Help - 100k inheritance and totally clueless!

ED

Reestit Mutton - thanks, also.

Reestit_Mutton

MattyNeth wrote: »

Thanks for the replies :-)

We have about 125k on the mortgage, but don't want to use the lot to pay most of it off. Looking to pay off 65k in one hit now, and using salary to smash into whats left.

I'm ISA'd up but ideally want instant access for the remaining 30-40k.

I'm a standard tax payer but right on the boundary of the higher rate bracket

How about remortgaging to an offset mortgage and then placing the lot in the savings account that offsets your mortgage balance? It would then be readily available whenever you need it?

With the typical variable offset mortgage rate at around 5.5%-6% ATM, that would equate to similar savings to the Index Linked Savings Certificates but effectively on the whole 100K and with instant access to the cash.

If you have savings elsewhere you could also add those to the offset pot when you've remortgaged. In some cases, people have been known to pay down their entire mortgage thsi way while retaining access to a sizeable pot of freely available cash.

In addition to the above, if you are able to increase the size of your mortgage when remortgaging then the extra money could also go straight back into the offset account for now, increasing the amount of free cash at your disposal should you decide to go ahead with your property purchase plan at a later date.

Of course, if you're currently tied into your mortgage then the above isn't going to be possible.

HtH
Reestit Mutton

Chrismaths

How do you work that out?

e.g. if you put money in 3 year Index-Linked savings a year ago, it would have earned you just shy of 6% AFTER TAX by now. equivalent to 7.5% for a basic rate tax payer and 10% for a 40% tax payer.

The real figures are 5.38%, 6.725% to a BRT, and 8.97% to a HRT.

How did you work your figures out?

My portfolios of a similar risk doubled that [pointless capitals] AFTER TAX [/pointless capitals].

jem16

Reestit_Mutton wrote: »

How do you work that out?

e.g. if you put money in 3 year Index-Linked savings a year ago, it would have earned you just shy of 6% AFTER TAX by now. equivalent to 7.5% for a basic rate tax payer and 10% for a 40% tax payer.

How is that not attractive?

ED: I don't know when the current issue was released but they say that they can sometimes reissue these certificates a number of times each year.

Reestit Mutton

I'm just coming to the end of a 3 yr index-linked certificate. According to the calculator I should receive a little over £17,000 as a return for my £15,000. That's 13.33% over 3 years or 4.44% pa.

My cautious portfolio started a year ago made 14%. I will be adding the proceeds of the certificate to my portfolio when it matures.

Reestit_Mutton

Chrismaths wrote: »

The real figures are 5.38%, 6.725% to a BRT, and 8.97% to a HRT.

How did you work your figures out?

The National Savings website has an online calculator to tell you what your certificates are currently worth - I just typed in the necessary info.

EDIT: I've just noticed where your figures come from. To be more precise, my figures were based on a 30/03/2006 investment - the rate drops to match your figures as soon as you plug in 01/04 or beyond. As RPI is recalculated on a calendar monthly basis I can see why the figures are different.

My portfolios of a similar risk doubled that [pointless capitals] AFTER TAX [/pointless capitals].

Ah...but the word portfolio implies "shares" and I would argue that no share-based investment has the same level of risk as a pure savings vehicle of under £30K.

What's more, I would never recommend a share-based investment for a term as short as a year (the point at which you can withdraw your funds from the NS&I 3 year product with negligible loss of interest).

Reestit Mutton

Reestit_Mutton

jem16 wrote: »

I'm just coming to the end of a 3 yr index-linked certificate. According to the calculator I should receive a little over £17,000 as a return for my £15,000. That's 13.33% over 3 years or 4.44% pa.

Interest rates have been increasing steadily from a low base over that period (the BOE base rate was 1.25% lower at the start of 2004).

I would argue that no taxpayer would have been able to beat your returns by any significant amount using a pure savings-based vehicle for £15K over the same period as your net return is equivalent to 6% gross for a basic rate taxpayer...which is about the best rate you can currently get ATM for a single deposit of 15K.

HtH
Reestit Mutton

jem16

Reestit_Mutton wrote: »

Interest rates have been increasing steadily from a low base over that period (the BOE base rate was 1.25% lower at the start of 2004).

I would argue that no taxpayer would have been able to beat your returns by any significant amount using a pure savings-based vehicle for £15K over the same period as your net return is equivalent to 6% gross for a basic rate taxpayer...which is about the best rate you can currently get ATM for a single deposit of 15K.

HtH
Reestit Mutton

For me as a higher rate taxpayer, the return was equivalent to 7.33% gross and it has served its purpose. I needed a tax-free home and my cash ISA was already filled.

For a short term investment, especially for a higher rate taxpayer, the index-linked savings certificates seem good.

However I'm not so sure of their worth when matched against a proper low risk investment. A return of 4.4%pa is barely keeping ahead of inflation.

Reestit_Mutton

jem16 wrote: »

However I'm not so sure of their worth when matched against a proper low risk investment. A return of 4.4%pa is barely keeping ahead of inflation.

True enough.

However, the whole point of the account is to stay ahead of inflation as it is always quoted as RPI + x%. Fixed at the point of investment, but x varies with each issue.

When inflation was rampant, these accounts were like gold dust even with x=0. In those days, I believe that the account was limited to pensioners.

The issue of whether or not to go with this account as opposed to a low-risk investment vehicle is really one of access - even the lowest risk investments would require you to look at the investment as a 3-5 year product at a minimum. These accounts are accessible with minimal penalties after only 1 year.

e.g. current issue 3yr product:

The interest steps up each year such that the interest after 3 years is equivalent to RPI + 1.15% per year.

within year 1, no interest is added.
after 1 year your balance = deposit + RPI + 0.9%
after 2 years your balance = yr 1 balance + RPI + 1.1%
after 3 years your balance = yr 2 balance + RPI + 1.4%

Thus, if you take your money out after 1 year (which they allow you to do) you only effectively lose 0.25% interest relative to the quoted 3-year average (equivalent to approximately 2 of weeks of interest).

Reestit Mutton