Newly retired Steve Collier, 57, wants to ensure that the golden handshake he received after 40 years at the Foreign Office, plus the savings built up over his career, provide him and his wife, Erica, with a comfortable retirement.

The couple, who live in Mitcham, Surrey, have no children and no mortgage. They are planning a move out of the southeast and have made an offer on a house in Gloucestershire.

Spending many years abroad with Steve’s job has, however, given them a taste for travel that they plan to indulge once Erica, 60, retires from teaching next year. Needless to say, they also want a good standard of living while they are in Britain.

They also have £250,000 of savings, which they want to use to produce an income in addition to their pensions.

He said: “We do not have anyone to leave the money to, so I would be happy for us to begin eating into the capital in about five years. For the moment, however, I would like to earn enough interest to give a reasonable income, while keeping the funds safe.

“About a year ago I invested in fixed-rate accounts paying between 5.7% and 7.2% with ICICI bank, Anglo Irish bank, Halifax, West Bromwich building society and Birmingham Midshires.

“I wish now that I had fixed in for longer. I am a bit of a rate tart when it comes to easyaccess accounts and have been moving the funds between various accounts paying about 3%, but I would like to find a more stable and profitable home for the money.”

We asked a panel of four savings experts and advisers to recommend how the Colliers should distribute their retirement capital.

Jason Butler, financial adviser, Bloomsbury Financial Planning

With interest rates at a historic low of 0.5%, Butler would not recommend that the Colliers opt for fixed-rate deposits.

However, with inflation widely predicted to rise because of the amount of money the government has pumped into the economy, he said National Savings & Investment’s index-linked certificates were worth considering. They offer guaranteed tax-free returns above inflation if held for the full term (three or five years).

Both the three-and five-year certificates pay the retail prices index plus 1%, tax-free. With RPI currently negative, the rate is 1% — equivalent to a gross rate of 1.66% for a higher rate-taxpayer.

He would also advise Collier to look at its guaranteed income and growth bonds, which are now extremely competitive over one and two years.

Last week NS&I launched a new issue of its one-year income bond paying 3.85%, up 2.85 percentage points on the previous issue. Meanwhile, the two-year income bond pays 4.15%, a 0.5-point increase.

The effective return is slightly higher with the growth bonds but if he needs income from his savings, then income bonds are the way to go.

As a comparison, the Post Office has a one-year bond at 3.70%, while the top two-year deal from the AA pays 4.35% — but NS&I has the benefit of government backing.

Butler said: “NS&I is now offering serious competition to the banks. Even for 50% taxpayers, the new growth bonds offer a better net return [2.25% for two years and 2.30% for five years] than tax-free savings certificates [1.25% and 2.25%].

“What is more, the overall investment limit for all guaranteed growth and income products is £1m, against £15,000 per issue for savings certificates.”

The maximum you can put in the three-and five-year NS&I savings certificates is £15,000, meaning the Colliers could put a total of £60,000 into the two current issues. By investing in each other’s names in trust they could double this to £120,000.

Butler would recommend putting about £30,000 in an easy-access account as a slush fund for emergencies, and splitting the remaining £100,000 between the one-and two-year NS&I income bonds paying 3.85% and 4.15% respectively.

Another option would be to buy added years in the civil service pension scheme — if he has scope to do so.

“Although he would say goodbye to the capital in return for income, that income is inflation-protected and is not linked to the vagaries of market fluctuations. A proportion also goes to his spouse in the event of his death,” Butler said.

Net annual income: £8,600

Kevin Mountford, head of banking, Moneysupermarket

Mountford said all savers should be aware of when their fixed savings accounts come to an end. “Several banks and building societies simply allow the money to languish in a default account, with which you will generally get a much less competitive rate of return.”

Mountford suggests the Colliers spread their money across deals with different terms. Over one year, he would suggest NS&I’s one-year growth bond as this is paying a market-leading 3.95%. He could then take out some medium-term fixed-rate accounts to get better rates. Barnsley building society, for example, is paying 4.70% over three years.

Mountford said if the Colliers take out joint accounts, they can put up to £100,000 in any one provider and still be protected. This is because, while the Financial Services Compensation Scheme covers up to £50,000 held with authorised institutions, this is doubled for joint accounts.

Tax-free fixed-rate Isas are another option. Over two or three years respectively, you can earn 3.75% from Bradford & Bingley and 4.20% from Principality building society.

If the Colliers were to split their savings three ways and put £85,000 in Yorkshire building society’s five-year fixed-rate bond paying 5.30%, £80,000 in the AA’s internet two-year fixed-rate account at 4.35%, and £85,000 in NS&I’s one-year Guaranteed Growth Bond Issue 48, they would earn £7,939.75 net interest over a year.

However, they could potentially boost this further if they haven’t already used their Isa allowance this year.

Net annual income: £7,940

Christine Ross, head of financial planning, SG Hambros

Ross would recommend the Colliers look beyond deposit accounts. “I do not believe that cash is the only way to go in the current low-rate environment,” she said.

“Instead, I would recommend a defensive portfolio of cash, high-quality corporate bond funds and equity funds for Collier’s £250,000 — as long as Steve has some easily accessible rainy day money elsewhere.”

She would recommend that approximately 15% of the portfolio be held in cash using a one-year fixed-rate deposit account such as NS&I’s Issue 48 Guaranteed Growth Bond, which pays 3.95%.

She would then advise investing 65% of the funds, or £243,750, in high-quality corporate bond funds like the Franklin Global Bond fund and the M&G Corporate Bond fund.

The remaining 20%, or £50,000, she would invest in equities through funds such as Artemis Special Situations, Invesco Perpetual Income and Cazenove European Equity.

“By introducing a modest equity content there is potential, over the longer term, to achieve some growth, which will help to preserve the real value of the underlying capital,” she said.

Overall, the portfolio has a gross yield of 4%, giving an income of £10,000 a year before tax, plus the potential to grow by 2% to 3% a year over the next 10 years. Transferring the maximum permitted amount into tax-free Isas over the next decade will enhance the overall return.

In the meantime, assets should also be held in the name of Collier’s wife to take advantage of her lower tax band.

Net annual income: £9,981

Andrew Hagger, editor, Moneynet

Firstly, Hagger said it was essential for Collier to have a rainy day fund in an easy-access savings account that he can draw on quickly in emergencies.

At present, he could get 3.25% gross with the Flexible Saver account from Citigroup for this part of his savings. The account allows unlimited withdrawals without penalty but the rate includes a 12-month bonus of 2.25%.

Next, he should take advantage of his tax-free allowance, which is now £5,100 per person per tax year for the over-fifties — or £10,200 for the couple.

Bank of Cyprus UK is offering 3.33% on a fixed-rate, one-year Isa, while Standard Life Bank has the slightly lower rate of 3.25%.

Both of these accounts allow you to transfer in previous years’ Isa allowances if you wish. For his remaining cash savings, however, he will need to lock them away without access to get the highest rate of return.

NS&I is offering 4.25% over two years, bettered only by AA internet savings at 4.35%, and you can receive rates as high as 5.35% from Skipton building society over five years.

However, if rates start to pick up after a year or two, Collier could be left with a portion of his savings earning a below-average rate.

“Consequently, it is probably better for him to have a portfolio of fixed-rate accounts, with more of the capital invested over a one-to two-year period,” Hagger said.

Hagger would advise Collier to invest £120,000 in the one-year growth bond from NS&I, £80,000 in a two-year account at 4.35% with AA Financial Services, £25,000 in a three-year account paying 4.70% with ICICI Bank and £25,000 in a four-year account at 5.10% with Principality building society.

Net annual income: £8,536