Regular saver vs. stocks and shares?

nukebox

Hello,

I suspect i know the answer to this already, but I'm after confirmation.

I currently have 3 Halifax Regular Saver accounts (6%) for each of my 3 boys. Each year, when they mature, I take the entire sum and put it into a cash-ISA to get a better rate than the Save4It that Halifax offer.

I've built up a reasonable cash sum now and think it might better to start investing in to stocks and shares (within an ISA).

I guess my question is - do I continue with the 3x £100/month into the Halifax Regular Savers, let it mature and throw the lump sum into a s&s ISA each year OR do I invest £300/month into the s&s ISA instead (i.e. drip-feed my investment)?

BTW, I don't want to put this into CTF accounts.

Thanks in advance for your help

masonic

I would consider setting £3600 of the cash savings aside in an instant access savings account and cycle that money through the regular savers every year - as you'll probably get more interest that way than if it is sitting in an ISA (you certainly will at the moment!)

Drip feeding the ISA will definitely be the best approach as you begin to build it up from nothing.

Aegis

nukebox wrote: »

Hello,

I suspect i know the answer to this already, but I'm after confirmation.

I currently have 3 Halifax Regular Saver accounts (6%) for each of my 3 boys. Each year, when they mature, I take the entire sum and put it into a cash-ISA to get a better rate than the Save4It that Halifax offer.

I've built up a reasonable cash sum now and think it might better to start investing in to stocks and shares (within an ISA).

I guess my question is - do I continue with the 3x £100/month into the Halifax Regular Savers, let it mature and throw the lump sum into a s&s ISA each year OR do I invest £300/month into the s&s ISA instead (i.e. drip-feed my investment)?

BTW, I don't want to put this into CTF accounts.

Thanks in advance for your help

How long do you have before you want this money to go to the kids?

nukebox

masonic wrote: »

I would consider setting £3600 of the cash savings aside in an instant access savings account and cycle that money through the regular savers every year - as you'll probably get more interest that way than if it is sitting in an ISA (you certainly will at the moment!)

I thought with the averaging on the RS, the interest rate is closer to 3%, which I'm currently beating with the A&L 3.5% ISA. In that instance, leaving the money in the ISA seems to make more sense?

Aegis wrote: »

How long do you have before you want this money to go to the kids?

Ah, good point - I have about 15yrs for the 1st, then 2yr gaps between the other 2.

RayWolfe

nukebox wrote: »

I thought with the averaging on the RS, the interest rate is closer to 3%

Wrong.
You get the full interest rate for all the money in the account for as long as it's in the account.

Aegis

nukebox wrote: »

I thought with the averaging on the RS, the interest rate is closer to 3%, which I'm currently beating with the A&L 3.5% ISA. In that instance, leaving the money in the ISA seems to make more sense?



Ah, good point - I have about 15yrs for the 1st, then 2yr gaps between the other 2.

Might very well be worth putting money into the stocks and shares ISA then. Over 15 years you'll be lucky to break even if you stick with cash (historic rates show that cash is generally going to give around a 0.6% real return each year). There are no guarantees with Stocks and Shares ISAs, but over 15 years you should be able to outperform cash with even a fairly low risk portfolio.

xrjtg

To expand on what RayWolfe said, it might help to think of the regular saver as paying 6 (the interest rate) / 12 (months in a year) = 0.5% each month, roughly corresponding to the 6% a year. All of the money in the account earns its 0.5% a month (or 6% a year), but you don't get 6% of £1200 in interest at the end of the year because on average each £100 was only in the account for 6 months. You'd see exactly the same effect if you paid in £100 a month to the 3.5% account—at the end of the year you'd only receive roughly 1.75% of the total amount deposited in interest.

To answer your original query, regular investments into non-cash products can make sense, as they shield against the effects of short term variability in price— you're unlikely to significantly over- or undershoot the "average price" over a period of time for the product you are buying. This is the method of investing that I currently use.

nukebox

xrjtg wrote: »

To expand on what RayWolfe said, it might help to think of the regular saver as paying 6 (the interest rate) / 12 (months in a year) = 0.5% each month, roughly corresponding to the 6% a year. All of the money in the account earns its 0.5% a month (or 6% a year), but you don't get 6% of £1200 in interest at the end of the year because on average each £100 was only in the account for 6 months. You'd see exactly the same effect if you paid in £100 a month to the 3.5% account—at the end of the year you'd only receive roughly 1.75% of the total amount deposited in interest.

That's a much better way of putting what I meant as the averaging effect - thanks.

To answer your original query, regular investments into non-cash products can make sense, as they shield against the effects of short term variability in price— you're unlikely to significantly over- or undershoot the "average price" over a period of time for the product you are buying. This is the method of investing that I currently use.

Yup, I think it's probably a better way of investing this money. I guess the next question is where/what. I know recommendations are generally not allowed, but it would be interesting to know what other in a similar boat are doing.

masonic

nukebox wrote: »

I thought with the averaging on the RS, the interest rate is closer to 3%, which I'm currently beating with the A&L 3.5% ISA. In that instance, leaving the money in the ISA seems to make more sense?

No, that's a common misconception about regular savings accounts and lump sums. When you cycle a lump sum through a regular savings account, overall you get just over half the AER of the regular savings account plus just under half the AER of the instant access savings account used to feed the regular saver. So for your example, you'd get about 3.25% from the regular saver, plus about 1.6% from the savings account (there are a couple of instant access child savings accounts paying around the 3% mark), so the total interest you'd receive from using the regular saver would be about 3.85% 4.85%. However, if the money's already in a 3.5% ISA, it probably isn't worth the extra interest to take it out.

Edit: Oops, that total figure should be 4.85%!

nukebox

masonic wrote: »

No, that's a common misconception about regular savings accounts and lump sums. When you cycle a lump sum through a regular savings account, overall you get just over half the AER of the regular savings account plus just under half the AER of the instant access savings account used to feed the regular saver. So for your example, you'd get about 3.25% from the regular saver, plus about 1.6% from the savings account (there are a couple of instant access child savings accounts paying around the 3% mark), so the total interest you'd receive from using the regular saver would be about 4.85%. However, if the money's already in a 3.5% ISA, it probably isn't worth the extra interest to take it out.

Right, I think the thing that's confusing matters a bit is probably that I don't have a lump sum to cycle through - other than what's in the 3.5% ISA. As you say, I could take the money out of the ISA and push it through the regular savers, giving me ~£150/yr in interest, but that would be offset by the loss in interest from leaving the cash in the ISA in the first place.

So, my preference now is to leave that lump sum I've saved up so far in the 3.5% ISA and redirect the £300/month in to a sensible s&s ISA to try and get some decent growth out of it.

masonic

nukebox wrote: »

Yup, I think it's probably a better way of investing this money. I guess the next question is where/what. I know recommendations are generally not allowed, but it would be interesting to know what other in a similar boat are doing.

It might be worth doing a search of this board (and the ISAs board) as quite a number of people have posted portfolios for discussion and you'll probably learn quite a bit from those threads. The main points would be to try and avoid S&S products sold by high street banks, to split the money across a number of funds (you should be able to do £50 a month into 6 funds if you like) so that you have a well diversified selection and perhaps post your ideas back to this thread for comments.