How to save in retirement
If you’d like to put some money to one side – either as a lump sum or on a regular basis - it can be quite easy to find tax-efficient savings products in retirement.
How can I buy savings products?
Quite simply, you can start saving with as little as £1 and there are a range of different accounts available for you to choose from. Banks and building societies pay interest on any savings in standard bank accounts as well as deposit accounts. You can save in lump sums, or by regular amounts on a regular basis.
It does however pay to look for an account that offers a higher level of interest, perhaps in return for a longer notice period if you want to save and maximise the return you get on your money. The rate of interest offered on a savings account is often expressed as Annual Equivalent Rate (AER).
What is an AER?
This is the annual rate of interest payable on your savings. In order for you to compare different products easily, all providers have to express the interest that they are offering in terms of the AER. For a quick explanation, take a look at this short film:
I’m saving for my family’s future, what should I look at?
If you want to save to help your children or grandchildren, there are a number of products you can look at:
Child savings accounts
You’ll need to open the account in the child’s name with documentation, such as the child’s birth certificate. As long as the child earns less than the personal allowance (currently £11,000), you can fill out an R85 form and make sure any interest is paid without tax being deducted automatically.
The advantage here is that, as a grandparent, no amount of interest earned on money you put in to this kind of account will be subject to tax, while only the first £100 of interest earned on money given by a parent is tax-free.
You can’t open a Junior ISA for your grandchildren specifically, but you can make contributions into a Junior ISA up to the annual limit, which is £4,080 for the 2016 to 2017 tax year. Monthly contributions could be possible – very easy to manage – using a Direct Debit.
The disadvantage with Junior ISAs though, is that the money can’t be accessed until the child turns 18, at which point the child gains control of the money.
You can buy Premium Bonds in the name of your grandchildren. The minimum amount you can buy is £100. It’s easy to buy Premium Bonds too – find out more on the National Savings and Investments website.
If you’re really looking forward and thinking about savings over the long term, then a stakeholder pension could be hugely beneficial for your grandchildren.
They’ll take control of it at 18 and can access the money at age 55 – but all the money you put in now will benefit from tax relief. If you pay in £2,880 a year (the maximum allowed at the moment), the Government will top that amount up to £3,600. Search online for ‘stakeholder pension’ – and you’ll find a plethora of providers providing these products.
Grandparents can buy Children’s Bonds on behalf of under-16s with a minimum investment of £25. These products currently pay 2.5%, redeemed after 5 years, but they’re owned by the child, and controlled until their 16th birthday by a parent or guardian.
You simply choose how much you want to invest for the child (any amount between £25 and £3,000) and a guaranteed level of interest is added each year for five years. The interest is completely free of UK Income Tax and Capital Gains Tax – for the child and the parents.
Saving for a specific goal or purchase
If you are saving for a specific reason, you will probably not want to tie your money up for long periods, but will want to maximise the amount you earn in interest. You’ll therefore need to search through the best buy tables online, to find deposit accounts that achieve both of these desires.
You might also want to find ways of saving as much as possible on normal everyday expenditure so that you can maximise the amount you do put away.