Young invester...bit of advice needed!

dare_bee

Hi there

I'm just in a position to start saving a bit of money (not alot I grant you!) As of this month I have joined the stakeholder pension scheme (Through work though they're not contributing, only putting £20 in a month at the mo), and in the last couple of months i've started buying premium bonds (£50 a month, already got £300 in there from family investing when i was younger!) I also put £50 a month into a current account for things like birthdays, car expenses, basically a small emergency fund!

Question to you all is though is that i'm about to turn 21 (an adult at last!) and my children's bonds will all fall into my eager little hands. Currently they stand at £3626. I need some advice on the best saving scheme to transfer these to (as i don't think the local pub has a very high interest rate) and i can also release about £100 a month more than i'm alreayd paying out to save. Whats the best place to put it?? More into pension?? Premium bonds (after all i figure the more i got the more chance of winning!) or any of the other things the bank has that i don't understand!!

Some advice would be greatly appreciated

Mr_Mumble

Hi, Dare_bee. Make sure you've read the savings articles on the site, especially this one:

http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1103213261,45760,

For the first £3000 of the lump sum a cash-ISA is the no-brainer answer imho. The Halifax, Bradford & Bingley and A+L all offer 5%+, tax free and no-risk.

For regular savings you should look at the bank regular savers, rather obviously! 7% (5.6% net assuming you're a standard rate tax payer) is an excellent return for saving each month and is available at the Halifax to anyone. Regular savers paying up to 10% are available to those willing to open a current account and pay their salary into Barclays or Alliance & Leicester.

Premium bonds are widely discussed here and its a love'em or loath'em thing. I loath'em, you're looking at an average 3% return if you have "average luck". If you want the thrill of possibly winning a big prize you'd be better off putting the money into a high interest savings account bar £1 per month to spend on the national lottery.

For the emergency fund look at opening an e-savings account, most banks/building societies have one attached to their current account. You'll get paid 4%+ and the transfer between the standard current account and the online savings account from the same institution is usually same day and often instantaneous.

You may want to ask on the pensions board about that £20 per month contribution. Its great that you're looking at saving for much later in life but you need to be aware of the inflexibility of pensions compared to other forms of saving/investing. Pensions aren't always the best deal, especially with your employer not contributing, but make sure you've fully paid National Insurance contributions for the state pension.

Be aware that over the long-term shares and investments relating to them (unit trusts, oeics, investment trusts, trackers) will give a better return than savings accounts. If you do want to look at investing (putting your capital at risk) rather than saving (capital is secure) do plenty of research. The fool.co.uk message boards are an excellent starting point for advice.

codetown

Hello,
start with the A&L Direct ISA and put into it 3000 pounds straight away (before 5 April 2006), to use your allocations for 2005/2006 tax year. From April 6th onwards you will be able to put in another 3000 pounds. This is a very good way of saving as it gives you 5.15% interest and it is tax-free!

If you have further disposable moeny, do not put it into a current account. Even if you want a reserve for gifts etc, it is best to keep that money into a saving account. In general it could be good to have it linked directly with your current account provider, as most (inside the same bank) offer instant Internet transfer, so you can effectively move your money via your PC and go out to the cash machine to widraw instantly when needed.
I use this with Nationwide Flexaccount plus the e-saving saving account. Not top of the range for interest rate (around 4.55%), but still good and very useful for this type of saving pot!

Other than that there are many regular saving accounts that you might want to consider if additional income comes in. I would absolutely discourage you from investing in premium bonds. The only premium is their price (in lower interest)!

ReportInvestor

If you are saving up to buy property in the next five years you should follow the cash savings suggestions above.

If you are thinking longer term then some regular savings into the stock market may prove beneficial. Here's some food for thought.

Why the Motley Fool thinks long term investors should still back the stock market even after recent rises

I would recommend Mr. Mumble's suggestion to work out where you stand on the pension v ISA debate. The jury is out, but a few of us think that the ISA route is best to start with - especially if you are just a basic rate taxpayer.

After your annual £3K Cash ISA allowance, you also have a £4K stocks & shares ISA allowance.

And good luck with your saving and investment goals!

dunstonh

I would recommend Mr. Mumble's suggestion to work out where you stand on the pension v ISA debate. The jury is out, but a few of us think that the ISA route is best to start with - especially if you are just a basic rate taxpayer.

Although you should be aware that pensions have advantages too which are not present on the ISA. A few of us think that the ISA route should be used when best and the pension route used when best and not try and have a blanket rule that fits everyone.

In your case, the £20pm you are making is pretty worthless. Under current legislation, that could actually be a total waste of money. However, it would depend on future legislation and your future investments and pensions. The other thing is you dont say how you are investing the £20pm. A pension is just a product, its what you invest the pension in that grows (or not).

Can't add much else to what has already been said.

dare_bee

Thanks for all your advice

Just for the record, i am intending putting more than £20 in when i get my finances sorted (i was saving for a holiday i'm now not going on) but i thought that paying in something was better than nothing!!

Not really sure i want to go down the stock market route as really don't understand enough about it be sure tah i'm doing the right thing!

Was looking into the ISA's the other day, and i'd already thought about putting the money in before this tax year ends but the £3000 in bonds i have don't start maturing until end of april so too late!!!

Are the financial advisors in banks generally pretty good or just trying to sell you their products?

dunstonh

Not really sure i want to go down the stock market route as really don't understand enough about it be sure tah i'm doing the right thing!

Whats your pension fund investing in. I bet you that you are already in a fund that has stockmarket content. I bet you only have one fund too and not a spread of funds.

Are the financial advisors in banks generally pretty good or just trying to sell you their products?

A bank financial advisor is tied to their own product range of 8-15 products. Compare that to tens of thousands potentially from an IFA. As tied agents, they are not allowed to recommend investment funds or investment portfolios. Bank solutions tend to be single fund products or short cuts taken on putting in the bog standard managed fund. The bank advisors have targets to sell products and can get sacked for failing to sell enough.

The term financial advisor is used by too many nowadays (used within the rules but the term is allowed to be used too freely). It can cover someone who passed the exams yesterday, a salesperson from one company, an independent, a highly qualified specialist or someone who does the job part time in addition to another job.

Basically, never get financial advice from a bank.

ReportInvestor

dunstonh wrote:

Basically, never get financial advice from a bank.

dh and I don't always concur, but on this subject we (and the rest of the bulletin board) are unanimous.

Tell your friends to avoid them, but not at the expense of sorting their finances.

If you want to learn about the stockmarket, you could just remember the FTSE 100 index number today and compare it in years to come.

But regular investments into the stockmarket are a tried and tested way to reduce risk and still benefit from generally superior performance.

dare_bee

Your quite right my pension will be to do with the stock market, but (and this might be a very naive thing to say as i don't know alot about anything really!) its not money that i'll need to get to for at least 45 years, if something goes wrong its got the chance to build itself up again, whereas if something goes wrong and i'm intending on using the savings for something (eg if i was ready to put a deposit on a house and lost all my funds) it wouldn't give me the opportunity to build up more funds (if that makes any sense, it did in my head)

ReportInvestor

It's not naive, it's a very sensible and mature comment from someone new to this world.

If a 45 year investment in the stockmarket doesn't come good then we are all in trouble as a nation :rotfl:

Young people need to get a grasp on investment, because companies are no longer offering guaranteed pension schemes.

So everyone needs to know about the stockmarket and how to get the best out of it.

It will be a (political) revolution. Started by New Labour. And it will eventually do for them, too.

dare_bee

I would love to get a grip with investments and savings because I am in such a good position to be doing so right now! (Living with parents, little outcomings, no debts etc...) but its so difficult to know where to turn!! My parents are unbelievably good with money (here's hoping it runs in the family!) but don't know alot about all the different things that banks can offer. There just seems to be soooo much stuff out there and so many different ways to do things, but as you've adivsed (as i predicted you would!) its not that great to find out from the bank as they're trying to sell you products. It's difficult to know where to turn to to learn about all this stuff.

From what you've said, people obviously don't recommend premium bonds, but the 2 main reasons i've gone for that is
1 - I HAVE to pay in at least £50 a month, no changing it to a lower amount if i decide i fancy a bit of spare cash!
2 - It's simple and i understand how it works!! No interest rates or funny names etc....just prizes to win (if your lucky!)