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Best interest rate...

My daughter has saved up £4000 and is wanting to make it work for her as hard as possible and is prepared to put it away for 3.- 4 years. Where is the safest place for her to put it and in what sort of account? Its very confusing wading through different options!! Thanks!

Comments

  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Fixed term ISA may be worth considering.

    Look at what's on offer elsewhere on MSE.
  • "The happiest of people don't necessarily have the
    best of everything; they just make the best
    of everything that comes along their way."
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  • MrRee_2
    MrRee_2 Posts: 2,389 Forumite
    Is your daughter a TaxPayer? As this changes the advice.

    Cash ISA is a good start ... I would avoid fixes over 4 years - I believe Interest Rates will be back to around 8% in less than 3 years time. Fix at 4% now and it won't look too clever in 2013/2014.
    Bringing Happiness where there is Gloom!
  • VT82
    VT82 Posts: 1,081 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    Assuming your daughter is a standard rate taxpayer, the return on a best buy instant access account paying 3.2% would be £102.40 per year, whereas on a best buy 3 year fixed rate paying 4.21% the return would be £134.72 per year.

    Before tying the money up for three years, your daughter must be sure that the extra £32.32 per year is worth more than the fact that she won't be able to access it for emergencies, or withdraw it if the credit outlook of the insititution she saves it in deteriorates, or access it for other opportunities that might arise in the next three years.
  • bandana999
    bandana999 Posts: 91 Forumite
    edited 20 October 2011 at 8:59PM
    I have to agree with VT82. With "only" £4000 to invest, the extra interest earned for tying up your money for a year or two (or three) is IMHO not sufficient compensation. There is a chance interest rates will rise, and so you could actually be better off putting in an instant access account now.
    If you do, keep checking for a better rate new account, and keep moving your money.

    If you do want to fix, then the C&G 3yr Step Bond pays an average of 4.25% over the term, and as the rate steps up each year, psychologically you won't feel so bad if rates do go up - and there is a get out (with a penalty of course).
    Maybe it's just me
  • Jharna
    Jharna Posts: 9 Forumite
    The small investment invest in less term mutual funds for more benefits.
  • atush
    atush Posts: 18,731 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Mutual funds are in the USA. Are you perhaps thinking of Unit trusts, OEICS or investment trusts? If not, you are not giving country specific advice.

    Which may not be suitable for the OP as they have described 'safe'.
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