Savings Account to pay off a failing endowment mortgage

tonyflan

I will be surrendering my failing endowment policy shortly and will get approx 23K. I need to invest this money plus approx £200 per month (part of which was my monthly endow payment) into a saving account for approx 11 years. Can anyone advise on the best savings account to use. I do see that TSB Lloyds have the 2 year account which pays 8% during this period.

Thanks.

Mr._H_2

Firstly, have you investigated selling your endowment policy instead of surrendering it? You can usually recover more money that way.

Secondly, do you have a competitive mortgage (what's the interest rate)? If not, can you re-mortgage or are there penalty issues? If you can't re-mortgage, are you allowed to pay off any of the capital?

Thirdly, assuming that your experience with endowments has made you risk-averse, you should follow the usual money-saving-expert advice:

1.) Do you have any high-interest (anything above the rate you'll get from savings) debt? If so, pay it off.

2.) Invest £3000 a year into the highest-interest cash ISA you can find

3.) Invest the rest in a high-rate savings account, and use that to "feed" a regular-savings account, such as the Lloyds TSB 8% regular saver.

More specific tips to expand on point 3.) are:

As you've over £5000 to invest, I'd suggest a Bank Of Scotland Instant Access Savings Account Reward, which is currently paying 5.25% AER on balances between £5000 and £250,000. This is a great account as despite the fact that it is a high-interest savings account, it allows you to set up standing orders to multiple different accounts. This means that, unlike most other savings accounts which are "linked" to only one account that you can pay to, you can feed a regular saver account direct from the savings account.

If you are not with Alliance&Leicester, I would suggest opening a Premier Current Account. This gives you access to A&L's regular saver which pays 12% AER.

Also, you should open a current account with Lloyds TSB (Lloyds do not require that you switch to their current account) to give access to their 8% regular saver.

If you have a partner, get them to switch to Alliance and Leicester too, and open a regular saver with them, and also open a Lloyds TSB current account & regular saver. You can fund the A&L and Lloyds TSB regular savers from the Bank Of Scotland account (for the A&L, the money has to go to the A&L current account first, as the A&L regular saver can only be funded from the A&L current account)

That would give two regular savers paying 12% and two regular savers paying 8%. The A&L account closes after one year, but the Lloyds account stays open for two years. Both accounts allow regular payments of £250 per month. The Lloyds acc. also allows for a seperate opening payment of up to £500 (i.e. £750 in the first month is allowed). The A&L acc. is 1 year and the Lloyds acc. 2 years.

Of course, if you feel like stretching yourself, you could open four more regular savers with two other providers (giving 8 regular savers altogether) - you've got just enough funds to do so.

Mr._H_2

I should add that if you don't want to go to the trouble of opening that many regular savers, fixed-rate bonds are a good way to go. They tie your money up, but that doesn't matter as you are looking at long-term savings.

Coventry Building Society currently have a 1 year bond paying 5.8% AER.

tonyflan

Thanks for all your advice Mr H, much appreciated.