current accounts (how many people put money in there and why it’s a bad idea, no matter how safe it feels - tax etc).

6 responses from the Newspage community

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Editor
Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
Cash saving play an important part for retirees. We call this their "warchest" - what they will use to fund their expenditure when stock markers are considerably down.

We aim for our clients to have roughly 2 years of their expenditure in cash, allowing for any guaranteed income they receive like final salary or state pensions.

Although it's still worth getting the best rate available on cash by looking at various accounts (we favour easy access over fixed rate), the real returns come from investing rather than saving, so the most important thing is the cash is there when they need it.
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Editor
Anita Wright
Independent Financial Adviser at Ribble Wealth Management
Cash ISAs are basically tax-free deposit accounts with £20,000 subscription limit. If the ISA is 'flexible' you can withdraw and replace money within the same tax year. Cash accounts, whether easy access or fixed, often offer higher interest rates than ISAs. With the tax-free savings interest allowance set at £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers, there is an opportunity to earn tax efficient interest outside of ISAs.There are 22.5 mln NS&I Premium Bonds subscribers participating in the monthly tax-free prize draw. However, the return is theoretical, as there is no guarantee of winning a prize. Currently, the odds of any £1 premium bond winning a prize are 21,000 to 1 each month and these odds worsen as the prize value increases. Cash remains the most common asset, particularly attractive during periods of rising interest rates. However, while people often feel secure with cash, this sense of safety can be illusory in the long term due to inflation's impact
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Editor
Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
While many Britons are still navigating the savings landscape with a compass that's a few degrees off, savings accounts could be the hidden goldmines in their financial garden. While the array of options available is impressive, the uptake leaves much to be desired, with millions of UK savers unwittingly leaving a fortune in unclaimed interest. Recent data from the FCA revealed that over £250bn is currently sitting in accounts earning zero interest. This financial faux pas is equivalent to leaving money on the table, and for retirees, this oversight can be particularly detrimental. With life expectancy increasing and the cost of living rising, interest earned can make a significant difference in maintaining financial stability. For example, earning a modest 3% on a £50,000 savings pot amounts to £1,500 per year, a sum that could cover several months of utility bills. With uncertainty on the horizon, now is the best time to embrace the full spectrum of savings options available.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
The majority of people hold too much money in savings accounts.

This tends to stem from the fact that A they think they are safe and B they are nervous to put the money elsewhere.

Savings accounts are not safe. Savings accounts carry one of the biggest threats to most peoples financial future, and that is inflation risk. Over the long term, savings accounts do not provide enough of (if any) growth above inflation.

This means that with each day that goes by, you can buy less and less with your money, even if it looks like the balance is increasing.

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David Robinson
Co-Founder at Wildcat Law
Many people, advisers included, forget about NS&I products. This is a shame as they are undergoing a bit of a renaissance with a range of interesting fixed rate bonds providing income or growth. Whilst you are never likely to get a market beating rate from NS&I you do benefit from having the products backed by the British Government. Which for retirees with little capacity for loss can be incredibly important.
With fixed term products providing guaranteed annual gross growth of up to 4.25% or guaranteed income gross of up to 4.17% they offer a viable alternative to bank products. For those looking to use their money for social good there is even a Green Savings Bond at 2.95% gross. Whilst this might seem low, unlike most "green" investments it capital guaranteed so one for those who want some return whilst investing ethically.
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Mark Scott
Director and IFA at Positive Advisers Ltd
I recently worked with an attorney seeking investment advice for her mother. I recommended keeping over £200,000 in cash-based savings for immediate and short-term expenditure needs.

The discussion moved from seeking the very best interest rates to getting competitive savings rates with the least hassle possible.

I recommended a Wrap provider offering cash products so I can manage the mother's investments and cash all in one place to reduce hassle for the attorney/daughter.

It's not always about the very best rates. Convenience comes into play.

Some wrap investment providers offer cash services, which provide instant access to notice and term bonds. These are all managed in one place with longer-term investments. Time is money; convenience comes at a cost, as it would be possible to secure slightly higher rates if you directly spread the cash savings across multiple providers.