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 for withdrawals 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).
Another option is an ISA, which is a tax-efficient savings and investment account. You can find out more information on how much you can save tax-free on the Gov.uk website.
What is an AER?
This is the annual rate of interest payable on your savings. In order for you to compare different products easily, providers express the interest that they are offering in terms of the AER.
I’m saving for my family’s future, what should I look at?
If you want to save to help your 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.
There is normally no tax to pay on interest paid on children’s accounts. It is only if a child has an income over their Personal Allowance (currently £12,500) that they will have to pay tax on this. Only the first £100 of interest earned on money given by a parent is tax free. The £100 limit doesn’t apply to money given by grandparents, relatives or friends.
Only parents or a guardian with parental responsibility can open a Junior ISA for under 18s, but grandparents can make contributions into a Junior ISA up to the annual savings limit, which is £9,000 for the 2021 to 2021 tax year. Monthly contributions could be possible – very easy to manage – using a Direct Debit. The child can’t withdraw the money until they turn age 18.
You can buy Premium Bonds in the name of your grandchildren under age 16. The minimum amount you can buy is £25. Find out how to buy Premium Bonds 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 under current rules 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 range of providers offering these products.
Children’s Bonds are no longer on general sale and from the 26 April 2018 you will no longer be able to renew maturing Bonds.
If you have previously bought Children's Bonds then there are a few options available.
National Savings and Investment will write to you around 30 days before your Bond matures to explain your options in detail. For more information please visit the National Savings and Investments website.
Friendly society tax exempt plan
These children’s savings plans are only available through Friendly Societies. Money is invested in a share-based investment fund for the term length you choose. The maximum amount you can pay in is £270 a year, or £300 a year if you pay in £25 each month.
The child must be at least 16 to access the funds and the value of the investment can go down as well as up. Friendly Society policy charges also apply.
As long as you continue to pay into the plan for a minimum of ten years, your child won’t pay Capital Gains and Income Tax on any gains or income.
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 accounts that achieve both of these aims.
You might also want to find ways of saving as much as possible on normal everyday expenditure and minimise your outgoings so that you can maximise the amount you do put away.