New Saver

Odette

Scuse me if this isnt the right place to put this.

Just a little general information before I ask a question.
Im 23, just graduated from uni and 3 months into my first job. I earn about 21k and have very minor outgoings (£25 per week to parents for rent, and £30 per month on my phonebill, I dont own anything of value/drive or have to spend any money getting to or coming back from work). I just paid off all my overdrafts left over from uni (£2350!:o in three months) but still have my student loan and dont plan on paying it, especially with interest rates as they are.

My original plan was to start some high return savings...(in order to buy a house in a few years) but with the interest rates and all this news on poor returns on savings, what do you think is the best option for my extra money? Is it still worth it to save?

jimbow25

It sounds like you're in a similar position to me in terms of living at home after graduating and so keeping your expenses low- although I graduated and started work over 2 years ago.

Unfortunately the returns on savings are not great at the moment however it's still definitely "worth it" to getting in the saving habit whilst your outgoings are low- If you're in a position to save approx £1,000 a month though then I would suggest basically following Martin's "where to start with savings" guide- ISAs, then regular savers, and finally instant access accounts.

A Cash ISA should be the first account you open to get tax free interest- you can save up to £3,600 in one before 5th April 09, and the same again in the following year, just remember if you withdraw any you can't re-use that year's allowance. I would suggest you try and use your ISA allowance even if this doesn't appear the best headline rate (e.g. if you're choosing between a 4% ISA and a normal account at 5%+) because you'll benefit from the tax free interest over the years to come once that money is inside an ISA- I didn't really do this when I started saving but I should have.

You should be able to set up your current account to pay into any savings account by monthly standing order (via online banking or a form from your branch)- so if you transfer a chunk of your salary every month when it gets paid you won't be tempted to spend it. If you paid £300 each month into an ISA with a good rate (ie the full £3,600 over 12 months), £250 into a regular saver and the remainder that you want to save into an instant access savings account then you'll be making good use of the different types of account available at the moment. Finally bear in mind the rates are dropping all over the place at the moment, with another base rate drop possible, so it may not be clear who is a good payer for a few more weeks at least.

PS You must be a very good negotiator agreeing £25 a week rent with your parents! A few of my friends also live at home and I don't think any of us pay less than £200 per month...:)

CLAPTON

of course it worth saving

last few years your savings would earn 5-6% but houses were increasing at 10-25%
now you only get say 3-4% but houses are decreasing at 10-20% per year........obviously maths wasn't your subject but which would you realistically prefer?

you are entering a golden age house buying wise.

Odette

Alright CLAPTON, dont think that was a very polite way of putting it...chill out!

Thanks for the advice jimbow...and rent was easy, being an only child has many benefits

pandora205

I agree that the first thing to do it to take out an ISA and fill it up asap, as the financial year goes from April to April. Check out Martin's advice on these and look for the best rates and don't stay loyal (You can shift them after each year).

I'm not the person to advise you on savings accounts, as I had mine in Iceland and now in a not-very-high-interest UK building society. But if you are planning to seek a mortgage at some time a building society would be a good bet, as they prefer to lend to their own customers.

[Deleted User]

Personally I think you're thinking about savings all wrong. If you stat to think about saving as simply saving your money and this alone will build into a pretty big pot then you'll be on the right track and not depressed when interest rates go down. Don't get me wrong, to earn interest is certainly a requirement so the money keeps up with inflation but in the current climate I'm really ignoring any interest / profit on my savings and just thinking about the sum I can save per month out of my wages.

Where to save? I'd suggest the following:

1. As you're already aware, generally ISA's are a good place to start:

http://www.moneysavingexpert.com/sav...gs-without-tax
and http://forums.moneysavingexpert.com/....html?t=401374

2. Regular savings accounts are good too:

http://www.moneysavingexpert.com/sav...vings-accounts
and http://forums.moneysavingexpert.com/....html?t=608697

Regular savings accounts are generally a good place for new money e.g. monthly pay cheques, however if for example you have £3k in a 6% high-interest bank account drip-feeding into a 10% regular savings account then you're essentially getting 8% interest on average for your £3k which beats most fixed rate products - albeit with a bit more work (or did when I originally wrote this paragraph )

3. If you want something with a little less work then fixed rate savings accounts are a good option:

http://www.moneysavingexpert.com/sav...interest#fixed
and http://www.thisismoney.co.uk/saving-...&in_page_id=50

4. One other thing you might like to consider is getting a decent instant access savings account:

http://www.moneysavingexpert.com/savings/savings-accounts-best-interest#instant
and http://www.thisismoney.co.uk/saving-...&in_page_id=50

5. Finally if you're a higher rate tax payer then NS&I's 3 and 5 year Index Linked Savings (http://www.nsandi.com/products/ilsc/index.jsp) look good, paying 1% above the RPI inflation rate. Currently this is 3.0% so that’s a rate of 4.0% overall.

The attractiveness of these is that the savings are tax-free meaning it's better for higher-rate taxpayers. Basic rate taxpayers would need to earn 5% in a normal savings account to match this, while higher rate taxpayers would need 6.67%.

One thing to note is if inflation drops then so does the rate for these savings. It'll always be higher than inflation and tax free though. It's also best to leave the cash in there for at least three years though and at least £100 must be deposited (maximum is £15,000), so it's not for those who want a short term place to save.