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Scottish Friendly Bonus Bond & Child Bonds

Dithering_Dad
Posts: 4,554 Forumite

We currently pay £50 (£25x2) into two Bonus Bonds and £50 (£25x2) into two Child Bonds with Scottish Friendly. Since I joined this site I have become a little more savvy in the ways of investments and now realise what a poor investment these bonds are.
The two bonus bonds have a term of 10 years and will mature in 2010. One of the Child Bonds has a term of 18 years, and has been going for 5 years and the other Child Bond has been going for 7 years with 7 more to go.
All of the bonds are/were to be used to help fund the kids through university but I'm thinking that I'd get better returns by using our 6k cash ISA allowances to save for this instead.
I'm assuming that as the Bonus Bonds only have 3 more years to go, I may as well let these continue so that I get the final bonus. However, as one of the child bonds has 13 years to go and the other has 7 years to go the question is whether I should cut my losses with these and cash them in and put the returns (if any) and the future premiums into an ISA instead?
Would anyone like to comment on the positives/negatives of this?
p.s. to provide a bit of financial background - I'm currently using most of my disposable income to contribute to two stakeholder pensions (2 x £300 for myself and my missus) and the rest (about £3k per month) goes onto my mortgage, which I am trying to pay off over the next 3 years. I have £18k of emergency money in my offset account. Once this mortgage is paid off I'll probably buy another property and so the mortgage repayment will start again
I don't intend using the cash ISAs for anything else, so they would be an ideal place to store the Child Bond premiums (plus any other bits of cash I find lying about).
The two bonus bonds have a term of 10 years and will mature in 2010. One of the Child Bonds has a term of 18 years, and has been going for 5 years and the other Child Bond has been going for 7 years with 7 more to go.
All of the bonds are/were to be used to help fund the kids through university but I'm thinking that I'd get better returns by using our 6k cash ISA allowances to save for this instead.
I'm assuming that as the Bonus Bonds only have 3 more years to go, I may as well let these continue so that I get the final bonus. However, as one of the child bonds has 13 years to go and the other has 7 years to go the question is whether I should cut my losses with these and cash them in and put the returns (if any) and the future premiums into an ISA instead?
Would anyone like to comment on the positives/negatives of this?
p.s. to provide a bit of financial background - I'm currently using most of my disposable income to contribute to two stakeholder pensions (2 x £300 for myself and my missus) and the rest (about £3k per month) goes onto my mortgage, which I am trying to pay off over the next 3 years. I have £18k of emergency money in my offset account. Once this mortgage is paid off I'll probably buy another property and so the mortgage repayment will start again
I don't intend using the cash ISAs for anything else, so they would be an ideal place to store the Child Bond premiums (plus any other bits of cash I find lying about).
Mortgage Free in 3 Years (Apr 2007 / Currently / Δ Difference)
[strike]● Interest Only Pt: £36,924.12 / £ - - - - 1.00 / Δ £36,923.12[/strike] - Paid off! Yay!!
● Home Extension: £48,468.07 / £44,435.42 / Δ £4032.65
● Repayment Part: £64,331.11 / £59,877.15 / Δ £4453.96
Total Mortgage Debt: £149,723.30 / £104,313.57 / Δ £45,409.73
[strike]● Interest Only Pt: £36,924.12 / £ - - - - 1.00 / Δ £36,923.12[/strike] - Paid off! Yay!!

● Home Extension: £48,468.07 / £44,435.42 / Δ £4032.65
● Repayment Part: £64,331.11 / £59,877.15 / Δ £4453.96
Total Mortgage Debt: £149,723.30 / £104,313.57 / Δ £45,409.73
0
Comments
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I would do it the other way around. Stop paying into a stakeholder pension and switch to an ISA. When you get close to retirement you can then decide if you want to drop your ISA money into a pension and get the tax relief then. The advanatges of this route are that you always have access to the ISA money should you ever need it and you can "time" your payments into the pension if you ever end up paying higher rate tax. That way you maximise you tax take from the pension and keep all the benefits of the ISA flexibility.
The tax exempt savings plans are similarly flexible and you are generally better off holding them until the end of the term to obtain the benefits of the final bonus - Scottish friendly are currently paying 23% on their 10 year tax-exempt savings plans.
The other thing you should think closely about is using your offset mortgage, if it's a good one then effectively all your investments are tax free and the rate you are earning is far better than you would get from a cash ISA, also in the same way you can switch any lump sum from the offset account to your penson and get full tax relief (but remember you get hit for tax on the way out of a pension).
So I'd seriously consider redirecting the pension premiums in the short term and making a lump sum pension payment at a later date when you are good and ready.Neil Lovatt
Posting in a personal capacity
Please see my profile for list of conflicts of interest.0 -
Cheers for the reply.
I didn't realise that the Scottish Friendly bonds were doing that well. I may as well carry on paying into them because once our Scottish Bonds have matured, we'll only be putting away £50 per month, so we'll hardly miss it.
I'll stick with the stakeholder though because I'm a high rate taxpayer and so get 40% tax relief on the way in and will only pay 20% on the income when I retire (I won't have a large enough pot to have to worry about paying higher rate tax). I also have my own business and will shortly be making payments into both of our pensions from the company in order to reduce my corporation tax bill.
The offset simply holds my emergency money to cover me for periods when my company isn't bringing in any money. I'm hoping this won't occur too often!Mortgage Free in 3 Years (Apr 2007 / Currently / Δ Difference)
[strike]● Interest Only Pt: £36,924.12 / £ - - - - 1.00 / Δ £36,923.12[/strike] - Paid off! Yay!!
● Home Extension: £48,468.07 / £44,435.42 / Δ £4032.65
● Repayment Part: £64,331.11 / £59,877.15 / Δ £4453.96
Total Mortgage Debt: £149,723.30 / £104,313.57 / Δ £45,409.730 -
No problem. Please note my declared interest in Scottish Friendly from my profile, I should have noted that in my reply in the first instance.
I would think again about the pension, even if you are a higher rate taxpayer by putting money away into you pension you are locking it away when you don't need to. A better way is to max out your ISA and other tax-free options, such as your CGT allowance with OEIC investment and then drop it into the pension when you are good and ready (and much closer to retirement). You'll still get full relief on the contribution (provided it's not greater than your salary in that year) and it makes no difference if you get it now or later.Neil Lovatt
Posting in a personal capacity
Please see my profile for list of conflicts of interest.0 -
Thanks Neil. I requested a surrender value for the bonds and all of them were coming in at the 4k mark. I was amazed! I decided to leave well alone!
As far as the pension is concerned, I have my own limited company and will soon be paying the pension contributions out of that rather than from my net pay. This means that I will save on Employee and Employer NI, Income tax and also Corporation tax, so I doubt I'll find a more cost effective vehicle for my retirement planning.Mortgage Free in 3 Years (Apr 2007 / Currently / Δ Difference)
[strike]● Interest Only Pt: £36,924.12 / £ - - - - 1.00 / Δ £36,923.12[/strike] - Paid off! Yay!!
● Home Extension: £48,468.07 / £44,435.42 / Δ £4032.65
● Repayment Part: £64,331.11 / £59,877.15 / Δ £4453.96
Total Mortgage Debt: £149,723.30 / £104,313.57 / Δ £45,409.730 -
I would just like to say that I was EXTREMELY disappointed with the performance of the two Child Bonds I took out with Scottish Friendly. I have paid £25 into each of them for the last 10 years. They have now matured and will pay out £2995 each! ie less than I have paid in over that time. I would have been much better using a conventional building society, premium bonds (I would only have needed to have one win to be more successful than Scottish Friendly) or even just a shoebox under the bed - at least then I would not have actually lost money!0
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I too had a Scottish Friendly bond maturing this January 2010 for less than I paid in over 10 years. I wrote a stinking letter to Scotish Friendly and whilst they did not uphold my complaint, the terminal bonus was increased bringing the policy up to a slight profit. So my advice is to write to them before you sign the maturity document.0
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