Best ways to maximise savings for over-60s

Two active seniors discussing best savings rates for people over 60

As you approach retirement, it’s vital to make your money work as hard as possible so you can enjoy the lifestyle you deserve.

You may be tempted to cash in your investments and move your money to ‘safe havens’ like cash savings accounts. There is merit to this approach – it’s important to have a instantly accessible financial buffer in place in case of emergencies.

Unfortunately, cash accounts rarely offer interest rates that match, let alone beat, inflation – which sat at 2.1 per cent at the end of 2018. Since the best instant-access cash accounts currently pay around 1.5 per cent interest, any money held in these accounts over the long-term will actually lose value if living costs continue to rise at an accelerated pace.

How can I boost my savings?

There are a number of ways to supplement your pension income, including:

  • ISAs
  • Fixed-term bonds
  • Pension drawdown
  • State pension top-ups
  • Equity release

Maximise your ISA contributions

The major changes made to ISAs in 2015 mean you can now save up to £20,000 a year – tax-free – across cash, investment, innovative finance and lifetime ISAs. You pay no tax on any interest, income or capital gains earned. The individual limit will remain at £20,000 in 2019/20, meaning couples can save £40,000 without incurring any tax. Spread your savings across cash and investment ISAs to try and generate a return that beats inflation.

The best cash ISA rates are currently 3% for instant-access ISAs, and 2.3% for a five-year fixed-rate ISA. Investment ISAs have the potential for higher returns, but carry the risk of loss.

Invest in fixed-term bonds

Fixed-term bonds, which pay a fixed interest rate over an agreed length of time, can be a good option if you have maximised your ISA contributions and have some surplus cash. They pay far higher rates of interest than instant-access savings accounts, but you cannot access your money during the term of the bond without suffering a heavy penalty. The best five-year fixed-term bond currently pays 2.7 per cent.

Keep your pension invested

If you want to generate higher returns, you have to take on greater risk. How much you’re willing to take will depend on your financial situation and your appetite for risk.

New pension freedoms introduced in 2015 mean you no longer have to buy an annuity when you retire. Instead, you can access money from your pension as you need it and leave the remaining balance invested so it has the opportunity to grow. This is known as pension drawdown.

Drawdown investors typically look for low- to medium-risk investments that provide good income and capital growth potential.

Funds that are well-suited to drawdown investing include:

  • Multi-asset funds, which offer diversification by investing across asset classes, sectors and regions
  • Volatility-targeting funds, which aim to invest at a predetermined level of risk
  • Target-date funds, which invest according to a predetermined time frame

The value of your investment can go down as well as up, so it’s highly recommended you speak to a qualified financial planner before making any decisions.

Boost your state pension

You will be entitled to the full state pension – currently £164.35 a week and rising to £168.60 in April – if you have 35 qualifying years of contracted-in National Insurance contributions or credits. If you don’t have the full 35 years, but meet the minimum 10-year requirement, you will receive a pro-rata amount.

Defer your state pension

If you don’t need the money as soon as you reach state-pension age, you can choose to defer the payments. This will boost your state-pension payments in the future. For every nine weeks you defer, your eventual pension will rise by 1%. By deferring for a year, your subsequent annual payments will rise by 5.8 per cent.

Buy extra NI contributions

If you have gaps in your National Insurance contributions over the past six years, you can make a one-off payment to buy a higher state-pension amount for the rest of your life. Men born before April 1950 and women born before October 1952 may be able to plug gaps that occurred longer than six years ago. Doing so could be worth thousands of pounds.

If you are considering buying extra contributions, act quickly – the cost of filling these gaps will rise on April 6. As with drawdown investing, there are a number of factors to consider when deciding whether to top up your state pension. Speak to a qualified financial adviser before doing so to make sure it’s in your best interests.

Consider equity release

If you own your home, you may have a large amount of equity tied up in it. Equity release allows you to release some of that wealth, providing you with a tax-free lump sum or regular income in retirement. The loan, plus interest, is typically repaid when you die or move into long-term care. This can be a good way to boost your retirement income without having to downsize.

Start comparing savings accounts now and find a savings account that fits your needs

What are the best fixed rate ISAs for the over 60s on Compare the Market?

Listed by interest rate (AER) from high to low 

  • 2.35% United Trust Bank - Cash ISA 7 Year Bond (Transfers In Only)
  • 2.15%: State Bank of India - 5 Year Cash ISA Fixed Deposit
  • 2.12%: Newcastle Building Society - Newcastle Five Year Fixed Rate ISA (Issue 30)
  • 2.10%: Metro Bank - 5 Year Fixed Rate Cash ISA - Issue 7
  • 2.10%: State Bank of India - 3 Year Cash ISA Fixed Deposit

Information correct as of 15/07/2019
You may have to satisfy certain requirements to get the rates of interest listed.

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The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.