Looking to save 100 a month

lukeh23

Hi,

I am now in a position where I can start to save one hundred pounds a month and so I am looking for my best option. I would be opening with a balance of hundred pounds, but could stretch to 500 if it would make much difference from there 100 in a month from my current account.

Should I go for a regular savings account such as Norwich and Peterborough who have a 4% online account, or perhaps an investment fund or maybe an ISA?

Thanks in advance for any help / tips. Actual product suggestions welcomed.

atush

Are you employed? Do you pay tax? Do you have a pension? Does your employer pay in a pension if you will?


when will you need this money? Do you have debt? Do you have any assets?

jamesd

The best option is probably the First Direct 8% regular saver account or the same deal with HSBC. First Direct beats HSBC because you'll need to set up a current account with them and they will pay you £150 for doing that. Open one of their normal savings accounts as well to avoid the charge for the current account. Keep the current and savings accounts until the year term of the regular saver expires.

After the year you can consider your other options, like using an ISA account.

If you have no experience of investments and you're interested in learning, consider opening a stocks and shares ISA account with Hargreaves Lansdown or someone else and starting out with a £50 a month payment to help you learn. This will provide you with good experience for larger amounts of money later, since there's nothing like having some money involved to give an incentive to learn. This sort of thing is appropriate only where you're likely to leave the money invested for at least a few years, five is commonly quoted as the minimum. Access to the money within a week or two is available, though.

lukeh23

atush wrote: »

Are you employed? Do you pay tax? Do you have a pension? Does your employer pay in a pension if you will?


when will you need this money? Do you have debt? Do you have any assets?

Of course, sorry - did not give the board much to work with.

I am employed full time.

I have a company pension which I pay into and is matched 3 and half times by my employer.

No debt.

I don't plan to need the money anytime soon - perhaps in 5 years or so, but no immediate release would be needed.

I have no assets apart from an emergency fund. I do have a flat, but it is joint owned with an ex, so we are on interest only as neither of us want to tie up any more money into it (It would be different if it was just my own as I would then put all extra cash into the mortgage and take advantage of the low interest rates).

atush

Is your emergency fund is in an ISA? If not, put it there.

As youpay tax, you need to shelter what you can from the tax man.

I would consider paying ont a S&S isa up to your annual limit. Then saving outside into a regular saver, or my fav, into an investmetn trust savings scheme.

lukeh23

Thanks Atush and James D.

So to summarise, my options are as follows:

Go for a regular savings account. First direct looks like a good option. £150 bonus if I also use them for my salary based current account and 8% is a good rate. I also like the 'online' factor, allowing me to login when I want and see how things are coming on.

HSBC I would need to open a current accoun and does not have the same incentives. I also have some moral issues which prevent me from letting them use my cash, but I don't want to open that can of worms in this thread.

The other option is a stocks and share based ISA. This looks attractive as I have wanted to learn more on the investment in the realm of markets and as James says this could be a good way to wet my feet. *Quick question here*:

Does an S&S ISA work well when you are making monthly payments in or is it superior to have a lump sum in from the start?

Does it matter much that I would be starting 3-4 months after the tax year starts (April)? When is the interest calculated?

Atush - I will look to doing that, it is currently in a very low rate websavers account. I have a Halifax ISA still open so will investigate there.

jamesd

There's no point in waiting until you have a lump sum before using the S&S ISA.

If you already had a lump sum then efficient markets theory says that your best option is to put it all in at the same time. Behavioral investing says that staggering it may work better because there's a chance of an early drop in value and people tend to be hurt by drops more than they are encouraged by gains. So losing some investment return to feel happier can be a good trade off. particularly for beginners, who have a tendency to be scared off by early drops.

Interest is calculated for each day the money is in the account. There's neither benefit nor cost in starting after the end of the tax year. The regular saver interest is paid at the end of the one year term or when the account is closed and that can matter sometimes. If it does matter and you need it earlier you can close the account to get the money earlier. Say if you wanted it just before the start of the new tax year to exploit ISA offers that might only be available then. But it's not really worth losing the extra interest of a few more months at 8% by doing this in your case.

atush

Drip feeding into markets does tend to counter some volatility in that wehn markets are fallling you buy more shares/units so that can help make up losses when markets rebound. I suppose it does give emotional benefits but i try not to think emotionaly so the pound cost averaging works for me.

jamesd

Right, but the cost is less growth when the markets go up. And markets on average go up in general, so the odds are a bit in favour of getting the money in instead of waiting. Until you consider human reactions.

kidmugsy

Also consider the ns&i Index-Linked Savings Certificates: they pay the RPI inflation rate + 0.5% p.a., they last for 5 years, and you can cash them in with little penalty after one year. Well worth a look.