Fixed Term Savings

GreyPilgrim

Advice on behalf of my mum needed here. She's recently come into some inheritance and took the advice of her current bank (Coop) to organise it as:

£20,000 in a five year "Coop Bank Guaranteed Stock Market Bond" account, which I believe is now there for five years
£20,000 in a 1 year fixed term deposit account (6% gross, 4.8% net)
£3,000 in a Coop ISA

I thought I might try and help her organise it a bit better but since I've only started saving, I've not really researched anything further than ISAs.

I'm currently helping her to transfer the ISA to a Bradford & Bingley as the Coops rate is around 3.5%.

With regards to the £20,000 in the 1 year savings account - I would assume it would make sense to use £3,000 of this for next years ISA allowance leaving £17,000 to play with (and then of course put a further £3,000 every subsequent years for the next five years).

Where would you suggest putting that £17,000 for year? She's happy to have it locked away somewhere for up to a year, partly so it's out of temptations way...

As to the £20,000 thats locked away for the five years, I don't really want to get involved with that as I'm not sure what penalties would be involved in transferring it. About to look at the T&C's of that account now, but if you know of somewhere that is so much better than the CoOp that any benefits would outweight the penalties, then I'm all ears.

Any advice is welcome.

GP

richgirl

1 year fixed at 6% - That does not sound right. If its so then its definetly best left where it is !

GreyPilgrim

richgirl wrote:

1 year fixed at 6% - That does not sound right. If its so then its definetly best left where it is !

What...too high?

Mr_Mumble

I presume the fixed rate is so high because it is coupled as a sweetner with the stock market bond. See here for a recent example:
http://www.cis.co.uk/servlet/Satellite?cid=1145603377408&pagename=CISv2/Page/tplCISv2PageStandard&c=Page

GreyPilgrim, the co-op changed the name of the "Guaranteed Stock Market Bond" to the "Guaranteed Savings Bond" a year or two ago - if you've got the former the bond has probably done rather well.

GreyPilgrim

Mr_Mumble wrote:

I presume the fixed rate is so high because it is coupled as a sweetner with the stock market bond. See here for a recent example:
http://www.cis.co.uk/servlet/Satellite?cid=1145603377408&pagename=CISv2/Page/tplCISv2PageStandard&c=Page

GreyPilgrim, the co-op changed the name of the "Guaranteed Stock Market Bond" to the "Guaranteed Savings Bond" a year or two ago - if you've got the former the bond has probably done rather well.

I was thinking that was maybe the case. the CoOp don't seem to advertise the interest rates of the 1,2 and 3 year fixed rates, so mayeb they have indeed given it to her as a sweetener.

Whats the general opinion of the 5 year guaranteed bond then? can't be that good if they need a spoonful of sugar to make it go down, surely?

Mr_Mumble

Generally, Guaranteed Equity Bonds (to give 'em their usual name) aren't the best of products. But, they can give handsome returns if you invest at the right time.

The return will depend entirely on the particular issue number of the co-op guaranteed stock market bond.

Some issues just use the FTSE all-share to determine the return others use a combination of indicies such as the FTSE-100, Nikkei 225, S&P 500, Euro Stoxx and even the Swiss SMI.

Issues will differ in the percentage gain that is given to the investor relative to the index gain (usually between 70% and 130% of any upward movement in the index over the time period).

The largest influence on yield/return is the time when the tracking of the indicies starts and ends. If you invested in a 5 year guaranteed stock market bond linked to the FTSE-100 in 1999-2000 you will have only received the guaranteed minimum. However, if the investment was made in early 2003 when the FTSE-100 was below 3500, with the FTSE-100 now at 5900, it is quite possible the return will be double the initial investment by the time the bond matures in 2008.

GreyPilgrim

The investments where all made in May this year, so she's only about 3 months into them. Don't know anything about the markets, and she just took the advice of the rep when she was stashing the money away.

I'll give an update in five years time!

thanks for the help guys

GreyPilgrim

Mr_Mumble wrote:

GreyPilgrim, the co-op changed the name of the "Guaranteed Stock Market Bond" to the "Guaranteed Savings Bond" a year or two ago - if you've got the former the bond has probably done rather well.

I noticed on the CoOp website that the name had changed, but assumed it had been a very recent thing. My mum only took out the investment in May. Bizarre