Savings Advice

Valley_Bluenose

Apologies in advance for the lengthy post. I may be asking too much by way of advice here but will be grateful for any given.

Due to a recent inheritance we have approximately £230k in savings. We live in our own house and have no mortgage. Other relevant facts:

I earn approx £40k per year.
Wife is a non-taxpayer.
13 year old son.

Currently the savings are split as follows (all paid interest nett of tax unless stated otherwise):


Me:

Halifax ISA (5%) (gross - total currently £13.5k).
Halifax Regular Saver (7%) @ £250 per month then transferred to ISA at year end.
NSI Index Linked Certs (RPI+1%) (gross - currently @ £15k)
Coventry BS 50-plus acct (6.4%) (currently £20k)
Kaupthing Edge (6.36%) (currently £1k)
Halifax Web Saver (4.21%) (currently £5k)
Premium Bonds (currently at £10k)

Wife

Halifax ISA (5%) (gross - currently @ £13.5k)
Halifax Regular Saver (7%) (gross) - £250 per month then transferred to ISA
NSI Index Linked Certs (RPI+1%) (gross - currently @ £15k)
Coventry BS 50-plus acct (6.4% - gross) (currently @ £95k)
Kaupthing Edge (6.36%) (currently @ £1k)
Premium Bonds (currently @ £10k)

Son

Halifax Web Saver (4.25%) (gross - currently @ £9.5k)
Halifax Save4It (5.55%) (gross - currently @ £4k)
Childrens Bonus Bonds (gross - currently @ £6.5k)
Premium Bonds (currently @ £10k)

Some of the interest rates may have changed since I last looked but not by much. Wife's KE account not currently claimed nett of tax because I suspect she will be over, or perilously close, to becoming due to pay tax as she will exceed her limit.

I appreciate we could gain by moving some of the Halifax stuff elsewhere. I am primarily seeking to avoid having to pay 40% tax rate on any of my income/interest and trying to avoid my wife having to pay any tax on her interest.

Currently planning on more NSI Index Linked Certs when the next issue becomes available for both wife and myself - thereby reducing holding in her Coventry BS account.

I'm not really sure where to go beyond that.

Complicated question but I'd be grateful for any suggestions. I guess the easy way out is to see an IFA - but I've always been a bit of a DIY man!

Lokolo

IFAs are mainly for investment products (wait until dunstonh comes and tells me otherwise!!) but I am sure savings they would do.

First of all, the premium bonds, you may as well go for the lottery, as thats how good the return is. (if you search on this site there is a premium bond calculator and it tells you what % interest rate you will get). So cash them in and open more savings accounts.

And wow, those figures are nice and high!!!

With that amount of savings would you not want to risk it on investments? Or would you rather try it safe?

Persoanlly if I had that amount of money I would be buying a lot rather than keep on savings (if only eh!)

Valley_Bluenose

Lokolo - dunstonh's gonna get ye, dunstonh's gonna get ye! Ha, ha.

Hear what you say with regard to PBs - just thought a wee bit of a gamble without any risk would be worth it. I know the returns are poor - but you never know.

With regards investing - I prefer to avoid too many gambles and also prefer to have easy access to most of the cash, hence the instant access bias.

Buying a lot is what the wife would like to do - I'm the cautious one and have to try to convince her we're headed for the pauper's institution.

Early retirement beckons so the sums aren't really that big, we need enough income to top up my works pension when I call it a day.

Thanks for the reply.

Milarky

Just looking over your figures I see you have put sufficient in the wife's name to raise her to the limit of the personal allowance (she still has pay the tax but can reclaim it) of £6035. But have you overlooked the 10% band? That's an extra 2320 which only she can access (since no other source of income) on savings. I estimate you could transfer an average of 32700 (if @ 6.4%) to her permanently and this would save you as a couple up to 30% of 2320 (the difference in the tax rates)

RPI+1% (even if tax free) is clearly better for you than it is for her circumstances. But I suppose she can't cash in during the investment term (a lesson about fixed term deposits?) Currently though RPI+1 is looking a good buy - don't expect that to stay so however.

But what you can cash in are the premium bonds. Leave £100 if you are superstitious - but otherwise use this £20K to actually earn you something (i.e. 5.76% net on wife's marginal income)

And, given your liquidity, move that Halifax Websaver at least into a fixed rate option (12 months best) instead for a sensible rate - or just transfer it tomorrow to the wife's coventry account..

Finally, you could divert your £250 (or £225 of it anyway) from your 7% regular saver to her - since the limit on these account has now doubled to £500 per month..

cheerfulcat

Valley_Bluenose wrote: »

Son

Halifax Web Saver (4.25%) (gross - currently @ £9.5k)
Halifax Save4It (5.55%) (gross - currently @ £4k)
Childrens Bonus Bonds (gross - currently @ £6.5k)
Premium Bonds (currently @ £10k)

Was this money left directly to your son? If it was, that's fine, but if it was left to you and/or your wife, and you gave it to him, you will be liable for income tax on any interest the money earns over £100 per annum.

I appreciate we could gain by moving some of the Halifax stuff elsewhere. I am primarily seeking to avoid having to pay 40% tax rate on any of my income/interest and trying to avoid my wife having to pay any tax on her interest.

You could start by maximising your Index Linked Certificate holdings now - you can hold £15,000 in each issue ( three and five year ).

I'm not really sure where to go beyond that.

Complicated question but I'd be grateful for any suggestions. I guess the easy way out is to see an IFA - but I've always been a bit of a DIY man!

I would suggest that you think seriously about some equity based investment - there are some reasonably low-risk investment trusts which might be suitable.

If nothing else, you could use your stocks and shares ISA allowance to hold individual gilts - the interest rates aren't fantastic ( around 4.5% ) but at least you'll have used your ISA allowance and sheltered some income from the taxman.

Valley_Bluenose

Milarky - not sure I'm following you fully but, yes, I had forgotten the 10% band for my wife.

By my reckoning the £95k in her Coventry acct over a year will earn her sufficient interest to make her liable for tax. I guess you are saying that some of that will be at 10% and the remainder at 20% but I'm not entirely clear. Also, are you saying I could transfer a further £32k to her without further increasing our joint tax liability?

Take your point re. the Premium Bonds and I agree the Halifax rates are far from good.

Thanks for advice so far but would be grateful if you could clarify as above.

Valley_Bluenose

Cheerfulcat - son's savings did not derive from the money we inherited, they have been built up for him over a number of years.

We would consider a further £15k each in NSI Index Linked Certs but were waiting for the next issue to come out so we could stick with the 3 year investments rather than move to 5 year. RPI is relatively high just now but that may not always be the case. Any idea when the next issue may be?

Stocks and Shares ISA is something we might consider. Can we invest in one of these and in a cash ISA in the same year?

Lokolo

Valley_Bluenose wrote: »

Stocks and Shares ISA is something we might consider. Can we invest in one of these and in a cash ISA in the same year?

Yes

£7200 - any cash ISA usage (max of £3600), so if you use £3600 in cash ISA, you can Stocks and Share ISA £3600 as well.

cheerfulcat

Valley_Bluenose wrote: »

Cheerfulcat - son's savings did not derive from the money we inherited, they have been built up for him over a number of years.

That's OK then ( as long as the money didn't come from one or the other parent! )

Any idea when the next issue may be?

They are issued on an ad-hoc basis. Given that the government has committed us to some pretty hefty borrowing I wouldn't be surprised to see a new issue shortly.

Stocks and Shares ISA is something we might consider. Can we invest in one of these and in a cash ISA in the same year?

Yes - £7200 in total between the two, with a cap of £3600 on the cash ISA.

Valley_Bluenose

Lokolo/Cheerfulcat - many thanks for your advice. Savings for son came from a mix of parents and family, but all within the annual 'gift' limits (I think!)

We will consider taking out a stocks & shares ISA each but, at the moment, I think we are leaning more towards waiting for the next issue of NSI Index Linked Savings.

Shares don't look to clever at he moment and the RPI is relatively high - that could turn on its head of course but, in general, forecasts seem to be for a few more years of 'doom' so it may be best to anticipate that RPI will remain high whilst shares struggle for a while yet. Of course, no-one knows how things will turn out we can all only guess!

cheerfulcat

Valley_Bluenose wrote: »

Savings for son came from a mix of parents and family, but all within the annual 'gift' limits (I think!)

These limits are only applicable to IHT ( inheritance tax ). Interest over £100 on any money which gifted by a parent is taxed as the parent's, not the child's.

We will consider taking out a stocks & shares ISA each but, at the moment, I think we are leaning more towards waiting for the next issue of NSI Index Linked Savings.

As I wrote earlier, there are lower-risk ways to use your S&S ISA - well worth looking in to, especially for someone on the cusp of higher rate tax.

Shares don't look to clever at he moment and the RPI is relatively high - that could turn on its head of course but, in general, forecasts seem to be for a few more years of 'doom' so it may be best to anticipate that RPI will remain high whilst shares struggle for a while yet. Of course, no-one knows how things will turn out we can all only guess!

You're right, of course - no-one knows what's going to happen next. But to my mind it is better to cover all angles and given that shares are a) cheaper than they were , b) historically the best performing asset class ( out of cash, shares and bonds ) and c) far more likely than cash to beat inflation - can you afford not to invest in equities?