Best Interest Rates For Retired Individual

tturnstill1988

Hi All

I have been tasked with helping my grandad earn more out of his 'cash in the bank'.Currently he has his entire funds (£260k) in a single bank account earning 1.41% AER.
He lives off of £10k a year (withdraws in cash every September!) and thats it, the rest just sits there year on year. He always moans as years ago he used to get over £10k a year in interest but as the years have gone on and interest has gone down, he now see's his savings go down.

What i'd like to know is, how is he best to invest this in order to get the most out of his money? I have been looking around online but I am no financial adviser so my knowledge is (although not bad) not perfect.

I am thinking the first thing to do is not have all the cash in one account?! But when it comes to ISA's and Bonds (or just regular bank / savings accounts), they're all a bit confusing on what you actually get each year!

Does a man in his 80's get charged tax on anything he earns in savings? Including in ISAs?

Is it best to open up a few different accounts? Say one that pays high interest but only on up to like £20k, so put £20k in that one. £30k here, £25k there etc?

Really am open to advice! Like i said, he only takes £10k a year. So having longer term 'cant touch your money' accounts isn't a problem for the majority of his money!

Thank you !
:beer:

OldMusicGuy

Look here: https://www.moneysavingexpert.com/savings/savings-accounts-best-interest. Masthaven Bank and Charter Savings Bank also offer fixed rate bonds.

You should use a combination of high interest bank accounts and fixed rate bonds. The former will only be for relatively small amounts, the latter can be for larger amounts and you could get around 2.3% plus.

If you want more than 2.3% or so he will have to put the money into investments like S&S ISAs, which will be higher risk.

Also, do NOT be seduced by ads offering "guaranteed" bonds at interest rates like 8% or 10%. These are likely to be unregulated investments which means you could lose everything.

Age is irrelevant for tax. Anything in an ISA is not taxable (but will pay lower interest), the interest on fixed rate bonds is potentially taxable. See here for how interest income is taxed: https://www.gov.uk/apply-tax-free-interest-on-savings

geoffers4

Your grandad would need approx 3.84% return to generate 10k per annum from that amount of capital. I'm afraid there simply aren't any cash ISAs or fixed-rate bonds with that kind of return at the moment - although you can get 2.65% and 2.7% respectively if you're prepared to lock money away for 5 years.

S&S ISAs could create greater returns, but at higher risk. Also Peer-to-peer. And Buy-to-let.

Also worth noting the government will only protect the first £85000 of funds, if a bank goes bust. So aside from any other considerations it would be worth splitting the money over 3 different banks.

drphila

tturnstill1988 wrote: »

Is it best to open up a few different accounts? Say one that pays high interest but only on up to like £20k, so put £20k in that one. £30k here, £25k there etc?


:beer:

As has been said above, having it all in cash is the not the best use of his money.

For the cash part of my overall portfolio, and on the expectation that interest rates will rise over the next few years, this is the approach I use:

https://www.telegraph.co.uk/finance/investor/11789970/The-Bond-Ladder-The-pros-trick-to-turn-your-savings-into-a-reliable-low-risk-income.html

Katiehound

Some of the current accounts pay out reasonable rates of interest but on very small amounts of capital - and there are strings attached like having x2 DDs going out.

It would certainly be prudent not to have all the eggs in one basket- that sum is not covered

One thing you might consider is paying for a financial adviser to invest some of the money in stocks and shres ISAs. That seems an afwul lot of dosh just sitting there as cash......

Dazed_and_confused

Does a man in his 80's get charged tax on anything he earns in savings? Including in ISAs?

As has already been mentioned age is irrelevant.

ISA's are tax free but other interest will be taxable however in addition to his Personal Allowance of £11,850 he could get upto £6,000 per year in taxable savings interest and pay 0% tax rate on the interest.

You need to consider pension income first, presumably he at least gets a State Pension?

However he may only get £1,000 interest taxed at 0% if his pension income is large enough (£16,850 or more).

LHW99

Whilst it is true that stocks and shares are the only things likely to bring in interest at 3% or more, I would suggest that if your grandad is in his 80's and neither he nor you are used to investing that could be a step to far (IMO only).
After all, if he only needs £10k per year, then what he has will last for 26 years, even with no added interest - so until he is more than 106 - an age that even now, not so many people reach.
If he can average 2% interest, it will last longer.
You could consider talking to an IFA as suggested, and perhaps an option might be to use an annuity for some of the money. They are not good value if you are 60'ish, but once you are in your 80's, he's likely to get a much better rate. IFA's can usually find the best rate on those.

tturnstill1988

Hi all
Thanks for the replies!

I noticed some of these bonds offering 8% guaranteed interest per year paid quarterly. Looks too good to be true so I will ignore it! Assumed it was high risk stuff!

So reviewing the replies, it looks like the best thing to do would be to have a number of different accounts set up, with different banks?
Some standard accounts and some savings accounts ?

I am not sure about his pension so will find out.

Is buying a property (or two) An option and a good source of income ? I.e would it return a higher percentage of interest than typical bank account? I!!!8217;m a tradesman so thought of buying low, renovating for him and then renting has crossed my mind. But I!!!8217;m not sure whether that is likely to provide a more profitable interest ?

Owain_Moneysaver

National Savings guaranteed income bonds offer 1.92% AER over 3 years. Interest paid monthly to a nominated bank account. He'd get about £4990 p.a. on the full amount, so half his income without drawing down capital (although inflation will reduce the value of the capital).

The rate isn't the best possible, but (a) it's guaranteed for the time period; (b) the full amount is guaranteed by the government, not just the £85k FSCS limit; and (c) you can withdraw funds subject to a loss of interest penalty.

kidmugsy

First move, split that money up. He's protected from a banking disaster at the moment for only the first £85k. If he wants to avoid having too many accounts then he should probably bung much of it into ns&i because their Treasury guarantee is far better than the £85k guarantee elsewhere.

I'm quite impressed that he's getting 1.41% AER. Is that on instant access?

LHW99

Is buying a property (or two) An option and a good source of income ? I.e would it return a higher percentage of interest than typical bank account?

Unless you / he have experience, property is illiquid, suffers when prices crash, and being a landlord is definately not hassle-free unless you are able to regard it as at least a part-time 'business.
There are a lot of taxes nowadays to negotiate.
If he is currently renting, then buying a retirement property for himself would free the rent money each month thus reducing outgoings so could be worth considering.