What savings accounts are best for over 50s?

What savings accounts are best for over 50s?

 · 16 min read

Saving money is something that we would all do in an ideal world. However, how and where we save money differs from one demographic to another. As over 50s and pensioners, we have particular needs for our savings.

  • There is no one savings account that is right for every individual over 50. Each type of savings product available must be considered in light of your specific circumstances.
  • Savings accounts are a way of making sure money works harder for you. Leaving money languishing in a current account not earning interest means it loses value in real terms.
  • If you're over 50, you will often have a shorter timeline for investments which may affect your final savings account choice.
  • Be aware of any withdrawals penalties before opening a new account.
  • Best savings accounts - FAQs

    • What is the best savings interest rate in the UK?

      The best savings interest rate in the UK varies a great deal according to what type of product you are looking at. Therefore, it is not helpful simply to state the account that, at a headline level, offers the highest amount. That’s because you could be comparing apples with oranges. An account with a high-interest rate could actually not be worth using as it may mean you have to lock away your money for longer than is suitable for you, for example. Or, you may have to pay in too much, too often, to be paid that high-interest rate in a regular savings account.

    • Which bank savings account is best?

      Knowing which savings account is best for you depends entirely on your circumstances. You may require a savings account to invest a high amount of money in straight away. Or, it could be that you simply want to put a little amount by each month from your salary to ensure that it earns at least some interest. The savings account that is best for you allows you to access your cash how and when you need it, with the highest amount of interest possible based on how much and when you pay that money in. Of course, those factors can vary significantly from person to person.

    • Which bank offers the best interest rates?

      Even within a bank, their products and services will vary in terms of the interest rates offered. Determining the best rate at a bank again totally depends on your circumstances. One of their products, for example, a fixed-term savings account, may offer a comparatively high interest rate. However, that fixed term may be too long and therefore too much of a risk for you. As a result, a bank’s best interest rate for you may be a shorter-term, regular savings account or even an easy access savings product.

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    When you're older, putting your money away in a suitable place becomes even more vital. This is because you may be more sensitive to any losses incurred by not saving money efficiently.

    With that in mind, let's look at what savings accounts are suited to over 50s so that you can be sure your money is working as hard for you as possible. We'll look at all suitable types of savings accounts and how these may fit in with your savings needs. In doing so, you can learn which savings accounts are ideal for your individual needs.

    Types of savings accounts

    Here are the most common savings accounts you may wish to consider and the pros and cons of each.

    Cash ISAs

    Cash ISAs are tax-efficient accounts where you can save your money. Interest earned on the money invested in a Cash ISA is not subject to income tax like some other savings accounts. The amount you can put in a Cash ISA changes each year and is usually announced during the government's budget. However, what you have saved in a Cash ISA in the past, will never be subject to tax. Depending on your income tax band, you can save anywhere from 20 - 40% in tax.

    The main disadvantage of Cash ISAs is that you can only put a certain amount in each year. This amount may be too small for your needs, so you may need to find another vehicle on top of this one. Additionally, Cash ISAs have not paid much interest in recent years. However, this could be suitable for you as you may not necessarily need to see your money grow by vast amounts but need growth to be steady. As a result, it can be a safe bet for your nest egg as well as being tax-efficient.

    Stocks and Shares ISAs

    A Stocks and Shares ISA is like a Cash ISA in that the interest earned on it is not subject to income tax. This is a tremendous advantage if you are trying to preserve your funds if you are retired or semi-retired. However, you can put a more substantial sum of money into a Stocks and Shares ISA. It could, therefore, be a suitable place for your savings if you find that Cash ISA limits are too low for you. Additionally, a Stocks and Shares ISA can be subject to unlimited gains. The interest earned comes directly from increases in the individual stocks and share investments within the overall ISA account. If you invest wisely, you have unlimited growth potential.

    However, the major disadvantage of savings accounts like this one is that the value of the money invested may reduce. This may not be something you can risk, especially if you're close to retirement, as you'll have less time to recoup those losses. Additionally, you may be put off by the idea of choosing and managing your own investments. Stocks and Shares ISAs can be accounts where you decide what you invest in or buy and sell. That takes time and commitment.

    That said, it is possible to buy units in funds to circumnavigate this issue. Buying units in funds is a way of accessing professional fund management. An investment fund is structured and run by a financial professional who uses their expert knowledge to 'outperform' the market. The hope is that the investments they make rise far more than an index like the FTSE100. For an individual investor, they can be a good way of making returns without doing much more than reading investment prospectuses where companies lay out what a fund aims to do and how. For example, investing heavily in growth stocks to earn a return a certain amount of percentage points above inflation. 

    It is also possible to invest 'passively' through a Stocks and Shares ISA. A passive fund is one that closely mirrors an index. So a fund could mirror the FTSE 100 as mentioned above or any one of the indexes out there. As a saver or investor, it is up to you to choose which index you believe will most likely help you achieve your aims and then find a provider who sells units in that index-linked fund. 

    Passive investing gained popularity in recent years as indexes were doing well and offered lower management fees. However, in years where markets do not do so well, actively managed funds led by investment professionals can still see your money grow at a high rate. 

    Easy Access Accounts

    Easy Access savers can be an excellent place to put funds if you need to get hold of your money quickly and easily. Banks and building societies allow you to put money aside for a set amount of interest per year to grow your nest egg. Plus, you are not subject to penalties if you choose to withdraw your funds at any time.

    However, the trade-off for that easy access is often a meagre interest rate, which may be below what you need. If you are lucky, you may not need a high interest rate. It may be more vital for you to have easy access to your savings on a rainy day. We all have car issues or problems with our homes at times that we need a large amount of cash to cover - and quickly. If all your money is squirrelled away in savings accounts with high withdrawal penalties, you could be putting yourself in a difficult financial predicament. That’s why Easy Access savings products have a time and a place.

    However, another disadvantage is that if you have substantial savings to invest, there can be a limit to how much money each Easy Access Savings Account can hold. Therefore, if you have a lump sum you want to grow for an unknown period, easy access savings accounts with low maximum holding amounts can be unsuitable. 

    Regular Saver

    A Regular Saver is for those who want to save a regular amount each month. They tend to pay a headline interest amount that is far higher than any Cash ISA or Easy Access Savings product on the market.

    However, with a higher rate of return, there is always a trade-off somewhere in the product. Firstly, a regular savings account won't usually allow you to invest a large lump sum upfront. If you already have a good nest egg built up, this can be a significant disadvantage. But it doesn't stop you from using this type of product. You could pay in money from a pension or income from investments each month instead.

    Additionally, you must remember that the interest rate advertised only pays interest on the amount in the account each month. So while you may be getting 5% on that account, the overall interest you may earn over a year might be less than with a lump sum in a Cash ISA with a lower interest rate.

    Finally, Regular Savers often penalise you if you don't pay anything in during a month. You usually won't receive much interest in a month that you couldn't pay anything into it. If you can't see yourself making those regular payments, your cash will likely earn more in an Easy Access Savings Account.

    Fixed Rate Bonds 

    Fixed Rate Bonds can be a suitable investment for some over 50s. The significant advantage of a fixed rate bond is knowing how much of a return you will have on a lump sum over a specified period. Additionally, Fixed Rate Bonds offer you the opportunity to pick a rate of return that is often higher than an Easy Access Savings Account or even a Cash ISA.

    Regarding disadvantages, you should be aware your money is locked away for the bond's duration. As a result, you will incur severe penalties should you need to withdraw your cash. This can sometimes result in getting back far less than you originally invested. Additionally, the length of the bonds available may not be suitable for you if you only need cash on a very short-term basis.

    Also, Fixed Rate Bonds are subject to income tax like Regular and Easy Access Savings Accounts. This may mean the actual return on investment is similar to a Cash ISA.

    Current Accounts

    No discussion of the best savings accounts for over 50s is complete without current accounts. While every bank or financial institution would place this outside of their advertised range of savings accounts, you can still use them to reach your savings goal. However, the problems with using a current account to help you reach your savings goal over a set period are plentiful. 

    Firstly, you will never get a high interest rate on a current account - if you get one at all. The best rates are for account holders of one of the above account types. In fact, current accounts rarely pay more than 0% AER. Whether you are saving for your pension or anything else, you will only get to your target using a savings account or other investment types. Your money will not grow as it would in an individual savings account where the rate is higher. 

    Despite this substantial drawback to using a current account for your savings, several benefits exist. Those benefits may mean you are happy to take the low to no interest rate a current account offers. Firstly, and perhaps most importantly, it is easy. Your account is likely already open, so you have already set up your own instant access savings account. Even for those without a current account, new customers will find that opening such an account is quick and painless. 

    Additionally, you will often benefit from online banking, direct debits, a corresponding credit card, and even a joint account if you want. That may sound odd and unnecessary for a savings account, but it can help streamline your finances. Having all your income and outgoings flowing in and out of the same place can make your financial situation much easier to manage. 

    That being said, do consider whether starting a new savings habit through a current account is really going to help you achieve your aim. By utilising any of the above products instead, you will likely always get a higher interest rate. Plus, by using these higher rate savings accounts, you are also separating your savings from your day to day finances. Many people often claim separating your savings from your everyday account makes achieving their savings goals easier. The clear delineation stops you from spending money you would have liked to have kept for your savings.

    What you must consider when saving

    When learning about the types of savings accounts available, you will need to keep the below questions in mind. Of course, everyone's individual circumstances are different, so there is no one-size-fits-all answer to which savings account is best for you. However, these questions should help focus your thoughts on which type of savings account is the most suitable for your situation. 

    What are your forms of income?

    Look at your income and consider where it comes from. For example, is it a set amount each month from a salary? Does some of that salary already go into a pension pot that is looking healthy? Or, are you one of the increasing number of individuals freelancing or working for themselves, meaning your income is bumpy each month? If it is the latter, you may not find some regular saving products suitable for you. But if you have a stable income with a healthy pension pot, you may want a savings account with a short notice term on it to access your funds quickly. 

    Do you want to draw an income from your savings, or do you want to let it grow with interest?

    When looking at your income, you also need to ask what you want from your savings account. Is it only to help supplement your pension? Or do you want to start drawing an income now? Do you want to protect the capital and just reinvest any growth? The answers to these questions can help you decide if a product like a Cash ISA vs a Stocks and Shares ISA may be better for you over another type of investment. 

    Do you have a lump sum to invest, or do you want to save regularly?

    Much like looking at your income, if you already have a lump sum of money to invest, some of the above products may suit you better than others. A regular savings account, for example, may offer a high interest rate, but only on the relatively smaller amounts that you can invest into the account each month. Over the long term, you could therefore earn far more interest by investing that lump sum from the beginning. Or, you could be looking for a regular savings product to make use of your salary income while you still have it. 

    How do you want to access your money? Are you happy to use the internet, or do you prefer withdrawing cash from a bank?

    This is a much overlooked idea, but you must know how you want to access your cash. Some of us are well versed in using the internet for all our banking needs. However, for others, it's not that simple. Some of us prefer to go into a branch either regularly or even once in a while. Some online banking accounts cannot even be viewed by branch staff, so you must consider what you would do if you cannot talk face to face with a person regarding your account. 

    Do your other savings accounts (if any) mean you earn interest over your personal savings allowance? 

    Your personal savings allowance (PSA) depends on what tax rate you pay in each tax year. If you are a basic-rate taxpayer, you can earn £1,000 in savings interest per year with no tax. If you are a higher rate taxpayer, you can earn up to £500 in savings interest per year with no tax. For additional rate taxpayers, there is no allowance. As a result, you may find that the tax-free savings within cash ISAs are slightly less attractive as you may not have had to pay tax on the interest rate anyway. However, ISAs still have other attractions, particularly over the long term. Hence, they are definitely worth looking at if you are looking for a long term savings solution. 

    Answering these questions will help you weigh up the pros and cons of each type of savings vehicle.

    Issues to consider when choosing savings accounts

    Withdrawal penalties

    You must be aware of any withdrawal penalties on your accounts before opening them. How much these penalties are and when you incur them can vary between types of savings and savings providers. Some accounts will require you to stay invested for a certain amount of time before you can withdraw cash without a penalty. Others will require you to save a certain amount each month to receive the maximum interest rate.

    However a company structures its savings products, its withdrawal penalties can affect how much you get back should you withdraw before the end of a set period. For example, you may be withdrawing to take advantage of the higher rates available if the Bank of England base rate has gone up. Alternatively, you may want to withdraw because you need the money to pay for home improvements. There is a whole range of reasons you may need to withdraw cash from a savings account earlier than anticipated. Knowing the withdrawal penalties before you open an account can help reduce the chance of losing money you can't afford. 

    Regulation

    When investigating potential savings accounts to open, ensure that you choose a regulated provider. In general, and especially since the financial crisis of 2008, the financial industry in the UK is well regulated. That means there really is no need to use an entity that does not offer you protection through one of the following schemes or provide adherence to an oversight organisation. 

    The Prudential Regulation Authority and the Financial Conduct Authority are regulators for the UK's financial services industry. They both work to ensure that firms within the industry are safe and sound, that the behaviour within them protects customers, and, as a result, offer a higher level of protection as a whole. 

    There are two more ways the UK industry is set up to help customers. First, there is the Financial Ombudsman Service which is the organisation that deals with consumer complaints. Then, there is the Financial Services Compensation Scheme (FSCS). This vital scheme protects customers should a bank or other financial institutions fail. It guarantees savings by an individual in a financial entity up to £85,000. 

    Timelines

    The big problem when you're over 50, which is hard to mitigate against, can be a short timeline. Starting to save early on in life is one of the best things that a person can ever do to ensure that their pension is as healthy as it can be. But what do you do if you are only starting to think about saving now? Most reputable financial advisors would advocate that now is always the best time to start saving. Still, a shortening timeline does have repercussions on your choices. 

    It may mean that some of the longer-term savings products are not an option for you, even though you would like to make the most of a higher gross interest rate. Now may also be a time that you have less money available as your life insurance premiums may be higher amongst many other escalating costs that may affect you. Plus, your salary likely has either stopped or will be reducing or stopping soon. When coupled with a shortening timeline, all of these factors have repercussions on what is an attractive savings product for you. 

    What is the best investment for seniors?

    In summary, all the above savings accounts are suitable for over 50s, but that doesn't mean they're a fit for your specific circumstances. A variety of factors will determine the particular needs you will have. They will include how much money you're able to save, your income, and how you will access your accounts.

    You must consider each of these factors before opening one of these accounts. While most of them are relatively risk-free (the riskiest being the stocks and shares ISA where you could potentially lose all your money), they do all have their drawbacks. That's because some have strict criteria that you may not be able to meet or that may not be suitable for you, particularly given the shorter timeline you may have. 

    Talking to a financial advisor can be worthwhile if you're unsure where to invest your money. While they may be an outgoing that means you have less to save overall, they know the market far better than a layperson. They also know how to appraise your situation and your needs to recommend a savings product that is most suitable for you. As a result, you could find that you are in a better financial position, in the long run, thanks to their guidance.

    Rachel Lee
    Rachel Lee
    Rachel joined Age Group in 2020 having worked at Morgan Stanley and BNYMellon for over 10 years in pensions and investments. During her previous career, Rachel naturally started to move towards investment writing more and more in her day job. Rachel now works as a full-time finance writer drawing from her hands-on experience in the field.
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