Half of retirees get poor return on savings due to low-interest accounts

At least half of retirees are missing out on hundreds of pounds of interest each year by keeping their money in savings accounts paying less than 3 per cent.

Savers over retirement age are particularly prone to leaving money in lower-interest accounts, according to online pension provider PensionBee.

PensionBee’s research reveals that 42 per cent of British pensioners aged 66 to 80 have substantial cash savings, ranging from £20,000 to over £200,000 each.

This means putting their cash in a high-paying account could potentially earn them thousands each year.  

Meanwhile a quarter of working age adults in Britain have less than £1,000 in cash savings, with only 17 per cent of this group having more than £20,000. 

Almost half (42 per cent) of the over-65s reported earning 3 per cent or less on their savings.

Meanwhile more than one in six (17 per cent) of both workers and retired people did not know the interest rate currently being paid on their savings, meaning they are likely to be missing out on top rates.

Over-65s appear to prefer the convenience of instant access accounts, which tend to pay less interest than other forms of savings deals, such as fixed-rate bonds.

> Find the best savings rates using This is Money’s independent tables 

The best easy-access account, from Furness Building Society, pays 5 per cent interest a year, though savers can only make three withdrawals in that time.

Meanwhile the top fixed-rate bond, from Smartsave Bank, pays 6.01 per cent.

Over half (59 per cent) of retirees use instant access deals, compared to 37 per cent of working age savers.

Becky O’Connor, director of public affairs at PensionBee, said: ‘The older generation has the most to lose from keeping money in an account that does not pay a competitive rate of interest. Sadly, it appears a high proportion are missing out on the best savings rates.

‘When choosing accounts, hundreds of pounds of interest a year is at stake for retired people, who in general have built up more substantial savings over the years than younger workers.’

A retiree with a savings balance of £50,000 in an account paying 2 per cent interest would get £1,000 in interest after one year.

If their cash was held in an account with a 5 per cent rate, they would receive £2,500 in interest after a year – a difference of £1,500.