how best to save £500 per month?

EB69

I am on a huge debt busting mission at the moment, and to cut a long story short I am in the process of paying off a £16k credit card which I have on a 16 month 0% interest deal. I worked out that I can afford to pay between £800 to 1,000 per month off the card (some months more but I dont want to over commit). I fully intend to pay the entire balance before the deal comes to an end, which with payrises, bonuses etc should be easily doable.

I am currently thinking that instead of paying big monthly payments to the card, I would instead open a savings account in order to make the money work for me. I would then make the minimum payment on the card each month and deposit the rest of my monthly payment (I am thinking of probably around £500 per month) into the savings account, only to transfer it to the card just before it reverts to the full APR.

My question is how best to do this? I am not very wordly when it comes to ISAs, savings etc (I've always been a spender, not a saver) and I dont know whether I should be looking at opening perhaps more than one account - perhaps utilising an ISA allowance or something? I dont need to have access to the money so I'm happy for it to be locked up so long as I can get my hands on it in 15 months time before I need to pay the balance off the card.

Another point is that i am a higher rate tax payer. My daughter and her boyfriend (who live with me) are both in the lower tax bracket, so one thought I had is that instead of paying me anything towards their food and keep etc they could open an account in their name (thye currently give me around £300 per month). Does this make a difference? And more importantly, is it legal? If so, they could pay the contribution to that account and I would open a separate "top up" account of my own as well.

Any advice gratefully received. I am determined to now turn over a new leaf and no more spending on cards - its saving, saving saving all the way for me now!

Primrose

There are two lines of thought here and they really depend on your own attitude to debt. I hate it at all costs, and I especially wouldn't want £16K of debt, even at 0% in these difficult economic times when job security could be an issue. You're still in debt to the tune of £16K whether you're paying interest at 0% or 10%. The amount of interest you'll earn on a savings account will probably only be a maximum of around 3% gross, so you have to work out whether the extra £150 or so extra interest you'd get from an instant access account is worth the hassle of setting the account up.
If your daughter and her boyfriend set up an account in their name, with wrapped with an ISA or not, with their "bed & board" money, it legally becomes their money, and you won't have any legal right to it. Perhaps you should be encouraging them to set up ISAs in their own names for their long term financial benefit, rather than your short term one.

Obviously being a higher rate taxpayer it makes sense for you to have your own Cash ISA going forward for the tax relief, but if I were in your shoes, I'd concentrate on eliminating the debt first, especially if you're in a job where your future employment might be at risk. If you open an ISA now, you'll only have a very short term advantage from it if it needs to be cashed to clear your debts. Perhaps better to clear the debt first and then as soon as you're debt free, look around for the best paying ISA interest rate you can find.

EB69

Thanks for the advice Primrose. I do hate being in debt, which is why I am addressing it this way now. Better late than never, and all that. I can't afford to pay it all off in one go, which is why I was hoping to "offset" the debt against the savings - £150 may not be a lot of money, but I thought it better in my pocket than theirs, whichever way it goes. Luckily job security is not a big issue for me at the moment, but I do worry, for course, about the future. Since deciding I want to clear the debt I have taken a lodger and I am maximising my income every way I can, and hopefully I will shortly be getting news of my bonus and payrise, all of which is being diverted straight to the debt.

My daughter and her BF cant afford to save anything at the moment as both are on relatively limited incomes. That is why we were wondering if they had any sort of allowance etc that would be beneficial to us all as a family rather than having any potential benefit not being used. It is certainly not the case that I am seeking to stop them utilising allowances they would otherwise enjoy for themselves.

I am aware that the money would not be "mine" if it were in an account in their names, but I am not worried about this. Despite the fact that my daugher is an adult we still live very much as a family and I have no worries at all about her not paying the cash off the card when the time comes - apart from anything else the debt is combined family debt (I paid off some debts she had a while ago as she was struggling, plus I am helping her with uni costs etc). My concern however is that I would not want to do anything that could be considered fraudulent, etc.

I suppose at a push I could release equity from one of my properties but I dont want to do that at the moment because just now the debt is affordable on my salary, and I would rather just clear it as quickly as I can with a focussed attitude and determination and hard work.

psychic_teabag

A regular saver would probably give you the best rate. Check the best-buy tables. Two good ones are First Direct (8%) and Lloyds (5%). Both require a current account with the provider (and so will presuambly require credit checks, etc.). There are other others that don't require a current account. I don't know about the former, but latter allows max of £250/month, but your daugher and her boyfriend could presumably have one each - this does of course assume you completely trust them and that they're going to stay together.

Since you are a higher-rate tax payer, you'd only get to keep 3 of the 5% but that's still slightly better than you can get from an ISA at the moment. Also, you get it paid at standard rate (ie 4% net), and only have to pay the higher part of the tax to HMRC ages after you actually receive it (the January after the end of the tax year). So overall possibly still worth doing - as long as you don't forget to put enough aside to pay that new bit of debt when it becomes due

I assume you are free to charge daughter and BF for their board and lodgings annually in arrears rather than monthly, if you so choose, in which case there needn't be any legal issues. (A more positive way of looking at keeping the money in their name.)

I think I'd disagree with Primrose on the ISA's : if you don't open one this financial year, the window closes in April. So even though it's only short term, it's better than nothing. I agree that it would be nice to avoid "wasting" next year's ISA as a short-term holding pot, but your 16-month target is the end of next financial year, so you're not going to have much time afterwards to also fill an ISA. So I'd open the ISA next year, fill it up, then either continue saving elsewhere or start paying towards the debt, and then at the end of the year, hope to be able to leave some of the money in the ISA, but if you can't, you can't.

You can get a little extra pocket money if you open a halifax reward current account and push £1000/month through it. It doesn't need to stay there, just pass through on the way to wherever you want to keep it, but that will give you an £60 per year (net of basic tax). Money for nothing, really.

psychic_teabag

psychic_teabag wrote: »

You can get a little extra pocket money if you open a halifax reward current account and push £1000/month through it. It doesn't need to stay there, just pass through on the way to wherever you want to keep it, but that will give you an £60 per year (net of basic tax). Money for nothing, really.

Forgot to mention - doing so will also get you an extra 0.2% on the halifax instant-access ISA, bringing it to a market-leading 3.0%

pjcox2005

I would suggest you open an Cash ISA as you won't hit the yearly limit with your current planned saving over 15 months and it will be tax free.

Martin's article on them and the current best rates is here:

http://www.moneysavingexpert.com/savings/best-cash-isa

In the majority of Cash ISAs you can set up a standing order so the £500 is transfered at the start of each year.

They'll allow you to save £5,100 per year (think that figure is correct) from April to April.

So for you, the next 5 months (i.e inc this Nov) at £500 being £2,500, and then the following year you'll have 10 months at £500 being £5,000 before you need to clear the balance.

Presumably the shortfall of £8,500 will be paid of in part by the minimum payments, but if there is extra then I'd either open a regular saver or just leave that element in a normal savings account (although it would be lower interest).

EB69

this fab - thanks for your help!

pjcox2005

Should say, one reason I'd go with the ISA is they tend (a bit of a generalisation) to be a bit cleaner. If you touch the money then the interest rate doesn't fall you are just restricted on future amounts you can put in.

Also, it gives the option of putting bigger chunks into the ISA as soon as you have it (up to the £5,100), where as the regular savers normally have a max of £250 per month.

EB69

Really? I didnt know that - I thought if I touched even the ISA then it all goes pear shaped... I dont intend to touch it anyway, but you never know I guess.

right then - off to read up on the best buys etc!

cloud_dog

EB69 wrote: »

Really? I didnt know that - I thought if I touched even the ISA then it all goes pear shaped...

ISAs are no different to savings accounts, it is just a tax efficient wrapper.

There are fixed rate ISAs and savings accounts, there are instant access ISAs and savings accounts, and there are ISAs and savings accounts with special terms, i.e. limited number of withdrawals etc, etc.

Do not assume, read the T's & C's.

Another option you might want to consider is overpaying your mortage. This assumes you have one, that the mortgage interest rate is higher than any net/gross interest rate, that you can overpay, and that (more importantly) you can access the overpayments.

With interest rates relatively low and with our mortgage rate higher than our savings rate(s) we overpay and then withdraw the overpayments when we need it, its especially efficient if you are a higher rate tax payer.

Baldur

EB69 wrote: »

....right then - off to read up on the best buys etc!

Kazza242's regularly updated post is an excellent starting point for Cash ISA 'best buys' - http://forums.moneysavingexpert.com/showpost.php?p=4603369&postcount=1