tax exempt savings?

franney

Hi,
My partner has been saving with Liverpool Victoria for 10 years and his policy is about to mature (or something like that)
He was saving £18 a month and has earned the princely sum of (approx) £500 in interest, £50 a year on £216 savings, is that good?
Would anyone be able to point us in the right direction for a similar plan, although preferably with a higher interest rate than he earned with LV.
Am i right in thinking that an ISA is the way to go or are there other tax free savings plans out there?
Thankyou in advance for any help you can offer

blinko

if he has earned 50 for having 216 that would equal about 25% which would be very good compared with the average savings account at 5%

franney

Oh, that is quite good then isn't it!

lipidicman

I hate to disappoint your but the answer to your question by blinko was very wrong. He has missed the principle of compounding.

To be fair the way you asked the question was misleading - it isnt £50 a year on £216 savings - it is £50 average on £216 PLUS all the previous years (for any given year). The calculations are slightly harder when you add to the capital each month as you have done

If you do monthly interest calculations - ie adding 18 pounds each month and calculating the interest then 5% would return £2789.85 for your payments which total £2160. So that is £629 interest. Using these figures you can see that you have had a return of less than 5% AER. By changing the figure from 5% I estimate 4.1% AER.

here is how the first year in the spreadsheet looks:

18.06
36.18
54.35
72.59
90.89
109.24
127.66
146.14
164.68
183.27
201.93
220.65

The easiest approximate estimate without using an iterative spreadsheet comes from using the average balance (£1080) £50 a year 50/1080=0.0463 or 4.6% AER. This answer is not as accurate - but it is an easy way to see how the answer comes out!

At the moment you can get better than this - over the last 10 years this would seem OK (I dont have the historical rates to hand, but they have gone pretty low over this period - my knowledge only goes back 5 years or so though!)

HTH

dunstonh

LVFS with profits potential going forwards is likely to be lower over the next 10 years when compared over the last 10 years. However, like any investment which has a stockmarket link, it could be better or worse. I will let you know in 10 years time which was best

lipidicman

Not got that crystal ball cleaned up yet then?

franney

lipidicman wrote:

I hate to disappoint your but the answer to your question by blinko was very wrong. He has missed the principle of compounding.

To be fair the way you asked the question was misleading - it isnt £50 a year on £216 savings - it is £50 average on £216 PLUS all the previous years (for any given year). The calculations are slightly harder when you add to the capital each month as you have done

If you do monthly interest calculations - ie adding 18 pounds each month and calculating the interest then 5% would return £2789.85 for your payments which total £2160. So that is £629 interest. Using these figures you can see that you have had a return of less than 5% AER. By changing the figure from 5% I estimate 4.1% AER.

here is how the first year in the spreadsheet looks:


The easiest approximate estimate without using an iterative spreadsheet comes from using the average balance (£1080) £50 a year 50/1080=0.0463 or 4.6% AER. This answer is not as accurate - but it is an easy way to see how the answer comes out!

At the moment you can get better than this - over the last 10 years this would seem OK (I dont have the historical rates to hand, but they have gone pretty low over this period - my knowledge only goes back 5 years or so though!)

HTH

WOW! Had to read that a couple of times for it to make any sense!
Thanks for the explantion though
So, you say that at the moment he can get better, where should he be looking?
He basically wants to save about twenty quid a month and not give any more money to the taxman than he does already and being total financial dunces we don't know where to look for the best products.
Thanks to this site and the advice of members i sorted out my money, and now it's his turn *lol*

lipidicman

So the obvious place is in an ISA, or if one of you is a non taxpayer you will get better returns at the halifax 7% or HSBC 8% (but their conditions are silly - like a rubbish current account with them). It may be best to use your isa allowance though - if you dont you lose it. Read Martin's savings guide, then come back and be more specific about your circumstances!

franney

Hi,
I have read Martin's savings guide hence I already have an account with the Halifax so that option is out of the question, unless they will allow me to have two accounts?
I've been googling and so far come up with the Scottish Friendly who have a tax exempt savings scheme which offers interest of about 4.7% aer
I will also look into an ISA which would allow him to save a regular amount each month, but he wants a longer term than a year and that is what they seem to offer or am i reading it wrong?
Thanks for the advice, i really do appreciate any help that anyone can throw our way

dunstonh

You can have as many accounts with a provider as you like.

Scottish Friendly with profits savings plan shows past performance over the last 10 years of 4.7%. Because it is linked to stockmarket performance, the amount you get in future will be different to that. This is exactly the same as the LVFS plan you held before. It is likely to be lower than in the past.

On a risk scale of say 1 to 10 with 1 being lowest and 10 being highst, you would place this in risk rating 5 to 6. A Cash ISA would be risk rating 1 - the lowest.

These friendly society savings plans are not deposit based and do not pay interest. They pay bonuses depending on the performance of their investments.

Cash ISAs are an annual allowance on a pay as you go basis. There is no fixed term. A standing order for £20pm, for example, could go on until further notice. Whether this be 1 year or 10 years.

lipidicman

If you mean can YOU have two Regular Savers from the Halifax, then no. But you could have one and your partner could have one too.

Couldnt see 4.7% with scottish friendly, but you could get 5%+ in an ISA. If you dont have an ISA then GET ONE, it should be the first port of call for any saver (who pays tax or might do in the near future). The only exceptions are the rather limited fix rate savers which can beat them in the short term.