new to investment, need some advice

Annie021063 · 1 August 2012 at 7:02PM

We will shortly have around 45K to invest. We are not sure what to do with it. My husband is self employed so anything in his name will incur tax (unless of course it is tax free saving)so we would rather avoid that if possible and out it in my name. We were considering putting 30K into premium bonds, 10K into a high interest no access account or similar tied up for at least a year and then the other 5K into a regular savings account. We would love some advice as to whether our suggestions are feasible or if there is a better way to invest and/or which accounts are the best. I will look on the MSE front page but any other suggestions would be appreciated.
Thanks

Linton · 1 August 2012 at 7:49PM

There is a better way to invest. The return on the premium bonds is about 1% - £300/year from £30K. You have the thrill each month of seeing whether you have won something significant, but you almost certainly havent. You could be getting say 4% - £1200/year in a fixed rate account. Is the monthly thrill worth £900/year?

What I would suggest is:

1) Ensure you have perhaps £10K in an immediate access savings account to cover emergencies.

2) Split the rest into 3 tranches. Put one in a one year fixed rate account, one in a 2 year fixed rate account and 1 in a 3 year fixed rate account.

3) Then as one matures every year you have the choice of using the £12K (approx) + interest or reinvesting for 3 years. Current 3 year rates are around 4%.

If you are a non tax payer simply state this when you open the accounts and you will receive the full gross interest.

unimaginative_user_name · 2 August 2012 at 5:45AM

Good advice from Linton. You mention tax-free saving and your husband could obviously open an ISA. I've done the same sort of thing as Linton suggests with fixed rate accounts. The advantages are that they tend to pay better interest than instant access accounts, you're not tempted to spend the money as it's tied up and some of your capital becomes available to reinvest each year so you can keep shopping around for the best rates.

The disadvantage with fixed savings over the past few years is that inflation has generally been higher than interest rates so your capital would have less buying power by the end of the fixed rate term. You might want to look into Stocks and Shares ISAs if you are willing to take a risk for potentially higher long term gains. It all depends on your attitude to risk.

One other thing to mention is debts. You don't mention any so I'm not making assumptions but unless you have 0% credit cards or loans it would be sensible to use at least some of the money to pay off credit cards that you are paying interest on.

Annie021063 · 2 August 2012 at 2:35PM

thanks for the advice, no debts or mortgage,
just help me with the tax free issue though please, my husband is self employed and would have to pay tax on any interest received, if an isa or similar is tax free does that mean he doesn't have to or should we just put them in my name (a tax payer) to avoid any confusion?
Thanks

Linton · 2 August 2012 at 2:56PM

Annie021063 wrote: »

thanks for the advice, no debts or mortgage,
just help me with the tax free issue though please, my husband is self employed and would have to pay tax on any interest received, if an isa or similar is tax free does that mean he doesn't have to or should we just put them in my name (a tax payer) to avoid any confusion?
Thanks

If its in an ISA it doesnt need to be declared so from a tax point of view its irrelevant who owns it. The cash ISA allowance per year is £5640, so you may wish to have separate deposits in each name to get £11280.

If you are a tax payer you will pay tax on any non-ISA interest so I dont see the advantage of putting things in you name unless your husband pays higher rate tax. Or did you miss out a "not"?

new to investment, need some advice

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