A finance expert has urged pensioners with a savings account to check it now.
Research from Pension Bee has indicated half of retirees could be missing out on hundreds of pounds each year. The expert explains people missing out most are people with an interest rate of three per cent or less – as The Daily Record reports.
High Street banks have come under fire for failing to pass on Bank of England base rate rises to savers. Analysis from the pension experts has revealed older people face bigger losses from keeping their pensions in lower interest accounts.
READ MORE: DWP offering seven payment boosts for people on Universal Credit
READ MORE: Mrs Hinch fans share how to dry clothes in winter without heating or dryer
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.”
She added: “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.”
Becky explained that 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 each year.
PensionBee’s research reveals that 42 per cent of British pensioners aged 66 to 80 have substantial cash savings, ranging from £20,000 to over £200,000, after a lifetime of work This is in contrast with a quarter of working age adults in Britain have less than £1,000 in cash savings, with only 17 per cent of this demographic reporting cash balances exceeding £20,000. Only one per cent of working age adults have savings worth £200,000 or more, compared with five per cent of over 65s.
A retiree with a savings balance of £50,000 in an account paying two per cent interest would receive £1,000 in interest after one year. If their cash was held in an account with a five per cent rate, they would receive £2,500 in interest after a year – a difference of £1,500. However, for a working age adult with £5,000 in savings, the difference between the two per cent account and the five per cent account after a year would be £150 in lost interest (£100 after a year in the 2% account, versus £250 after a year in the 5% account).
Encouragingly, a higher proportion of over-65s reported having best buy interest rates on their savings, with 33 per cent saying they had a rate of 4-5 per cent, compared with 24 per cent of working age adults. Almost half (42%) of 65s and 54 per cent of adult workers reported earning three per cent or less on their savings, while 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.
Over-65s appear to prefer the convenience of instant-access accounts, which tend to pay less interest than notice accounts. Over half (59%) of this group opted for instant-access compared to 37 per cent of working age savers, suggesting pensioners may use their savings accounts for income in retirement, rather than or as well as flexi-access drawdown – more pensioners noted having an instant-access account than having a workplace or private pension (45%).
This could suggest some pensioners may have already withdrawn most or all of their pension savings and placed them into a cash savings account.
Across both age groups, cash ISAs and regular savings accounts were identified as popular forms of cash savings, however, almost one in five pensioners (18%) admitted to relying solely on cash as their primary form of savings. While regular savings accounts proved to be extremely popular (63%) with 18-65 year olds, who are more likely to be building up savings from earned income, pensioners were more likely to favour putting money in fixed-rate bonds than their younger counterparts. Premium bonds are significantly more popular with pensioners (39%) than working age savers (19%).
In general, older savers expressed a preference for using their savings for one-off costs such as holidays or home improvements, as opposed to emergencies. Working adults showed a stronger inclination towards using their savings for regular income and day to day expenses, despite still being in employment, perhaps demonstrating the impact of the cost of living crisis on households’ ability to keep savings for a rainy day.
Tips for making the most of savings
Financial Services Compensation Scheme (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 per cent 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
Don't miss the biggest and breaking stories by signing up to the Echo Daily newsletter here
Win £100 worth of groceries at Aldi in celebration of 1,000th store opening