Best savings accounts for over 50s

The best savings accounts for over 50s should be covered by the Financial Services Compensation Scheme, offer the best interest rates and flexibility to access your money when you want. However, with so many options to choose from, are over 50s savings accounts really the best option for your money?

The right savings account can help boost your money but only if you choose the right one. Instant access savings, notice accounts, fixed term and ISAs are all types of savings accounts that pay interest on your savings. However, the flexibility and interest rates each offers is very different

The following information explains how the different types of accounts work, how to ensure your money is safe and how to choose the best savings account for you.

What is a savings account?

A savings account is a safe place you can put your money to earn interest. They’re not designed for everyday use, frequent withdrawals or to pay bills. They do not offer additional services like overdrafts or debit cards. Savings accounts just have one aim - to help your money grow.

What is the difference between a savings account and a current account?

Current accounts are designed for everyday banking whereas savings accounts are for saving money. With current accounts you have flexibility to make deposits or withdrawals whenever you want, set up direct debits and pay bills. Whereas with savings accounts, your money is deposited with the sole purpose of earning interest.

Savings accounts therefore are fairly simple however the way your money is deposited, interest rates and flexibility to access the cash depends on the type of savings account you choose.

Savings accounts interest rates

Savings accounts interest rates vary depending on the type of account you choose. The general rule is the less access you have to your cash, the higher the interest rates will be.

To compare savings rates, you can use an online comparison service such as Moneyfacts, Money Saving Expert or Savings Champions. They all show a breakdown of the rates available across the market, including their current best buy savings accounts.

What is AER?

AER or Annual Equivalent Rate is the measure for savings accounts. It shows you how much interest you would earn on your savings if you left your money in the account for a whole year.

AER is important as it allows you to compare savings interest rates across accounts, regardless of how or when the interest is paid. Therefore, when you compare savings accounts, to get a true like for like comparison, always look at the APR. 

Do you pay tax on savings accounts?

All UK taxpayers have a Personal Savings Allowance that lets you earn interest on savings without paying tax. This allowance ranges from £1,000 to £500 depending on whether you‘re a basic or higher rate taxpayer. This means you could earn between £500 to £1,000 interest on savings before being taxed.

For a basic rate taxpayer, the allowance is £1,000. Higher rate taxpayers can earn £500 on savings before being taxed however additional rate taxpayers don’t get any allowance.

The personal savings allowance that came into force in 2016 now means that 95% of UK adults no longer pay tax on their savings.

Are savings accounts safe?

Savings accounts are safe as long as they’re UK regulated and covered by the Financial Services Compensation Scheme. The FSCS protects customers from losing money if an authorised financial services firm goes bust. It protects up to £85,000 of savings per person where the claim meets the FSCS’s criteria.  

To be eligible for the Financial Services Compensation Scheme:

• The financial services company concerned must be unable to return your money
• They must have been a Financial Conduct Authority (FCA) or Prudential Regulation Authority (PRA) authorised company when you used their services
• You must have lost money and it should be personal not business

The FSCS protection of up to £85,000 applies per person, per financial institution. So if you have money saved in two banks owned by the same institution, you will only be covered for £85,000 in total. It’s therefore important to know which banks and building societies belong to the same financial institution.

Which is the best savings account for me?

The best savings account will depend on your situation and requirements. If you need to access your money, then an easy access savings account maybe best. However, if you won’t need to touch your savings for some time, a fixed rate bond could offer higher interest rates.

For example, over 50s wanting to offer family future financial support, perhaps with a deposit for a house, education fees or a wedding, may be happy to tie their money into a fixed term account with better interest rates.

Whereas over 60s or over 70s looking to supplement monthly retirement income may prefer the flexibility of being able to access their savings when they want. In which case an instance access account may be better.

You may also want to consider how you manage your account as some are only available online or over the phone, whereas others may require a visit to your local back or building society.

Therefore to find the best savings account for you, it’s important to compare the features in addition to the AER.