Help with student saving please???

Button07

Hi,

Im in desperate need of help. Until now, Ive never really had any money to save, but Ive now moved onto a postgrad course that will be lasting 4 years with at least a stipend of ~£16k each year, so I need to do something with it! I have asked many people for advice, but everyone seems to be saying something different, so I dont know whats true!

First question: do I need to put my money into an ISA? someone said this may not be best for me because i dont pay tax and so my savings will be tax free anyways...is this true?

Then someone else said to look at the following:
1) no notice, no bonus- Northern rock 1.9%

2) no notice with bonus - Northern rock % M & S %

3) notice, without bonus - Northern rock - 90 days 2.5%, Chelsea 60 days 2.25 %

4) notice with bonus - £500 minimum, 30 days notice Post office 2.75%

i dont even know what this means!!

if isas arent best, i need to know what to go for instead...

does anyone know a little more than me on this please?

Thanks so much!
xx

Lokolo_2

Button07 wrote: »

Hi,

Im in desperate need of help. Until now, Ive never really had any money to save, but Ive now moved onto a postgrad course that will be lasting 4 years with at least a stipend of ~£16k each year, so I need to do something with it! I have asked many people for advice, but everyone seems to be saying something different, so I dont know whats true!

First question: do I need to put my money into an ISA? someone said this may not be best for me because i dont pay tax and so my savings will be tax free anyways...is this true?

Regardless of whether you are a student Edit: Except Postgraduate, you will be paying tax in that year as your income will be over the person allowance of £6475, anything over that will be taxed at 20%,

It may be worth opening an ISA and put in the max ISA allowance of £5100 this year and/or £53xx next year as this is a longer term investment, once you finish your studies and get a job you can continue adding to ISA's and you will then appreciate all the tax-free interest from all the ISA deposits from previous years!

Take a look at the Banking/Saving tab on the top of this page though, as there are so many different ISA's, you will need to know if you'd rather get a fixed rate for a few years, or just one year or instant access.

Button07 wrote: »

Then someone else said to look at the following:
1) no notice, no bonus- Northern rock 1.9% No - Not a good rate

2) no notice with bonus - Northern rock % M & S % What is the rate on this?

3) notice, without bonus - Northern rock - 90 days 2.5%, Chelsea 60 days 2.25 %

4) notice with bonus - £500 minimum, 30 days notice Post office 2.75%

i dont even know what this means!! The Notice period means the amount of time you need to give notice to the bank before you can withdraw any money. Accounts with bonuses often only offer them for a fixed period, so watch out for when the rate drops, if the rate is variable then also watch out for rate drops! The percentages above is the Annual Equivalent Rate (AER) of interest you would earn (before tax!)

if isas arent best, i need to know what to go for instead...

does anyone know a little more than me on this please?

Thanks so much!
xx

From looking at what people have told you above, you need to decide IF you need access to your money, as you can get higher rates for putting cash away for a longer time.

What are your outgoings like? You could keep enough for outgoings and a bit of an emergency fund in an instant access account, once again it's best to check the Banking/Saving tab as there are many to chose from, this will give you the chance to earn interest but still have quick access to money you need.

The problem with longer term accounts is that they may only allow one initial deposit, so if you don't have a cash lump sum, but just income every month, it may be best to use instant access or notice accounts, to which you can keep adding until you have a substantial amount, which can then be put into a fixed term account for a better rate. :beer:

There are also some current accounts which pay good interest, such as Lloyds Vantage paying 4% on balances between £5000 and £7000(you need a standard Lloyds account first before you can get the Vantage account) You must deposit £1000 each month, but it's best to "cycle" the money in and out each month as you will get 0.1% on anything over £7k!

Hopefully this helps a bit, let us know if you have any more questions! I haven't covered stocks/shares/investments so if you don't mind risk for a potential higher reward, you can ask some of the experts on that here too (just not me, I don't do risky!) :j

PS: Congrats on starting to save, not many students do! :T

Lokolo

You can get better rates than that.

ISAs are good when you pay tax because you won't pay tax on the interest. However, if you aren't a tax payer this won't occur anyway!

Notice accounts mean you must give X days notice before you can withdraw. So if it's a 7 day notice period, if you wanted to withdraw money, you would need to tell them 7 days in advance.

http://www.moneysupermarket.com/savings/

The best is 2.9% with Post Office. No notice, so means you can withdraw whenever you want. However it's a 1.25% bonus for 12 months, which means after 12 months the rate wiill drop 1.25% as the bonus bit will disappear.

If you aren't a taxpayer then you can get tax free interest by filling in an R85

http://www.hmrc.gov.uk/forms/r85.pdf

Lokolo

aaronmanz wrote: »

Regardless of whether you are a student, you will be paying tax in that year as your income will be over the person allowance of £6475, anything over that will be taxed at 20%, so since you will be getting that sort of income for 4 years, it may be worth opening an ISA and put in the max ISA allowance of £5100 this year and/or £53xx next year.

Postgrad Stipend is not taxable I believe.

http://www.hmrc.gov.uk/manuals/eimanual/EIM06265.htm

Lokolo_2

Lokolo wrote: »

Postgrad Stipend is not taxable I believe.

http://www.hmrc.gov.uk/manuals/eimanual/EIM06265.htm

Apologies, I have just checked the link and you are correct! :beer:

scottishblondie

I've been in this position for the last 3 years. I've used a mixture of regular savers, easy-access accounts and ISAs. I've kept my approach about 50/50 long-term/easy-access. I usually just look for a decent interest rate and start from there!

Regular savers are good if you're just starting to save, as they usually have a higher interest rate, and you can only put a set amount in them a month. They normally have a fixed term of 12 months. If you have more to save than the deposit limit then you can put the rest into an easy access or fixed term account.

Unless you're starting with a lump sum, a Lloyds Vantage isn't going to be best for you to begin with, but once you have saved a minimum of 3k I would recommend one - with a balance of 3k you will attract 3% interest, once you hit 5k it'll go up to 4%.

I still pay into my ISA, as once I finish my PhD (hopefully soon!) I will be paying tax again so I wanted to use my allowance while I had it. The rates are usually lower at the moment tho, but keeping the money in another account with a better rate and then depositing it into an ISA just before the end of the tax year is an option.

Button07

Ok, Im really sorry, Im new to these forums and dont know how to quote several people in one message, so Im just going to put everything in one message!

-so on the ISA front, its a good idea to not really have much in one whilst im a student and to put it in a higher rate account, but I need most of it if possible in an ISA by the time I finish so I dont start getting taxed on it, is this right?

I really like the idea of putting the money in an ISA at the end of the tax year, thanks scottishblondie. but how does that then work with the ISA rate, because I know things change at the end of the tax year right? So say I put money into an ISA before the end of this tax year (which is April right?) I can then put the rest of the allowance in by March 2012 say, and then I can move it all over after April 2012? Im sorry for appearing thick, i just dont understand it all!

I also like the idea of having half of it locked away in a fixed term thing, and half of it easy access, thanks for that one! Where the economy is at the minute though... how many years is a good idea, do any of you guys have any clue on this?

I also really appreciate the tax free form - I will definitely look into that one!

Aaronmanz - Ive heard that regular savings accounts arent great because although they always look like a really high rate, you have to half it because it gets paid every month? Is this right?

Lokolo - the Post Office account isnt a regular savings account right? Its just a regular one, so I could put however much into it and then move it after 12 months because of the bonus rate?

Again, thankyou so much for this - I really really appreciate it! :j
xx

Lokolo

Yes about the Post Office one.

ISAs have an annual limit from April 6th -> April 5th. This years limit is £5,100. So from now until April 5th you can deposit £5,100. On April 6th you can then deposit a further £5,340 until April 5th 2012. The limit increases each year, which is why it's going from £5,100 to £5,340. So if you have the money now. You can have a total of £10,440 (£5,100+£5,340) in ISAs on April 6th this year.

As with all accounts, interest paid is on the average amount over the period, this is why interest seems odd on regular accounts, because the average amount is just over half the total amount at the end of the year.

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Personally I wouldn't fix. The fixed rates shorterm are pretty poor. However, in the near future, interest rates are expected to rise, so I suspect better fix deals will be on their way when the rate does start to rise.

Sophie4120

If you can save between £100 to £300 per month (and can stomach the thought of dealing with Santander ) I would suggest their First Home Saver account. Providing you are eligible and conform to the depositing rules you will get a tax free interest rate of 5%.

I made an attempt at calculating overall interest compared to an ISA, but I should probably stop procrastinating...

I pay into this each month, then any surplus goes into an instant access account.

bristol_pilot

Although you are not a taxpayer now, ISA allowances are cumulative from year to year and if you don't use it in one particular year you lose it. For example, if you put £5,100 into your ISA each year for 4 years you will have £20,400 plus accrued interest at the end of year 4. No tax on this interest, but you would not have paid tax anyway due to being a non-taxpayer. In the 5th year when you have finished your postgrad course, you then become a taxpayer, you pay in another £5,100 and you are getting tax-free interest on £25,500 plus accrued interest from previous years. If you leave it until the 5th year you would only start the tax-free interest from that year. Interest rates could be significantly higher by then than they are now, and the OP could easily find themselves to be a higher-rate taxpayer. Rates TODAY are so low, I don't think it matters that much to get the best rate on a few thou.

Lokolo_2

so on the ISA front, its a good idea to not really have much in one whilst im a student and to put it in a higher rate account, but I need most of it if possible in an ISA by the time I finish so I dont start getting taxed on it, is this right?

This is hard to judge, as although you wouldn't reap the tax-free benefits because you dont pay tax anyway, you could, as one of the posters said above, accumulate big amounts in an ISA which would come in handy as you get a taxable job income later on.:j

I really like the idea of putting the money in an ISA at the end of the tax year, thanks scottishblondie. but how does that then work with the ISA rate, because I know things change at the end of the tax year right? So say I put money into an ISA before the end of this tax year (which is April right?) I can then put the rest of the allowance in by March 2012 say, and then I can move it all over after April 2012? Im sorry for appearing thick, i just dont understand it all!

Well you could put up to £5100 into an ISA right now, whether you put it in now or before the tax year ends, will result in the amount of interest you get, so the sooner the better obviously! Yes the tax year ends and starts in March, you can deposit your year's allowance any time in between then! You can have several ISA's but only deposit to one per tax year, you can also transfer your ISA from one provider to another unlimited amount of times!

I also like the idea of having half of it locked away in a fixed term thing, and half of it easy access, thanks for that one! Where the economy is at the minute though... how many years is a good idea, do any of you guys have any clue on this?

Nobody knows the true answer to this one, my guess is also along the same line as Lokolo, that rates will rise at some point, nobody knows when either though so you need to make that choice, get a better rate by fixing for a longer period or gamble on rates going up and take a worse rate in the short term, you can fix from 6months to 5 years usually depending on the account you chose!