Lump Sum Saving

Llamatamer

Hi All,
Im currently a student and have recently inherited (all tax already dealt with) £21K and am trying to work out what is going to be best for me to do with it.

It's currently in a Cahoot savings account, for a reasonable rate & simplicity of money movement.
I am in the process of opening up an Abbey & Halifax Regular savings account, thanks to the tips on here, which will allow me to put aside 9K but I graduate in July 2005 so will invetiably start paying tax so am wondering whether to use my ISA allowance this year, to get 3K away from the tax man?

Also I intend to use the money for a house deposit but can't see myself being ready to buy for between 18 - 36 months, so am wondering if anybody has any advice as to where I can lock it away.

I am fairly upto speed on standard savings stuff, but not really ISAs, stock market stuff or how to avoid the tax man as I've not had to do that yet really.

Apologise for the long 1st post and if this has been repaeated before but any advice would be much appreciated.
Cheers

Rafter

Llamatamer,

Good luck with your finals.

Makes sense to use your cash ISA allowance since you will start paying tax on your savings once the salary is coming in next year.

Another option is national savings certificates which will allow you to put more of your money beyond the tax man.

As far at stocks and shares investment goes, over time stocks out perform property which outperform conventional savings accounts. However, you should treat shares and property as higher risk and long term investments.

In your position I'd invest the maximum possible in an index linked shares ISA, some in National savings share certificates and then the balance in deposit accounts.

Until you earn more than about £35k you will be paying basic rate tax, so the benefit of tax free investments are lower (although still significant).

Good luck.

R.

cheerfulcat

Hi, Llamatamer,

Since you will be wanting the money in less than five years' time I would advise leaving it in cash; stock market investments are too volatile for short term money.

Definitely go for the cash mini-ISA; you'll be glad you did when you become a taxpayer :-); unfortunately they are the only tax-free cash investments currently available apart from some National Savings products - more info on the NS&I site ( tax status in rh column ) :

http://www.nsandi.com/interest-rates/index.jsp

HTH

Cheerfulcat

Walletwatch

Llamatamer

First of all, accept my kudos at starting off at a relatively early stage of life... unlike oldies like me...

You're spot on in doing the Halifax and Abbey jig - by the way, Abbey allows you £6500 as against £6000 as the first deposit is not included in the twelve monthly payments you put in, so Hfx and Abbey together would mean £9500 is in good hands. I'd recommend the mini-cash ISA to account for another £3000, and the recent benevolence of Mr Brown (a suggestion that he'll extend the cash ISA limit of £3000 till 2009) has made this even more attractive as an option to really accumulate a handsome amount.

As for the stock markets, it's really up-to one's risk appetite, not sure if you want to go that route at this stage, or adopt a 'Wait and Watch' outlook for now...

Ta

deemy2004

Hi All,
Im currently a student and have recently inherited (all tax already dealt with) £21K and am trying to work out what is going to be best for me to do with it.

I am fairly upto speed on standard savings stuff, but not really ISAs, stock market stuff or how to avoid the tax man as I've not had to do that yet really.

You could look at a 2 year fixed isa i.e. the derbyshire does 5.4%

Also if your earnings this tax year are not likely to be much above £4k then fill in a R85 form for cahoot so you get your interest gross.

next tax year, if and when you get a job, let the cahoot know so that they can pay you interest net of tax.

Llamatamer

Thanks everyone for the useful responses.

Deemy if I go for a two year fixed ISA at the end of it if I decide I don't need the cash for a deposit I assume it can just be transfered into another ISA hence not loosing its tax free status?

Cheers

deemy2004

Yep, you NEVER lose the tax free status unless you withdraw the cash. So at the end they will probably offer you the fixed deal available at that time, if you don't do anything, it will probably be converted into their instant access ISA.