NS&I certificates and plans for ISA and mortgage

lth

I hope I've got this whole process right - first time posting. I am trying to decide what to do with regards to over-paying my mortgage, buying the new NS&I certificates and investing in a 2011-12 ISA. I hope to pay a substantial amount off my mortgage next year - Jan / Feb - an endowment will mature in Oct / Nov this year but I am tied into a mortgage product until Jan. I want to arrange my investments up to and beyond then. I am thinking:

• I might buy the NS&I certificates first
• and then put the ISA allowance in - out of the endowment pay-out if I have not managed to save before then.
• I am considering moving money from my NatwestT e-ISA - I think the interest is currently 2.5% - into the NS&L certificate up to the maximum. Is this a good bet?
• I may well move the rest of the ISA to a better interest rate alternative.
• I suspect that I will use some of my accumulated ISAs and the endowment to reduce my mortgage - the interest rate and available interest rates will determine by how much. So some flexibility is quite important. However, I think I can withdraw from the NS&I after 1 year if it seems less of a good deal and use that for the mortgage (I don't intend to lock into a product so I can keep the option of paying off right up to the full amount)

I wonder if anyone can see anything wrong / a better way of planning these investments?

Thanks.:)

pressuredrop_2

Inflation is currently 5.2%. Not much thinking required I would say. A crystal ball would help.

ermine

What sort of ISA are you thinking of buying? If your NW e-isa is a cash ISA and you are thinking of buying a stocks and shares ISA you could consider transferring your cash ISA into the S&S one rather than withdrawing.

The reason for that is you would keep the possibility of putting in 10k+ this year in addition to the 5k from your Cash ISA transfer. You should note you can't transfer from a S&S isa back to a cash ISA, but you were going to lose that ISA allowance anyway by cashing it out. Gives you more options from the endowment maturing later this year if you want to go the S&S ISA route.

I will use some of my accumulated ISAs and the endowment to reduce my mortgage

What mortgage interest rate are you paying? If it is less that you expect from NS&I (remember that the 20% VAT rise will rattle out of the RPI figures for the first anniversary) You could do well to shove the cash into NS&I and keep the mortgage running.

If you believe you can do better with a shares ISA then keeping the mortgage allows you to use the cash in a S&S ISA. That comes with an extreme wealth warning :eek: though it's probably what I should have done...

You sound overall on the right track, you have to ask yourself how you feel about shares, and it's hard to argue with the peace of mind from paying off your mortgage. You will find once you have done that then as long as you save what you would have been paying to the mortgage your savings rate will skyrocket. If you use the difference to increase your lifestyle you'll have more fun now but the wisdom could be questioned...

lth

Thanks for this advice. I wasn't thinking of a S&S Isa just a better rate on a cash Isa. Currently my mortgage interest is really low - 1.79% from memory - so I am not concerned about paying it off while it remains so low - but this won't last as the deal ends next Jan and it's a tracker so will rise when the interest rates rise. This makes me think I'm likely to need to be in position to pay some off. I see your point about S&S ISA and the endowment. Perhaps I should buy into the NS&I certifcate without dipping into the cash ISA so I don't miss the opportunity and then I can add in up to £15000 over time I think - is this right? I assume though that the 1 yr for any benefit will apply to each deposit so the later I leave it the later I can take it out with any interest? I do like the idea of being mortgage free as soon as possible.

ermine

It is hard to beat the cost-effectiveness of paying off a mortgage early when interest rates are high. Since your mortgage track interest rates which will have to go up in the middle future scratch the ISA comment. At the moment @1.8% say your mortgage is £100k you are paying £1800 p.a. Say interest rates go up to 5%, you'll have to 5k interest. I paid 14% in the 1990s, you'd have to find 14k (and earn 18k gross to get that)

At the moment interest rates are low and the difference between them and NS&i are in save with NS&I's favour. And yes, NS&I basically inflation-proof your cash for up to 5 years.

kidmugsy

If you could be confident of making your next mortgage an offset mortgage, you'd keep open the option of swapping money around between offset, ISA and ns&i accounts as circumstances dictate.

englisho

kidmugsy wrote: »

If you could be confident of making your next mortgage an offset mortgage, you'd keep open the option of swapping money around between offset, ISA and ns&i accounts as circumstances dictate.

Thats what I currently do with my offset.

Only difference is that my Endowment has another 6 years to run. It's currently valued at about £15k and I'm seriously considering cashing it in and purchasing an NS&I index linked cert.

I may be seeing it wrong here.. but the payout on the NS&I after 5 years (based on current inflation rates) is similar to current value plus the bonus on the endowment (based on current policy payouts). but also I get the advantage of not paying any more into the endowment over the next 6 years which equates to another £5k in my pocket.

Am I missing something here or is this a no brainer?

Endowment maturity date 2017
Current value.. £15k
Monthly payment £74
Projected maturity value @4% £24k

NS&I value in 2016 (rough guess based on current inflation) about £18k
Savings on Endowment contributions £5.5k
Estimated total at maturity+ £23.5k

Suppose the clincher is that the economy has to stagnate and inflation increase to mke the NS&I route the sensible option.

kidmugsy

lth wrote: »

Perhaps I should buy into the NS&I certifcate without dipping into the cash ISA so I don't miss the opportunity and then I can add in up to £15000 over time I think - is this right? I assume though that the 1 yr for any benefit will apply to each deposit so the later I leave it the later I can take it out with any interest?

not missing the opportunity is probably wise. Each new certificate will date from the time you bought it: correct.

Your problem is that the best course of action depends on the terms (e.g. offset?) and mortgage interest rate that you'll get when you renew, and you can't know that yet. So bagging as much ILSC as you're comfortable with and preserving a good degree of flexibility is a sage compromise.

kidmugsy

"Suppose the clincher is that the economy has to stagnate and inflation increase to mke the NS&I route the sensible option." I'm not convinced that the Coalition really understands just how dreadful its legacy from Labour is: I think the outlook is grim. Be that as it may, on my advice my wife has just cashed in a With Profits bond and bought an ILSC.