Should i look long term with my savings strategy?

Published by Cathy Adams on 28 January 2011.
Last updated on 03 November 2011

pound displyed as a lock

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:

"West Bromwich Building Society offers the WeBSave Plus, providing a monthly income paying 2.61% AER, with a minimum deposit of £1,000. This would give you about £130 of interest a month.

"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."

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