Should i look long term with my savings strategy?
Q: I'm recently retired and have around £60,000 worth of savings. I'd like to find a savings account that can provide me with an extra monthly income to supplement my pension, and I don't mind locking my money away for up to five years.
What accounts can you suggest?
Read our round-up of the best savings rates
A: Many savings accounts allow a monthly interest option, allowing savers to benefit from a regular income stream. While the interest each month might not amount to very much, it's a good option for retirees with high amounts of savings.
Monthly interest is available from instant access and fixed-rate accounts - although they're unlikely to be topping any best-buy tables. Some accounts will allow you to pay the interest into a separate account, so you don't have to dip directly into your savings.
The other option is to set aside a lump sum in an instant-access account and invest the remaining amount in a fixed-rate account - while you won't be able to access your money until the end of the term, you will often get a better return.
However, you should bear in mind that locking your money away now - while interest rates are still relatively low - might not seem such a good idea in a few years' time, as the interest rates on instant-access accounts might well have risen by then.
Philip Pearson, partner at P&P Invest in Southampton, recommends:
"If you're prepared to tie up your savings for longer, the Coventry Building Society offers a fixed rate of 4.75% AER for five years, with a minimum deposit of £1. You can manage the account via its branches, by phone or online."
Dennis Hall, IFA at YellowTail Financial Planning in London, suggests:
"I'd be wary of locking your money away for five years as interest rates will improve; I would tie it up for no longer than 12 months.
"Monthly interest accounts over 23 months from the AA will pay a fixed rate of 3.35% AER; and Coventry Building Society pays 3.25% AER on a three-year bond with interest paid monthly."
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.