18 September 2025
general
If you’re approaching retirement, or have recently retired, deciding how to structure your finances can feel daunting.
Your retirement income is likely to come from a range of sources, including savings that generate interest. While you may need regular access to your savings once you’re no longer working, you might also be hoping to boost your retirement income by maximising your interest earnings. Achieving this balance can be tricky.
With the Bank of England (BoE) expecting to continue cutting interest rates in 2025, retirees could miss out on opportunities to grow their funds with interest if they don’t have a savings strategy in place.
In some cases, “laddering” your savings can be a good option to help optimise your interest earnings, while still retaining regular access to your funds.
Whether you’re already retired or planning for your future, read on to learn more about your savings options, how laddering works, and what factors you should consider before creating a plan.
Different types of savings accounts generally offer varying withdrawal options and interest terms
While much of your retirement fund may be invested in the stock market, you could also choose to keep some of your wealth in cash so it is more accessible.
Generally, there are three types of savings accounts available:
Of the three, fixed-term accounts typically carry the highest interest rates. You can usually lock in your interest rate for terms ranging from six months to five years.
However, while committing to a fixed term can sometimes help boost your earnings by guaranteeing a higher rate of interest, it may also mean you can’t access your savings before the fund has matured.
If you do withdraw your savings before the end of your term, you could face an early withdrawal charge. In some cases, if the fees exceed the interest you have earned, you could potentially end up with less money than you originally deposited.
By contrast, easy access accounts generally offer unlimited withdrawals but without the security of a fixed interest rate.
Notice accounts may provide a slightly higher rate, but typically require withdrawals to be requested several weeks in advance.
Laddering can provide regular access to funds, while securing higher interest rates
One popular strategy for optimising interest accruals, while retaining regular access to your funds, is laddering.
Laddering involves spreading your savings across multiple fixed-term accounts with different maturity terms and, usually, varying interest rates. In some cases, you might choose to incorporate easy access and notice accounts as well.
When you enter fixed-rate agreements with different term lengths, you create a regular cycle of funds maturing. Each time you reach the end of a term, you can choose to either withdraw the funds, reinvest them into a new fixed-term savings account, or a combination of the two.
As a result, this strategy can be appealing to retirees looking to maximise their income through interest earnings, while knowing they can access some of their funds at annual intervals if necessary.
Saving into multiple accounts can help manage the risk of changing interest rates
Laddering can be an effective method of balancing risk and reward.
By creating a cycle of funds maturing and being reinvested into new fixed-term accounts, laddering can provide the security of locking in competitive interest rates, while potentially enabling you to take advantage of higher rates in future.
So, if interest rates fall, a portion of your savings will already benefit from a fixed, higher rate. If interest rates rise, you may have the opportunity to secure the higher rates when your next fund matures.
Historically, longer-term savings accounts have offered the highest interest rates. However, with interest rates expected to continue falling in 2025, many easy access and one-year accounts are offering higher interest rates than five-year accounts.
In fact, as of September 2025, MoneyWeek reported that the top available easy access interest rate was 4.75%. Meanwhile, according to Forbes, the top five-year interest rate was 4.52%.
However, this doesn’t mean you’re necessarily better off putting all your savings in an easy access account. If interest rates do fall as predicted, having a portion of your income in a fixed-rate account could potentially generate more interest than shorter-term, higher-interest options.
Staggered maturity terms could help reduce your Income Tax bill
Depending on how much you’re saving in each account, laddering may help you pay less Income Tax.
Typically, Income Tax is charged on all earnings that exceed your Personal Allowance. Until 2028, the Personal Allowance is expected to remain frozen at £12,570 for taxpayers earning less than £100,000 a year, with the threshold reducing by £1 for every £2 your income exceeds £100,000.
However, once you have exceeded your Personal Allowance, you can still earn tax-free interest on savings up to your Personal Savings Allowance (PSA). As of 2025/26, the PSA is:
Additionally, you may also benefit from the “starting rate for savings”. This is an additional threshold for tax-free interest for low earners, under which you may be able to generate up to £5,000 tax-free interest in 2025/26.
For any interest accrued beyond these thresholds, Income Tax is charged at your marginal rate.
A saver who split their funds across a mix of accounts ranging from one- to five-year terms would generally receive interest earnings annually. Depending on your tax rate, you may be able to earn up to £1,000 a year tax-free – or more, if you haven’t used up your Personal Allowance through other income.
However, the PSA cannot be carried over into the next tax year. So, if you put all your savings into a five-year account, and interest is paid at maturity, you may have to pay Income Tax on all interest earned over £1,000 in the five-year period.
For example, a higher-rate taxpayer with savings of £10,000, and a PSA of £500, could pay the following Income Tax on interest paid at maturity:
As you can see, while a single year’s interest may be tax-free – provided it stays below your PSA – an account that pays interest at maturity after three or five years is more likely to be subject to Income Tax. Spreading your savings across multiple accounts with different terms, and having interest paid annually, may therefore help you reduce the tax bill on your interest earnings.
Of course, the table above is an example – actual interest rates are likely to vary.
Get in touch
If you’re thinking about savings and retirement planning, please get in touch.
With access to a cash service, we can ladder your savings accounts on your behalf. To find out more about how we can help you, email enquiries@jesellars.co.uk or call 01934 875 919.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.
The Financial Conduct Authority does not regulate tax planning.
