Investment suggestions? ~£40,000

drjones

Hi all,

I'm currently looking to put around £40,000 to the best possible use and would be grateful for ideas for what to do with it.

At the moment I'm a student with a low income from a grant, not a salary, I so doubt I would be able to use the money as a deposit on a mortgage (nor afford one). Ideally after graduating in a years time I will be able to get a job with a salary around £32,000 and figure at this point it would be worth getting a mortgage, hence I don't want to tie my money up for much more than a year.

My current savings account pays 2.7% AER (which I don't pay tax on) and I have an ISA paying a similar amount (I haven't paid anything into yet this year). My fall-back position is just dumping the money in my savings and ISA and reevaluating the situation in a years time when the mortgage might be a viable option. But it would be nice to earn a bit more on it over this period, if possible.

I don't have any debts apart from a student loan, and it's not worth clearing that. So is my best bet just putting the money into a 1-year bond or buying a lot of lottery tickets?*

I'd be grateful for any suggestions.



*That's a joke, I understand statistics!

Loughton_Monkey

If you're absolutely sure of a whole year, then 3.25% [Santander tracker bond] is about the best you'll get. 3% Bonds fairly common around the market. If you're not so sure, AA's 2.8% is another option to squeeze another £40 over and above what you're getting.

Since you understand statistics, you'll understand why I have not recommended Premium Bonds!

drjones

Thanks for the suggestion, I can't foresee needing to use the money within a year so a 1-year bond does look like an attractive option. I've just had a thought, though. Say I go for a bond and it matures after I've got a job, I would have to pay tax on the interest, wouldn't I? If so, perhaps ~11 months tax free interest on my current savings account might work out as the better option?

And regarding premium bonds, thanks for reminding me I have £500 worth which have won me exactly £0 over the last 6 years. I haven't kept track of their AER, but I'm guessing it's pretty naff now?

Reaper

drjones wrote: »

I haven't kept track of their AER, but I'm guessing it's pretty naff now?

It works out as 1.5%
There is a calculator here:
http://www.moneysavingexpert.com/savings/premium-bonds-calculator/

psychic_teabag

drjones wrote: »

Say I go for a bond and it matures after I've got a job, I would have to pay tax on the interest, wouldn't I? If so, perhaps ~11 months tax free interest on my current savings account might work out as the better option?

Any interest you receive in the same tax year as you get your job will be taxable. So perhaps you want something paying monthly interest, or annual interest on a fixed date this tax year rather than on the opening anniversary. (eg IIRC the post office online saver pays annual interest at the end of March).

steveksullivan

Open 3 LLoyds Vantage and stick £7000.00 in each ....... it pays 4% and you can complete the IR form to get gross interest if youre not a taxpayer. As 'current accounts' they are instant access as well. Also interest is paid monthly avoiding that problem......

Move £1000 from account 1=>2=>3 and back to account 1 again once a month via internet banking to meet the funding requirements of the account

Stick the rest in the next best bond ......

If you can be bothered with the hassle of 'drip feeding' LLoyds also have a regular saver for up to £250 per month paying 5%.......

Loughton_Monkey

drjones wrote: »

I've just had a thought, though. Say I go for a bond and it matures after I've got a job, I would have to pay tax on the interest, wouldn't I? If so, perhaps ~11 months tax free interest on my current savings account might work out as the better option?

I have a 1-year ICICI bond. Monthly Interest. So at least interest up to 5th April 2011 is 'protected' from tax.

psychic_teabag

steveksullivan wrote: »

Open 3 LLoyds Vantage and stick £7000.00 in each .......

Move £1000 from account 1=>2=>3 and back to account 1 again once a month via internet banking to meet the funding requirements of the account

Could also get a halifax reward current account and pass the same £1k through that, for an extra £5/month pocket money. That also gives you access to an extra 0.2% on their instance-access cash ISA.

savemoney

graciela_peterson :spam: Reported spammer

drjones

Thanks all for the great ideas. The Lloyds Vantage and Halifax reward accounts sound like a good way to 'use up' 21k. I'll also be retrieving that £500 from my premium bonds.

The rest I'll probably stick in a 1-year bond... Is the following reasoning correct?

I have say 5 untaxed months of my life left, so, over a 1-year bond paying monthly interest then that's equivalent to a tax of 20*(12-5)/12 = 11.7% over its duration. So, if I went with a 1-year bond that paid interest yearly, I'd have to go for an account with a rate more than 20-11.7 = 8.3% higher than a monthly interest account to get the same return?

So, for example, say I find a 1-year bond with monthly interest of 3% and a 1-year bond paying annual interest next Nov. at 3.25%... These would give me the same return over the year (assuming they are opened soon)?

Cheers.

atypical

drjones wrote: »

I have say 5 untaxed months of my life left, so, over a 1-year bond paying monthly interest then that's equivalent to a tax of 20*(12-5)/12 = 11.7% over its duration. So, if I went with a 1-year bond that paid interest yearly, I'd have to go for an account with a rate more than 20-11.7 = 8.3% higher than a monthly interest account to get the same return?

Are you sure that it is not the case that interest will accrue tax-free for the period that an R85 is applied to your account? In which case when the interest is actually paid is irrelevant.

Seems unfair that if, to take an extreme example, someone has a 5 year fixed term deposit with interest paid at maturity. On the last day before maturity they become a tax-payer but still have to pay tax on the whole 5 years of accrued interest.