Top savings tips for the over 50s

Check out these six top tips on how to become a savvy senior saver and make the most of your cash.

As you get a little older getting the best possible return on your cash isn’t your only savings priority. Now's the time to get your financial house in good order. Here’s how in six simple steps.

Avoid over-50s accounts

You should have an emergency cash cushion no matter what stage of life you’re at, and it makes sense to pick the most competitive savings account you can find for this purpose. But don’t be fooled into thinking accounts which are exclusively available to the over-50s offer a better deal. They don’t. A quick look at the rates proves that.

The most competitive silver savings account is Telephone Saver from Saga with a rate of 2.75% including a bonus of 1% for 12 months on savings of £1 plus. But there are several ordinary savings accounts which offer better rates.

For example, if you have at least £1,000 to put away, the highest rate is paid on the West Bromwich Building Society Direct Bonus Account 2 which is open to all savers regardless of their age. This account offers a rate of 2.90% including a 1% bonus until 31 March 2011. (Although note that only three withdrawals are allowed per account year before penalties kick in.)

To find out more about this option and other savings products which beat Saga, take a look at Best savings accounts for over 50s.

Enjoy tax-free interest

If you’re aged between 65 and 74, and your income is less than your tax-free personal allowance of £9,490, you don't have to pay any income tax. The same goes if you are under 65, and earning less than your tax-free personal allowance of £6,475. As a non-taxpayer you’re entitled to earn gross interest on your savings. All you need to do is submit form R85 (PDF) to all the banks or building societies you save with to qualify for a tax-free return. If you’re aged over 75 your personal allowance rises to £9,640 before tax becomes payable.

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Think about your pumping up pension

As you reach your 50s, it’s essential to keep an even closer eye on your retirement savings so you can be sure you have made sufficient provision for your twilight years. Rather than ploughing your money into savings accounts, it may be more sensible to pump up the value of your pension with extra contributions.

Remember, you can now invest up to 100% of your salary (as long as you don’t exceed the maximum of £255,000) giving plenty of opportunity to top up your pension as much as you can. You'll also benefit from tax relief on your contributions, which means you’ll effectively get back the tax you have already paid on your income.

So, to put an extra £1,000 into your pension, you only need to pay in £800 into the scheme out of your own pocket with 20% tax relief. (Higher rate taxpayers can claim a further 20% tax relief via their tax returns.) Tax relief gives your pension pot a massive boost which you won't be able to get from an ordinary savings account.

Another important thing to remember when it comes to pensions is that, when you reach State Pension Age, you can defer receiving the State Pension and boost the amount you eventually receive dramatically. Find out more by reading Boost your pension by 52%.

Recent question on this topic

• Gary20006 asks:

  What is is the best thing I can do to get a retirement income?

  • 
    MikeGG1 answered "Gary If you are working abroad, you probably don't qualify for adding to your ISAs or for pension..."
  • 
    MikeGG1 answered "Make sure you don't overpay by more than theterms of your mortgage allow. Typically,..."
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Think about ISAs

If you don’t like the idea of tying up your savings in a pension for the next ten to fifteen years, and you’d rather not take an investment gamble on the stock market, why not choose a cash ISA instead? This is a great way of boosting your return with a tax-free rate.

You can use an ISA as another way to fund your retirement, but this time you’ll have access to your money whenever you need it, giving greater flexibility than traditional pension plans.

ISA rates have suffered in the financial crisis, but the good news is they appear to be improving at last. Take a look at Top 10 cash ISAs now even better! to discover some of lovemoney.com’s favourite ISA picks.

Clear your debts now

Equity release firm, Key Retirement Solutions claims one in two over 65s still owe money on mortgages, loans, credit cards and overdrafts. In fact, the average person taking out an equity release plan has debts which run to almost £36,000*.

If you’re in your fifties and you still have debts, now really is the time to tackle them head on. Overpaying your mortgage, or paying down your debts, may put your savings to far better use than simply leaving them in an account with a less than spectacular rate.

Offset mortgages

But perhaps, you’re worried that clearing your mortgage balance now would deplete your savings too much, leaving you without a cushion to fall back on. If this is a concern, you could consider switching to an offset mortgage.

An offset allows you to link your savings to your mortgage which effectively reduces your outstanding balance. In this way, you’ll actually pay less interest. Put simply, if you had an offset mortgage of £100,000 and savings of £20,000, you’ll only pay interest on £80,000 for as long as your savings remain in place.

This could potentially save thousands and shave years off your mortgage (use our offset mortgage calculator to figure out just how much). But crucially you’ll always retain access to your savings. Read Save £2K and pay off your mortgage 5 years early! to learn more about offsetting. And if you need help deciding whether an offset is the right choice for you, speak to an independent, fee-free broker at the lovemoney.com mortgage service.

Compare savings accounts and ISAs at lovemoney.com

*Debt figures based on Key Retirement Solutions own customers applying for equity release products in 2009.

More: Five top easy access savings accounts | Earn 6% on your savings