What to do with 30k?

molly360

When it comes to money, we have know idea what to do!
At this moment in time we have a house we've inherited and is currently on the market. My partner who's 42 and has worked all his life has no pension and no saving.
We are lucky to be debt free and plan to do up our current property when the other house is sold.
We've be careful deciding what to spend the money on and have set aside £30,000 to go into saving's (as sorts) this is where we start getting very confessed, as you can probably tell this is going to be the first time we've had a large amount of money, and currently have many family member's throwing many different idea's at us.

We just don't know what to do, we want our money to be safe and would like a little return on it, we want it simple and ideally in one place.
Help!

Mr_K

If you don't need the money at the moment putting £15k each in National Savings Index linked certificates might be an option. They are guaranteed to keep up with inflation plus a bit more and are tax free - no savings account can match this at the moment. The downside is that is a 5 year term, but you can withdraw the money at any time, however in the first year you'll just get your deposit back.

Cash ISA's are another option if you haven't used you allowance, again tax free but you can only put £5340 in each year. Perhaps a mixture of NSI and Cash isa's ?

Bigsmak

You say that your husband has no pensions and no savings. I would speak to an independent financial advisor who will sit you down and show you the options that are best for you.

With regard to the pensions. I have no idea what you are earning at the moment but the State pension is not far from £5,000 a year. Can you live on this? I would probably use the money you will inherit to make sure that you are more comfortable in retirement. i.e. a pension.... But again, this isn't advise as I don't know your full circumstances. Just something to think about.

Ask your friends / family / workmates if they have used and liked a local IFA before and go speak to them. Always best to get one on recommendation.

grumpycrab

With £30K I wouldn't personnaly worry too much about an IFA unless the house we've inherited adds greatly to your pot.

If you have no cash ISAs (tax free) then that's priority number 1. £5340 each for 1 or more years. http://www.moneysupermarket.com/savings/cash-isas/

Then NS&I indix linked certificates for the rest if you're happy to go with a 5 year committment. Both of these are safe.

kidmugsy

No-one know when ns&i will stop selling their current issue of Index-Linked Savings Certificates, so it might be wise to press on and buy them ASAP.

JohnB47

Just one note of caution about Index linked certificates.

I have a feeling that people look at the current RPI figure and think that if they invest in NS&I Index-Linked Savings Certificates, that's what they'll be guaranteed to get (pro rata) for every month they invest - like a cash ISA.

It's not like that. Here's what they do.

Say you invest in June 2011. After the first year, they look at the RPI figure for April 2012 and apply that to your capital. In other words they apply whatever is the increase in prices (using the RPI method) for the period April 2011 (i.e. two months prior to your investment) to April 2012. If that results in an RPI figure of 5%, you're a winner. But if it's dropped to 3%, still good but not anything like todays figure.

The point is that the RPI figure can go up, down or sideways between April 2011 and April 2012 but the figure for April 2012 will be the one that's applied to your capital.

A cash ISA is different. If you have even a variable rate one, you'll get the interest rate applied to each full month as the year rolls on. So you get the benefit of any increases in the variable rate and you also still get something even if the rate goes down. (Note, however, that this is a calculation done at the end of each year - you don't actually get the interest added to your capital each month, so it's not compounded month by month. At least I think that's the case). The point being that the interest rate is applied as at the end of each month, rather than as at the end of the year.

Each to his/her own of course but I'm not a gambler. I'd rather invest in good ISAs (a combination of fixed and variable rate), rather than take a chance on what the RPI figure is going to be in a given month in a years time.

Loughton_Monkey

I would suggest that 'what to do with £30,000' is the least of your issues.

Being in your 40's with no pensions and savings is a dire situation in my view. Have you never sat down and thought what you will have to live on in retirement? Given a fair wind, your £30K would give you around an extra £1,800 (taxable) per year - in today's values - on top of whatever state pension entitlement you have. If you currently spend only roughly the state pension amount, then fine. But otherwise, you should really get some serious savings started before it's too late.

Rollinghome

JohnB47 wrote: »

Each to his/her own of course but I'm not a gambler. I'd rather invest in good ISAs (a combination of fixed and variable rate), rather than take a chance on what the RPI figure is going to be in a given month in a years time.

John, the return you get from IL certs is not based on a single month. It's based on the change in the RPI figure between the opening date and 12 months later - i.e. the rate of inflation over the period.

I think the point you may have missed is that if you put your money in any account that isn't index-linked then you are still gambling. If for example the account pays 3% and inflation is 5% over the year then you will receive a negative return and your capital will have lost value.

If on the other hand you put the money into NS&I IL certificates you will be guaranteed a positive return equal to inflation plus 0.25% in the first year. You are right to the extent that the chance you take is that the rate available in cash ISAs might exceed the rate of inflation.

The other point to remember is that the maximum that an invidual can pay into a cash ISA this year is £5340 but up to £15000 per NS&I IL issue. ISA savings account may pay interest either monthly or annually depending on the terms of the account.

JohnB47

Rollinghome wrote: »

John, the return you get from IL certs is not based on a single month. It's based on the change in the RPI figure between the opening date and 12 months later - i.e. the rate of inflation over the period.

I think the point you may have missed is that if you put your money in any account that isn't index-linked then you are still gambling. If for example the account pays 3% and inflation is 5% over the year then you will receive a negative return and your capital will have lost value.

If on the other hand you put the money into NS&I IL certificates you will be guaranteed a positive return equal to inflation plus 0.25% in the first year. You are right to the extent that the chance you take is that the rate available in cash ISAs might exceed the rate of inflation.

The other point to remember is that the maximum that an invidual can pay into a cash ISA this year is £5340 but up to £15000 per NS&I IL issue. ISA savings account may pay interest either monthly or annually depending on the terms of the account.

Thanks for that.

I'm not trying to shift anyones opinion here, just hoping to clarify things for people like me who's first impression was that you would get interest on your investment straight away, starting with the current RPI. You won't. If you invest in June, then next June you'll get interest added to your capital based on next years April RPI figure.

"If on the other hand you put the money into NS&I IL certificates you will be guaranteed a positive return equal to inflation plus 0.25% in the first year. You are right to the extent that the chance you take is that the rate available in cash ISAs might exceed the rate of inflation."

Well, sort of. I think I'm still not making my point clearly enough. OK, it's unlikely but take the following example, just to illustrate my point. Say you have a variable rate ISA that currently pays 3% and you also invest in an NS&I fixed rate doodah. Say the RPI figure goes up steadily to 6% by next February, then heads south so that it is 1% by next April. And say the ISA variable rate also heads up to say 4% and then down again to 0.5% by April.

The NS&I jobbie will pay you 1% on your capital, whereas the ISA will pay you a twelth of the interest rate for each month as the rate goes up and then down again. Given these figures, I think the cash ISA would pay better interest on the year.

These figures are almost certainly nonsense but the point is just to illustrate the two different ways the interest is calculated 'cos I think, for some people, the penny hasn't dropped.

"The other point to remember is that the maximum that an invidual can pay into a cash ISA this year is £5340 but up to £15000 per NS&I IL issue. ISA savings account may pay interest either monthly or annually depending on the terms of the account."

Yep, fair point but 'eggs in one basket' springs to mind.

Don't misunderstand me - I might just invest in a NS&I cert, I'm just not convinced yet.

Cheers.

Rollinghome

JohnB47 wrote: »

OK, it's unlikely but take the following example, just to illustrate my point. Say you have a variable rate ISA that currently pays 3% and you also invest in an NS&I fixed rate doodah. Say the RPI figure goes up steadily to 6% by next February, then heads south so that it is 1% by next April. And say the ISA variable rate also heads up to say 4% and then down again to 0.5% by April.

The NS&I jobbie will pay you 1% on your capital, whereas the ISA will pay you a twelth of the interest rate for each month as the rate goes up and then down again. Given these figures, I think the cash ISA would pay better interest on the year.

You're right there's been a lot of hype from the press making big assumptions and in some cases the information given by them has been factually incorrect.

The first thing to remember is that the RPI figure used as a starting point is from two months before you invest. The second is that the RPI is a number and the percentage figure usually referred to is the change in the RPI over a year. IL certs should be regarded as an investment for at least a year.

So for investments made during the whole of May the starting RPI figure is for March - which was 232.5. In your example if the RPI goes up by 6% the RPI would stand at 246.4. For the rate of inflation to fall back down again to just a 1% increase over the year the RPI, and the price of the basket of goods that determine it, would have to fall back down to 234.2. That's to say there would have to be a fall in prices of around 5% in that month or so. Whereas we could see a slowdown in the rate that prices increase, I don't think anyone expects a collapse in prices in that way and way below the CPI target, i.e. extreme deflation.

If inflation falls back heavily then over 5 years a fixed rate of 5% might turn out to have been the better bet but with the best fix for a year of about 3.1% it looks a decent option for a year or so for tax payers. Whatever happens it will pay a positive return whereas other savings options might not this year.

Honkycat

Do you think it's better to buy these in May (ie today) or wait till tomorrow.. ie June?