We all like to save for different reasons – whether that’s putting money aside for a rainy day, for children or grandchildren, going on holiday or even improvements to your home or car.
In order to save you have to spend less than you have coming in, which isn’t always easy when you're on a limited budget. That’s why it’s important to make the most of any savings you do manage to set aside and make them work as hard as possible.
We don’t offer savings products, but to help you, we’ve looked at all you need to know about saving as you get older.
Why is saving important?
It may seem like a contradiction in terms, but it’s still a good idea to be putting some money away after you retire. The difference now, is that you’re unlikely to have as many opportunities for generating more income or releasing capital, so a pot of savings could help.
The rainy day
As you get older there are still likely to be things that crop up from time to time: boiler repairs; unexpected maintenance for the car; or repairs to a property as it gets older. So a rainy day fund is important.
Your health will become a priority in your later years. Unfortunately, our levels of health aren’t guaranteed and, unless you have a very comprehensive medical insurance policy in place, it may pay dividends to have savings set aside – just in case you need (or want) prompt private treatment.
As well as budgeting with a regular income, it also makes sense to plan to have some spare savings that could help fund a lifestyle you’d like. Perhaps treating yourselves occasionally with a meal out, a trip away, or a celebration with family and friends.
If you have grandchildren you’d like to help out financially, a regular savings plan could be a very good idea – and there are financial products designed specifically for this purpose.
Read more about the types of savings products you can use, and things to think about before you make a commitment to a regular savings plan in retirement.
Types of saving products
There are a number of different savings options available to you that will reflect what you want to do with your savings.
So whether you're looking for an account where you have instant access or you'd prefer something where your savings are tied in for a longer period, it's important to choose the right home for your savings. Here we look at some of the things you might want to consider.
What do I need to consider when choosing a savings account?
If you are looking for a home for your savings (other than things like pension savings) there are a several options for you to consider. Each savings product has a number of features and benefits, and the following factors are worth considering:
- What's your attitude to risk?
While savings accounts don't carry any investment risk there is a risk the interest you earn doesn’t keep up with inflation so the real value of your savings decreases over time.
- Do you want fixed or variable interest from your savings?
Your savings accounts can have a fixed or variable interest rate.
- Do you need access to the money?
You have the choice between instant access savings account or savings accounts where you restrict your access for a period of time.
- What's your tax position?
It is possible to receive some or all of your savings interest without paying tax. Depending on your circumstances you may be able to use your Personal Allowance, Personal Savings Allowance and the starting rate of tax for savings.
What types of savings products are available?
This isn't an exhaustive list, but it covers some of the more commonly known savings products:
- National savings
National savings and investments offer a range of savings accounts, which are all backed by the government – making them completely secure.
- Individual Savings Accounts (ISAs)
There are different types of ISA available. ISA’s are a tax efficient savings vehicle.
- Lifetime ISAs
A version of the Individual Savings Account (ISA), a Lifetime ISA is available to those ages 18 to 40 from April 2017 onwards. You are allowed to save up to £4,000 a year in this specialised account, and you will receive a 25% bonus from the government meaning that for every £4 you save, the Government will contribute £1 too. This new type of ISA is designed to help people purchase a first home, and/or from age 60, to use in retirement. There are, however, some conditions of taking out a Lifetime ISA. Want more information? The Gov.uk website has a full section dedicated to explaining how the Lifetime ISA works
- Deposit accounts
Most banks and building societies have a range of cash savings accounts that offer varying rates of interest depending on the length of time you are able to leave your savings untouched. In general the longer you are happy not to access your savings to make any withdrawals, the higher the interest payable.
Should I save regularly or just put some money aside as a lump sum?
There is no right or wrong answer to this one, and it depends on whether you have funds that are readily available, or a retirement income that enables you to save small amounts regularly. Many of the savings products listed above let you do both.
How much will I earn on my savings?
Interest payable on different savings accounts varies greatly and will depend on the amount, the length of time and the provider that offers you the savings account. Money Advice Service offer a savings comparison calculator and you can always seek out the best rates in best buy tables online and in the financial sections of the press.
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 £12,570) 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 2021/2022 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 (This is due to change to age 57 on 6 April 2028) - 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.