After record sales, Pensioner Bonds, with their table topping rates, have now been withdrawn.
So, if you are a more elderly saver, where should you be looking now for the best return on your cash?
First things first though, a quick word on inflation. Over the past few months inflation, as measured by the Consumer Prices Index (CPI), has hovered around zero. It might therefore be natural for some savers to ‘take their foot of the gas’, relax and stop searching so hard for the best interest rate; to do this would be wrong.
Why?
Two reasons. Firstly, there is clearly no guarantee that inflation will remain this low for any prolonged period of time. Secondly, inflation has been the enemy of savers for many years, eating into low interest rates, now is therefore the perfect time for savers to hit back.
So, where should you start, here are our five suggestions.
#1: Premium Bonds
Loathed by some, loved by many, the amount you can hold in Premium Bonds has recently been increased to £50,000 and there’s no doubt that many savers are tempted.
The returns, whilst tax-free, are far from spectacular, averaging just 1.35% per year, although there is always the possibility of a big win.
They are certainly worth considering if you want instant access to your capital or you are a higher rate tax-payer, making the tax-free returns attractive.
We’ve covered Premium Bonds in more detail here.
#2: Cash ISA
You can now pay up to £15,000 each year into a Cash ISA (Individual Savings Account) and interest is tax-free.
Cash ISAs come in a variety of forms, from instant access to longer term fixed rates. As a general rule the longer you tie up your savings the better the return will be. But beware, you may be left unable to get out of a fixed rate if interest rates rise and you want to move your cash.
#3: Ignore Cash ISAs and use a ‘normal’ savings account
From 6th April 2016 all savers will receive the first £1,000 of interest tax-free (reduced to £500 for higher rate taxpayers).
Does that mean Cash ISAs are dead? No, of course it doesn’t, but it does mean that where a ‘normal’ savings account pays a higher interest rate than a Cash ISA, it might be better to use that, at least for the first £1,000 of interest.
Be careful though, rules can change and who knows how long this relatively generous allowance will last for.
#4: Over 65s accounts
Once upon a time savers turning 65 could look forward to better interest rates than other, younger, savers.
Is this still the case? Probably not, although the occasional very attractive account, aimed at older savers does still sometimes come along.
You can view these accounts by clicking here.
#5: Consider investing
Investing, into riskier assets, such as bonds or shares, usually via a ‘fund’, is generally seen as the alternative to saving.
Of course investing is more risky, the value of your capital can fluctuate, sometimes significantly, but over the medium to long term, investors expect to receive a higher return than savers.
There’s an old saying though: that you can’t make a successful investor out of a nervous saver and that’s probably true. However, if you are prepared to take more risk with some of your capital, in the hope of a higher return, then you could consider carefully dipping your toe into the world of investing.
We’re here to help
Our advisers are highly experienced in helping savers improve the return on their capital.
Whether you missed the boat with Pensioner Bonds, or have spare capital not working as hard as it should, we’re here to help.
Call Bev or Sarah today on 0115 933 8433 or email info@investmentsense.co.uk
