Cash Savings Strategy

[PuzzledObserver]

I’m wondering if anyone has anything as posh as a strategy for getting best returns from whatever cash they hold?

DH and I are early retired, have reasonable pensions (although these are not yet in payment) plus enough additional capital to provide a good backup. The vast majority of this is in stocks and shares ISA’s, but we have (currently) approximately 7 months’ of ‘income’ in cash. I put ‘income’ in inverted commas because at the moment that is a monthly withdrawal from the ISA’s, while we decide on the best strategy for accessing pensions. We own our house outright, have no borrowings other than a credit card paid off automatically each month, and no children.

Until recently, I was keeping all the cash in either instant access or something which allowed a limited number of withdrawals per year - but could get at it if needed. I would periodically open a new account and move the money for a better rate of interest, but you know what happens: you leave it for a few months, and lo and behold the rate on the account you have has not changed, but they’ve opened a new product with a better rate and you’ve been left behind.

But I’ve recently discovered a product which gives you access to multiple savings accounts from different providers, all under one umbrella. Single sign-in, you can see a list of accounts with their interest rates - there are usually 3 or 4 instant/limited access products, then several over different terms: 3, 6, 9 months, 1,2, 3 years. The products come and go regularly - might only be available for a week or even a few days, but there are always new ones coming along. You can apply for a new product without having to fill in a separate application and prove identity again, because it’s all been done. It makes it so easy both to see what’s available, and to open a new account and move money between them.

So I’m thinking about something like this:

1 month’s income in instant access - to provide a bit of a buffer for an expensive month

1-2 months’ income in limited access, where you can withdraw e.g. 4 times a year without loss of interest - for emergencies, and also putting money aside for holidays.

The rest in a sequence of term accounts - a smallish amount in each. So that every month, there would be some cash becoming available, but overall it will be earning more than the instant/limited access. As each chunk of money becomes available, reinvest it in a new term account.

We have no specific big projects in mind that this money is for. DH’s car is fairly old and will need replacing eventually, but could be planned for. So if we decided that e.g he wants a new car in the spring of 2025, we wouldn’t put any money into anything which would mature later than that.

If there was a dire, dire emergency, we could always access money from the ideally within a week.

No idea. All I know is I wish I had your dilemma. I may be being made redundant and was frantically trying to save for my retirement. Instead I am facing unemployment at 57.

I’m sorry, @crossstitchingnana

Hargreaves Lansdown does this. It’s called Active Cash or something

@Wenfy - yes - Active Savings, that’s what I’ve got. I’m more asking about the strategy of deciding how to allocate money to the various term accounts.

It sounds as if you're on a well established financial footing for your retirement.
The strategy you've outlined is usually called a savings ladder.

An additional option - if you have the time and inclination - is to keep some of the savings in a dummy current account to make the most of account switching deals. These can mount up to a good bonus.

One thing to be aware of is how much tax you are likely to pay on your pensions once you start to withdraw them as income.

I'm not a financial adviser, so do your own research, but depending on what type of pension - DB or DC, and any early access penalties, I would investigate tax efficiencies around this.
For instance - Whilst you are not earning an income, would it be beneficial to start withdrawing some of the pension pot up to your annual income tax allowance threshold, and moving it into your ISAs? Then in future, when you need the pension income, this ISA part of it would be tax free, and you would still have your full tax allowances for the pension withdrawal. It would need careful research of the benefits and any disadvantages/penalties.

I've done something like this with Active Savings. The process is very easy. It does mean I'm currently sitting on a 12 month fixed rate, due to mature next March in time for the new ISA year, that's lower than some of the 3 month fixes being offered now, but those are the risks you take.

@seekingasimplelife thanks for your input, very helpful. I’ve googled Savings Ladder and have a clearer picture of what’s what. Re the tax position on pensions - yes we are aware of this, and looking into putting the DC pensions into flexible drawdown and stopping or scaling back withdrawals from the ISA’s. We were advised to initially take from the ISA’s to reduce the size of our estate and therefore IHT liability….. but we have no kids, and the primary purpose of our savings is to keep us comfortable if we need care in later life. If there’s anything left for the nieces and nephews, that’s a bonus.

Re: the current account switching….. do you mean opening an account purely to get the bonus…. not actually using it for anything…. then switching it to another bank?

@KohlaParasaurus it is interesting to see what is being offered for different lengths. It strikes me that the expected direction of base rates is key here. If - as some commentators are saying - there’s another 0.5 or even 1% to come, then shorter periods make sense for a little while longer. And then when you think the peak is approaching/arrived, fix for longer.

@PuzzledObserver
Some of the best current account bonuses are only available if you switch accounts from another provider, rather than opening a new one.

So opening a dummy account (with a provider that rarely offers bonuses, such as Metro) with a couple of insignificant direct debits and standing orders, allows you to switch without losing your main account. Once you've switched to a new provider and met the criteria to take advantage of their bonus offer, that new account then becomes your dummy account for the next switch when a good offer comes along. If you keep about £1,500 of savings for just this purpose, it will quickly earn well above the interest rate of savings accounts.

It's a straight-forward process with the Account Switch Service Guarantee and means the new bank takes care of the switch, usually within 7 days, and the old bank takes care of closing the old account.

I find the best info on these type of deals is be clever with your cash
https://becleverwithyourcash.com/

And there's a linked award winning Podcast which is updated every week called Cashchats.

@PuzzledObserver Another couple of things (you're probably aware already), keep an eye on pension annuity rates. These fell out of favour because returns were so poor in times of low interest rates; but are now becoming a realistic option for a guaranteed income, either for life or, with a fixed term annuity until state pension kicks in.

Also, you might want to look at the feasibility of building a bond ladder as gilt yields are rising. Again, these fell out of favour due to poor rates but are starting to look more viable as a safe and reliable income stream.