Advice on better use of spare cash

mp80

Hi

I'm 28 and have been employed for 6 years, live in my own home (I bought a cheapo home in 2005 in an 'alright' area while all my friends bought expensive new builds for streed cred - net result, my mortgage is only £280 a month and I owe £43,000 capital as per last mortgage statement)

I earn £30,000 a year and receive about £3,000 in other income. My partner has just started a job, earning £15,000 per year giving us a rough total income of £3000 a month net depending on over time.

I have a credit card which I used to help finance some home improvements and have £3,000 on that which has just been moved to a Virgin Money 0% card for 15 months and I have just whacked £3,600 into an Cash-ISA. I paid off my student loan in 2004, bought my car in 2007 for cash, and have no other debt so things are going OK for us at the moment.

I estimate we have about £1,500 left at the end of the month which just ends up sitting in our current accounts earning 0.1% AER. I have become so used to having a current account balance of £5k+ that I always worry I have no money if it falls below that value. We do enjoy going to regular meals out, etc and enjoying our time off together so I don't really want to start scrimping to the point of not doing anything for the sake of saving every last penny (life is for living as well right!)

Can you advise me on the best path to get that money working for us? I have £6,000 in my current account, and my partner has £1,400 in hers as well as the aforementioned £3,600 in the ISA.

DireEmblem

Have you had a look at the High Interest Current Accounts?

Most of these give > 5% on balances up to 2500, and then 0.1% anything above...

If you still want to keep the 5k easily reachable, could you possibly sweep any balance over the 2.5k into an Instant Saver account, to keep earning a higher rate of interest?

Due to the new Faster Payments, you could probably find an account where you could transfer money to/fro almost instantaniously...

Bar that, imo, I would open a side pot to save in order to cover your CC Debt yet to pay...

Also if you have 1500 left at the end of each month, could you not make overpayments on your mtge, reducing its term/interest charged, or change to possibly an offset mortgage?

horsechestnut

Don't forget that EACH of you can have £3,600 per year in a cash ISA.

Set up a standing order between your current account and a savings account that has instant access, so if you need the money you just phone or use your computer. Alliance & Leicester have a good Premier account with a Linksave. (details on their website)

Pay money off your mortgage.

mp80

Thanks for the info so far.

I switched from RBS to First Direct about 9 months ago as they were voted the best - plus I got £100. Then shortly after they stopped paying credit interest!

Is it possible to switch accounts multiple times? If I get the A&L premier account they also pay £100 don't they? So it could be a go-er.

My partner also has a cash-ISA.. sorry I forgot to mention that.

ailuro2

You are in a really good position to tart around current accounts for better interest rates - you have the balance sitting in the present current account to cover more than 3 months bill, so it's no bother switching.

My DH used to be the same as you - he liked to have a couple of months money sitting in the current account. Over time I persuaded him that the money could be making better interest elsewhere, and that any emergencies can go on the credit card. This was long before we had MSE Martin who recommends this method too.:D

We overpay our mortgage but also live life as we prefer, saving money where we can , since there's no point throwing it away, is there?

mp80

Well I just opened an Alliance and Leicester account

I intend to transfer £2,500 of my money straight into that account to maximise the interest. I will also set up a standing order to pay £500 into the account at the beginning of the month from my FD account, and then immediately send it back to FD as they pay 0.1% AER on anything above £2,500.

Does this maketh sense to do what I'm suggesting?

This is utterly addictive - I applied for an Amex Cashback yesterday, so hopefully along with our monthly Tesco spending getting us 5p off a litre of petrol, will be able to get another 5p off by using the Amex Cashback

CLAPTON

while you're still with FD why not open their instant access savings a/c ... not a great rate but you can transfer money between your current a/c and the savings a/c instantly online... so you wont really need to keep 5k in a current a/c.

Mikeyorks

As post #7 ...... if you're more comfortable seeing your money in a singular view - then you need an instant access savings account aligned to your current account. Then the savings account simply becomes an extension of your current account with instant (online) transfers between the two.

Halifax also offer an attractive pairing with 5.12% on the first £2500 in the c/a and 5.8% currently (but limited offer expiring 5/8) in their Websaver.

http://www.halifax.co.uk/savings/websaverreward.asp

mp80 wrote:

Does this maketh sense to do what I'm suggesting?

.... not really - unless you specifically want two c/a's for budgeting. Stick with one current account if you don't ..... but team it with a good easy access savings account to trade your excess cash into.

Primrose

Like you I always had a fear of not being able to cash an instant cheque in an emergency, like the clutch going on my car, so always kept a high current account balance. Then I realised that the bank was screwing me with with a low interest rate, and that any emergency bills could be paid by credit card and the money withdrawn from an instant savings account within a few days, often before my monthly credit card bill was due. Consequently I now never keep more than £1500 in my current account, with any surplus being transferred each month-end to a savings account. I'm assuming that you have a pension scheme set up? If not, I would urge putting some of your surplus monthly savings to that as a priority as investing in these now will reduce your long term retirement finance concerns in later life. Then I would ensure that every year you use up your Cash ISA allowance, with any surplus money being put into the highest interest paying savings account you can find. If you're worried about emergencies or redundancy, set up a separate savings account and aim to hold between 3 - 6 months living expenses in it. A recent study showed that the majority of the population could only survive for about 11 days on their savings if they were made redundant before the money ran out. That is something perhaps to bear in mind in these difficult times if you enjoy eating out regularly !

mp80

I find it incredible the 11 days thing - with the current money we have available I could survive for probably a year, maybe longer. What do people spend their money on these days?

Is Kaupthing Edge still the best IA savings account, or is it worth having a linked savings account from A&L (against their Premier Direct)

Incidentally, can you cancel a cash-ISA application? The rate I'm getting is rubbish compared to those elsewhere - as I applied only Friday night, would there still be time? (the money hasn't transferred)

webmasterpolo

Usually you will ahve 14 days to cancel the ISA application and this will not affect your ISA allowance for this tax year. Skipton do a good fixed rate of 6.54% if you don't plan to take anything out before Dec09, if you do it's a 90 day penalty if it's a real emergency.

Yes Kaupthing Edge is the best IA. It pays 6.55% AER, 6.36% gross.

I would keep an eye on how many credit checks you're getting if you are signing up to a lot of products in a short space of time. I think the recommended level is 3 checks in 6mths? Request your credit files every year to keep an eye for any fraud too especially if you're signed upto lots of things. MSE has details on how, search the main site for credit files.

-Web