Almost half of retirees missing out on best savings rates
Research from PensionBee found that retirees could face steeper losses than the rest of the population due to high street banks failing to use the Bank of England’s base rate rises to savers.
Of the 1,000 respondents aged between 66 to 80 years old, 42% had substantial cash ranging from £20,000 to over £200,000 after a lifetime of work.
But 42% of savers aged 65 and over reported earning 3% or less on their savings.
More than one in six (17%) of both workers and retired people did not know the interest rate currently being paid on their savings, meaning they are likely to be missing out on top rates.
Pensioners prefer instant-access accounts
The disparity in interest earned on savings is increased by pensioners’ preference of instant-access accounts, which usually have a lower rate of interest.
Over half (59%) of this group opted for instant-access compared to 37% of working age savers. The findings saw only 1% of working age adults having savings worth £200,000 or more, compared to 5% in over 65s.
Becky O’Connor, director of public affairs at PensionBee, said: “The older generation has the most to lose from keeping money in an account that does not pay a competitive rate of interest. Sadly, it appears a high proportion are missing out on the best savings rates.
“When choosing accounts, hundreds of pounds of interest a year is at stake for retired people, who in general have built up more substantial savings over the years than younger workers. Older people need whatever wealth they have built up to last their whole retirement, potentially pay for some care and also to leave an inheritance.
“It’s crucial this money is preserved and so some prefer the safety of cash accounts to leaving their retirement money in the stock market. So making sure they are getting the best return possible on their savings is really important.”
Tips on how to pick the best savings account
PensionBee provided some advice on how to make the most from your savings pot:
- It’s really important to check the interest rate on your savings and move your money to a better paying account if you aren’t earning a decent return. On larger balances, the difference in interest between the worst and best paying accounts can be thousands of pounds a year.
- FSCS cover for savings balances goes up to a limit of £85,000 per person, per institution. It’s important to remember this when choosing how much of your savings to keep where.
- Flexi-access drawdown allows people to take an income straight from their pension, meaning their money can remain invested with the potential to grow by more than the amount of interest that could be earned on savings. Alternatively, moving some of the pension into an easy-access savings account can act as a ‘staging post’ for money that might be needed in the next few years.
- Remember that after the 25% tax-free lump sum is taken from a pension, anything else withdrawn is taxable at your marginal rate of income tax – even if it goes into a savings account or cash ISA.
- The personal savings allowance allows basic rate taxpayers to earn £1,000 of interest a year tax-free and higher rate taxpayers, £500 of interest a year. As interest rates have risen significantly, more people, especially older savers, are likely to face a tax bill on their interest, unless savings are held in an ISA, which is tax-free. You might also get a ‘starting savings rate’ of up to £5,000 of interest, tax-free, if your other income is less than £17,570.
Related: YourMoney’s pick of the best savings accounts and ISAs this week,