How much could i earn.........

onceuponatime_2

Has anyone got any idea how much my relation could earn on £140,000 of savings. They are mortgauge free and have pilled all there money into bank saving accounts with little interest.

oldvicar

Strictly 'nothing' can be earned with savings - any interest counts as "unearned" income.

But in a savings account paying say 3% then £3500 per year of unearned income is easily possible (before tax). A bit more should be possible by shopping around.

This amount of money should be split between at least 2 unique deposit takers, or be held in joint names, to benefit from the financial services compensation scheme guarantee of £85000 (in the event of a bank going bust).

Russe11

but it will be negative growth in real terms

onceuponatime_2

Russe11 wrote: »

but it will be negative growth in real terms

As i understand it thats the problem. Any suggestions.

oldvicar

Russe11 wrote: »

but it will be negative growth in real terms

No it wont. If you believe the Bank of England inflation over the coming 2 years will be less than this.:j

onceuponatime_2

oldvicar wrote: »

No it wont. If you believe the Bank of England inflation over the coming 2 years will be less than this.:j

Sorry could you explain a bit more what you mean.

xylophone

http://www.xperthr.co.uk/blogs/employment-intelligence/2012/03/is-inflation-falling-too-far-a.html
If you can achieve a rate on your savings (after tax) that is equal to or above inflation then you are going some way towards preserving your spending power.
http://www.moneysavingexpert.com/savings/safe-savings
http://www.moneysupermarket.com/savings/

oldvicar

onceuponatime wrote: »

Sorry could you explain a bit more what you mean.

Put simply, the Bank of England recently forecast in its 'inflation report' that inflation in the coming year will be less than 2%. And it is possible to save money in accounts paying more than 2%, even after tax. So you can gain money in "real terms" after allowing for inflation.

The fact that headlines recently quoted inflation as 3.9% (or over 5% a couple of months back) is irrelevant. This inflation has already happened. So it's inflation going forward, over the period you are going to save, which matters now. Newspaper commentators generally get this wrong, comparing past inflation with future returns - apples and pears.

However some sceptics like me think that inflation will be higher than official forecasts. Indeed the Bank of England acknowledges that its additional 'quantatative easing' since its last inflation report will push inflation up a notch.

opinions4u

onceuponatime wrote: »

Has anyone got any idea how much my relation could earn on £140,000 of savings. They are mortgauge free and have pilled all there money into bank saving accounts with little interest.

It depends.

What do you describe as "little interest"?

This link (from the top of the page) gives you an MSE view on best available savings accounts. www.moneyfacts.co.uk also provides a comparison service.

If they want easy access, Birmingham Midshires at 3.20% on £50k+ will do the job. Or £5,340 each in to an ISA at www.theaa.com/savings topped up with another £5,640 on 6th April to get a 3.50% tax free easy access return.

But if they're prepared to tie the funds up then a 5 year fix should get them around 4.60% or thereabouts.

If inflation is the real fear, this link from the top of the page can help (but note the tax impact of some of these plans).

£140k is a sgnificant sum though. What pension arrangements do they have? What ISA arrangements do they have (a couple can save nearly £44k in different ISAs either side of the tax ear end)? Is income what they really need, or capital growth?

They may be in a position where they can shelter the whole lot from tax within a short period of time. Tax is often a bigger threat to real value than inflation.

infj

Onceuponatime - I think you need to give a bit more detail about the relative's age and circumstances - what do to will depend on their age. If they are older and want to protect their purchase power for retirement and without risk then looking at best cash ISAs and savings accounts (as listed on this site) is their safest bet. But you have to spend time on managing the money - checking rates, moving to better rates when available - unfortunately just dumping the money and forgetting it for years will erode its purchase power.
Government bonds are a possibility but returns may not be fantastic.

If they are younger and willing to take a risk with some of it - then money into an ISA based investment is worth looking at BUT don't put it into a managed fund - invest in a index tracker and leave it alone. Otherwise known as passive investing - look at the Monevator blog for clear explanation of this idea. It's not my blog - I am just a fascinated reader.

Aegis

infj wrote: »

Onceuponatime - I think you need to give a bit more detail about the relative's age and circumstances - what do to will depend on their age. If they are older and want to protect their purchase power for retirement and without risk then looking at best cash ISAs and savings accounts (as listed on this site) is their safest bet. But you have to spend time on managing the money - checking rates, moving to better rates when available - unfortunately just dumping the money and forgetting it for years will erode its purchase power.
Government bonds are a possibility but returns may not be fantastic.

If they are younger and willing to take a risk with some of it - then money into an ISA based investment is worth looking at BUT don't put it into a managed fund - invest in a index tracker and leave it alone. Otherwise known as passive investing - look at the Monevator blog for clear explanation of this idea. It's not my blog - I am just a fascinated reader.

To flat out say "don't do managed funds" is going to make it very hard to invest into areas where there either aren't trackers or there are significant market inefficiencies. There are some very good managers out there that I'm happy to give my money to, there are other areas where I prefer to use a tracker.

Ultimately the "active vs passive" debate is going to carry on without any real conclusion, but unless the investor themselves has a strong preference, then a mixture of both is likely to be appropriate.