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Finding the best ISA rates for over 60s

ISAs are some of the most popular savings vehicles here in the UK, and finding the best ISA rates for over 60s is something that could be of prime importance to many as they contemplate their retirements. But first, let’s recap on what an ISA is, which will help to explain their popularity.

The acronym ISA stands for Individual Savings Account. This type of savings account was first introduced in 1999 by the then Chancellor of the Exchequer, Gordon Brown. It was hailed as offering tax-free interest payments.

The five different types of ISAs

When ISAs were launched, the ISA allowance was £7,000 per annum. Over the years, the allowance has increased, and in the current 2021/2022 tax year. That allowance is £20,000. There are five different types of ISA.

  • Cash ISA
  • Innovative Finance ISA
  • Junior ISA
  • Lifetime ISA
  • Stocks and Shares, or Investment ISA

The best savings accounts for over 60s tend to be the Lifetime ISA and the Stocks and Shares ISA.

The Cash ISA

Cash ISAs, sometimes referred to as NISAs, allow account holders resident in the UK and aged from 16 upwards to save up to £20,000 per annum tax-free. Some NISAs permit instant access to your savings and have variable interest rates. When looking for the best ISA rates for over 60s UK residents, the interest rates are not great.

Now let’s take a quick look at the Lifetime ISA.

What is a Lifetime ISA?

The Lifetime ISA, or LISA for short, is available to anyone between the ages of 18 and 39. It is attractive for potential homeowners as account holders can save up to £4,000 per annum toward their first home. The state adds a 25% annual bonus after one year. It is paid each year you save something into your LISA until you reach the age of 50.

In theory, if you started a LISA when you were 18, and you saved the maximum £4,000 every year, your bonus would amount to £33,000. The only thing to bear in mind is that if you withdraw some savings and don’t use them for buying a property, you will forfeit 25% as a penalty. 

Clearly, this type of ISA is aimed at those who want to get a foot on the property ladder, and they are quite attractive from that point of view. For over 60s, though, unless you are a late starter when it comes to buying a home, they don’t really cut the mustard. 

The drawback with both Cash and Lifetime ISAs is that the interest rates they offer are on the low side, which is why many 60-year-olds and over choose Stocks and Shares ISAs instead. 

The Stocks and Shares (Investment) ISA

Stocks and Shares ISAs are renowned for paying significantly higher interest rates on savings than their Cash or Lifetime ISA cousins. However, the downside to them is that there is a certain element of risk. You could lose some or all your savings. But how worried should you be?

Why put money into an investment ISA for over 60s?

Evidence suggests that investments usually perform better than cash over the long term. According to Barclays, who researched a number of 10-year periods, global stocks and shares ended in gains in 97% of cases. They showed an average return on the MSCI World Index of 126%, equating to 8.5% per annum. It’s a nice thank you for sitting back and watching the world go by. It’s a good indication of the potential best savings for over 60s and other age groups, too.

The three occasions where investments underperformed were during periods of financial crisis. So, the risk is there, and it is real, but it needs to be put into perspective. The important thing is being prepared to invest over the long term so that you can ride out any unexpected falls.


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The need to compare investment ISAs for over 60s

Not all Stocks and Investment ISAs are the same, nor are the wealth management specialists who look after them. To find the best ISA rates for over 60s, you will need to check out the best do-it-yourself-platforms as well as the best do-it-for-me platforms. Of course, if you are thinking about going down the DIY route, you’ll need to:

  • Carry out your own research regarding choosing the right shares
  • Construct your own investment portfolio
  • Track how it’s performing and be ready to move your money around

It’s only recommended for those who have the financial nouse.

You can have as many ISAs as you like, including Stocks and Share ISAs. Lots of over 60s do this so they can spread the risk. The more diverse your investments, the more likely you are to minimise any downturns.  

How to get the best savings interest rates for over 60s

Don’t limit yourself to one market. Many Brits go for the FTSE 100 because it is familiar, but there are other markets out there too, like the USA’s S&P 500 and Japan’s Nikkei 225. Similarly, an investment doesn’t restrict you to stocks and shares. You can also invest in:

  • Corporate and government bonds
  • ETFs (exchange-traded funds)
  • Investment trusts
  • Open-ended investment companies (OIECs)
  • Unit trusts

To get the best ISA rates for over 60s you need to put together the best portfolio you can, which isn’t easy unless you have professional, personal wealth knowledge.

What are the best fixed ISA rates for over 60s?

In the interest of clarity let’s, first of all, make it clear that Investment ISAs don’t come with fixed interest rates. Interest varies with the rises and falls of the markets in which your investments are listed. They come with a variety of fixed terms, although strictly speaking, you can always access your money, but you may have to pay a fee.

The general consensus of opinion concerning the rate of time, or the term of a Stocks and Shares ISA, is that you should be prepared to leave it untouched for at least 5-years to offset any drops in the markets – or longer if you can.

The pros and cons of Investment ISAs for the over 60s

Choosing the best vehicle for your savings can be quite confusing. Stocks and Shares ISAs bring the spectre of risk into the equation. But you shouldn’t write them off without going over the pros and cons.

The Pros

  • The return with a Stocks and Shares ISA can be significantly higher than you would earn if you put your money into a cash or any other sort of ISA.
  • By using up your ISA allowance, which is currently set at £20,000 per annum, any interest earned by your stocks and shares is tax-free.
  • You can invest in various assets and in several stock markets.

The Cons

  • There is a risk of losing some of your investment if the products you invest in don’t perform well. 
  • If an outside agency manages your fund, you will have to pay a fee, and depending on who you work with; these fees can be significant.
  • If you choose to manage your investments yourself, you will have to pay trading fees.

How about the best regular savings accounts over 60s have access to?

Some people are interested in the best regular savings accounts for over 60s as they expect them to offer better interest rates. They do, but you have to tread carefully.

First of all, some regular saving accounts are flexible, and some are not. If you open one that isn’t flexible, they will expect you to pay in a certain amount every year. Typically, the sum is between £25 to £300 pa. If you don’t comply, you might lose interest, or your account could be closed. You may also find that there are restrictions on taking money out.

The other disadvantage with regular savings accounts is that you will have to pay tax on any interest according to your tax bracket.

Putting risk into proportion

When reviewing all of the different savings vehicles, there can be little doubt that the best ISA rates for over 60s are those you can earn by taking out a Stocks and Shares ISA. It all boils down to how risk-averse you are. But don’t forget Barclay’s findings when they did their research. The risk may not be quite as great as you think it is if you are prepared to invest long term.

The other thing that is well worth bearing in mind – especially for the over 60s – is that ISAs can be passed on via inheritance.

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