Savings advice needed

[scgf]

Hi guys. I have an inheritance of 30K coming my way soon and am wondering what to do with it.

I earn around 42K a year and am 55 years old. I have an 85K mortgage, a 5 year 12K loan just taken out with the Derbyshire at 5.6% and a 10K car finance PCP plan which is interest free and costs £172 a month.

My mortgage runs until I'm 65 and is the one thing which would stop me retiring at 60. I am a teacher and will have been teaching for 40 years when I reach the age of 61.

I've never early had savings before having always preferred to enjoy life and spend everything I earned.

Not really sure what to do with this 30K windfall. Just wondering if anyone has any advice for me. Any advice would be most gratefully received.

[innovate]

What is the interest rate on your mortgage? It's most likely higher than the interest rates on any savings account these days.

Could you re-pay parts of your mortgage, or your loan, without incurring any penalties?

Savings rates are pretty dire now but it's always a good idea to have a slush fund for a rainy day. You could put £5,640 into an instant access cash ISA now, another £5,640 (plus a bit) into another one in April, and transfer the first ISA to an ISA that pays better interest at the same time (April is usually the best time to find good ISA).

Until you know what you will do, you could "park" any surplus in Lloyds Vantage accounts @ 3% AER for balances between £3K and £5K. You can have 3 of these, making a home for £15K. And/or you could look at the Santander 123, which also pays 3% AER, on balances between £3K and £20K. The latter has a fee but people manage to recover it from monthly cashback, and there is also a £60 cashback offer from Quidco for just opening the account. Both Vantage and 123 have pre-reqs that you need to research further but they aren't too onerous.

The remainder of your money could then go towards paying off the loan, and/or some of the mortgage.

[opinions4u]

Open the best easy access savings account you can find NOW. Link at the top of the page. Stick £1 in it, then you can have an account ready to receive the funds.

Lots of options open to you. I'd clear the Natiowide debt and keep the rest in cash ISA and easy access savings accounts. That should pay for another can before you retire.

If you wish to retire earlier you could reduce mortgage debt, overpay mortgage and get that out of the way long before you're 65.

What do you want to achieve with it?

[scgf]

Thanks guys. Excellent advice.

Half of my mortgage is linked to the US Libor rate so is currently less than 2%. This rate ends in 2014 and reverts to the Leeds BS standard variable rate at over 5% so I can move it without paying any penalties. The other half is already at the SVR so I am planning on re-mortgaging in 2014. What about an offset mortgage account? Might that benefit me?

[Gromitt]

Offset mortgage is great if you want to protect against interest on a chunk of your mortgage, and your not likely to get anywhere near the mortgage interest in a savings account, but offset interest is typically higher than normal, so if you don't want the cash, overpay as much as possible. Your on a decent salary, so should be able to start saving a considerable amount each month. Fill up your ISA with it, that'll be your rainy day fund, and then overpay on your mortgage and loan if possible, whichever has the highest interest first.

[atush]

I would ask your mortgage provider what the amt extra you are allowed to over pay is- and what is needed to bring the term down to 5 years from ten. But if yo are on a special deal they may not allow overpaying so you might have to wait til you are back on SVR.

I agree, you should pay off the 12K loan, and put the rest into ISAs. consider a regular saver for the amt that would have been the 12K loan payment.

[scgf]

I'm going to put £5640 into an ISA with IF

I'm going to pay off the 12K loan and put the rest in an IF isaver account.

Thinking maybe I could overpay my mortgage with the £250 per month I would have made in loan repayments. Given I would have put the balance of my inheritance into an iSaver I will already have decent emergency savings.

How does that sound?

[innovate]

You can get better interest for an ISA elsewhere, e.g. 3% instant access at Cheshire BS. Its postal access only though. Or 2.75% at Birmingham Midshires. Wherever you put your ISA - keep an eye on the rates in March/April time, it might make sense to transfer if the rates are better then. You might even want to consider a 1- or more years fixed term then.

Next April would also be the time to start a second instant access ISA, to put any of your spare savings up to next year's allowance into a tax shelter.

The First Direct Regular Saver might be of interest whilst they still pay 8%?

I would also open a Halifax current account and cycle £1K a month through it, to get the monthly fiver. You could shuttle the money between your isaver and Halifax. £60 a year for £1K is brilliant return, plus you'd get a bit from the isaver.

Personally, I would put spare money into Lloyds Vantage, simply on the grounds that 3% AER is more than you get in the isaver.

Other than that your plan sounds great.

[scgf]

Cheers Innovate.

I already have a Lloyds TSB current account which I rarely use, so could easily add vantage to that. The only think which has put me off is that I can't get my head round the terms and conditions. I need to fund it with £1000 a month - how is that going to work if I have £5000 sitting in it? Would appreciate advice on this.

[Gromitt]

Originally Posted by scgf

I can't get my head round the terms and conditions. I need to fund it with £1000 a month - how is that going to work if I have £5000 sitting in it? Would appreciate advice on this.

Just transfer the 1K and straight out again, thats all you need to do. So it will at 6K for about 10 seconds or so.

You can have 3 such accounts and transfer between them, so apply for another 2, and then transfer from 1->2->3->1. No need to get faster payments involved.

If you only have 10K to spare, only grab an extra one. If you only have 5K, you can use a savings account I believe.

[scgf]

I have added Vantage to my existing Classic account and just opened an additional account and added Vantage to that.

So, if I pay, say, £5000 into each and have a standing order to pay £1000 from 1 -> 2 then a few days later pay £1000 from 2 -> 1 would that work?

If the £1000 is to come from another account then it's going to have to be in that third account to start with and I'm concerned that if I am leaving £1000 lying around for this purpose then I will not be gaining much interest on it. Not sure if I would have enough salary available to make the transfers, even for a day, since all my direct debits leave my current account the day after my salary is paid in.

[calypso rhapsody]

Yes standing orders between the two do work - you don't even have to leave the couple of days between (and probably shouldn't as you get no interest on the balance over £5k)

[scgf]

So, If I put £5K in my two Vantage accounts and have a SO to send £1000 from Vantage account 1 to Vantage account 2, and a SO to send £1000 from Vantage account 2 to Vantage account 1, both on, say, 1st of the month, the accounts get the 3% interest and everything ticks along nicely.

Can anyone spot a flaw in this plan?

[Zekko]

Originally Posted by scgf

So, If I put £5K in my two Vantage accounts and have a SO to send £1000 from Vantage account 1 to Vantage account 2, and a SO to send £1000 from Vantage account 2 to Vantage account 1, both on, say, 1st of the month, the accounts get the 3% interest and everything ticks along nicely.

Can anyone spot a flaw in this plan?

There is no flaw. I've been doing this the last 2 years!

[nilrem]

Originally Posted by Gromitt

Just transfer the 1K and straight out again, thats all you need to do. So it will at 6K for about 10 seconds or so.

You can have 3 such accounts and transfer between them, so apply for another 2, and then transfer from 1->2->3->1. No need to get faster payments involved.

If you only have 10K to spare, only grab an extra one. If you only have 5K, you can use a savings account I believe.

Lol Quite amazing what one has to do to get a decent interest rate now! You would think the institutions would realise that folks will do this, if they had any sense they would just say sod it have the one account and you can have the 3% interest!

[badger09]

Originally Posted by nilrem

Lol Quite amazing what one has to do to get a decent interest rate now! You would think the institutions would realise that folks will do this, if they had any sense they would just say sod it have the one account and you can have the 3% interest!

Not many folks are actually savvy enough to play the banks at their own game and banks rely on customer ignorance and or inertia.

This forum (and the main site) are a goldmine of information and most of the posters genuinely want to help others, but in terms of the total population, very few people read it and fewer act on it

[nilrem]

Originally Posted by badger09

Not many folks are actually savvy enough to play the banks at their own game and banks rely on customer ignorance and or inertia.

Suppose so, explains why I have 4 Natwest esaver accounts, have to keep opening a new one to get decent interest!

[scgf]

Thanks guys. I have the 30K and am waiting for the cheque to clear. I have set up some future bill payments to pay off my Nationwide Loan, and to pay 2 x £5000 into my Vantage accounts. Now I want to move £5640 to an ISA.

I am just getting my head around ISAs, but what happens if the interest rate of the chosen ISA falls uncompetitively say a year from now? Is it possible to move the funds to a different organisation without losing out on any interest? I notice some places offer good rates but with a bonus which will be removed after, say, a year or 18 months.

[Gromitt]

Originally Posted by scgf

I am just getting my head around ISAs, but what happens if the interest rate of the chosen ISA falls uncompetitively say a year from now?

You find someone who has a favorable rate and accepts "Transfers in", and then give them the details of the ISA you want to move to them. They'll do it all for you. You can do this as often as you like, plus you can still open a new ISA with someone else and deposit funds in that.

[scgf]

Thanks. If I put £5640 into one ISA, I can't open another in the same tax year? Is that right? The next year I can either add to my current ISA - up to whatever the limit is in the next financial year, or start a new ISA with a different organisaton.

Have I got it right?