The tables have turned

roundthebend_3

6 months ago we were up to our eyeballs in debt, earning a pittance, and at our wits' end.

Last week saw the first milestone towards our recovery - we sold our suburban plot and now have enough money to pay off the debt, and put down a deposit on a more modest home. Our mortgage will be £100 lower per month also.

So, we've now got a big bank balance - although most of it will be eaten up by paying off the debts. I'll be doing that as a priority (today). The next task is to plough through the wealth of information on this site to work out how best to look after the remaining funds.

I think we'll have near to £7000 once all is sorted.

Here's my current thoughts:

Alliance & Leicester Premier Current Account, try to maintain at least £500 balance and aim to raise that monthly by spending less than income.

Alliance & Leicester mini cash ISA. Could take two of these as my wife and I would both be eligible. We would potentially use the max £3000.

Alliance & Leicester Premier Regular Saver. The 12% guaranteed on this is awesome, we could put the £6000 in that instead of 2 cash ISAs and the interest less tax would still be worth more.

Also, we have 2 kids and would like to open them an account each for regular savings. Have looked at the Co-op child accounts which seem to be ethically sound as well as having good interest rates and freebies.

Another consideration is that we have a credit card bill of about £2500 which I intended to pay off. However, A&L's Premier Credit Card has 9 months 0% balance transfer with only a 2.25% fee. I think I'd be better off doing that, then keeping the £2500 in the current account where it can earn some interest.


I'd appreciate any thoughts from others. I'll aim to get exact figures ASAP because I know we won't be able to do ALL of these options.


Rich

chesky369

"The 12% guaranteed on this is awesome"
But you do realise that you won't actually GET 12% on whatever you save, don't you - it'll be more like 6%, then less tax.

jamesd

What do you need for living expenses for 3 or 6 months? That's a reasonable amount of cash to keep.

You also need to be looking longer term and that means stocks and share ISA investing, not savings accounts and cash ISAs.

The regular saver offers a better short term rate and that's OK provided you won't be able to use your full ISA limit next year. That's probably true.

You're right that the balance transfer is a good deal. Better to put the regular money into stocks and shares ISA contributions, though. Starting low is good, so you can learn without a lot of money at stake.

What I suggest you do is:

• Use the balance transfer option.
• Place 3000 each into a cash ISA.
• Move your cash lump sum into the regular saver at 250 each month by month, drawing from the cash ISA near the end if you can't refinance at 0%. This keeps you with your emergency fund intact, just earning a higher interest rate.
• Use your regular savings capacity for mini-stocks and shares ISA investing. A good way to learn and provide for your longer-term investing.

From next year look to use all available money for stocks and shares ISA investing, since you'll have your emergency fund money in place by then in the form of the 6000 plus interest from the regular saver.

jamesd

chesky369, the account pays 12% annual rate on all of the money in the account. Over the year that averages out at 6.5 months contributions at 12% plus 5.5 months contributions at the rate of the savings account the money is coming from. This is exactly what they paid me.

Feeding from a cash ISA at 6% and getting 9.6% after basic rate tax the effective rate for the whole 3000 sum is 7.625% after tax, equivalent to 9.5% before tax for a basic rate tax payer.

roundthebend, if either of you is earning less than the personal tax allowance do remember to put taxable savings in an account in that person's name so they can submit a declaration that they are entitled to interest without tax being deducted. That could make her regular saver deliver 12% without any tax and raise the effective interest rate to 9.25% on all 3000.

roundthebend_3

Actually, I didn't realise that.....

Any chance you could briefly explain that? Is it that you only get 12% on the regular saving, and not the initial deposit?

Perhaps the 2 cash ISAs would still be a better bet.

roundthebend_3

So much to consider, I think I will speak to an IFA soon. My parents recommended one to me, but I've always thought I'd trust myself more. Seems now there's lots more options to consider than I'm aware of.

MrChips

roundthebend wrote: »

Actually, I didn't realise that.....

Any chance you could briefly explain that? Is it that you only get 12% on the regular saving, and not the initial deposit?

What initial deposit?

roundthebend_3

Well, I figured that if I can put 2x £3000 into cash ISAs right now then I could (instead) put the £6000 straight into a high interest savings account right now.

If I left it at that, would I or wouldn't I earn 12% interest on it? Or, would I only earn interest at 12% on anything that I deposited on a regularl basis?

I don't understand why a 12% interest rate, would pay less than 12%. Unless we're talking simply about tax deductions, in which case it would surely not be as much as to make a 6% cash ISA more worthwhile.

MrChips

Regular savings accounts only allow regular contributions - no lump sums.

In this case, only £250 can be paid in per month. This is how A&L can afford to pay such a high interest rate - by limiting the amount you can put in. If you could put £3000 in on account opening, you would get 12% on this, but you can't. By putting the max £250 in per month, you get 12% on the first payment as it is there for a year, but only 12%/12 (i.e. 1%) on the final payment which is there for only a month. Hence on average this is 6.5% approximately on the whole sum.

Don't let this put you off though. As Martin says in his article, you feed can feed regular savings accounts from a high interest savings account (eg ICE SAVE or ICICI currently paying 5.95% and 6.05% respectively). You will then get 6% while the money is with them and 12% while it is with A&L.

ISAs are the best places for your money in the longer term and may be a better option for you depending on how long you are planning to save it for before you need to spend it.

jamesd

roundthebend, you get interest at a rate equivalent to an annual rate of 12% from the day the money is in the regular saver account. Some people seem to expect that you would instead get 12 months of interest at 12% on money paid in at the start of the last month even though it's only been there earning interest for one month. Others forget that you get interest on the money in the savings account you're transferring it from.

You can't put a large lump sum into a regular saver. The contribution in each month is limited, usually to the regular monthly rate. Usually that monthly rate is fixed for the whole duration. Hence the name "regular" saver.

ghost_rider

A&l prem current acc £500/month
A&l prem current acc lump sum £2000 1st month
A&Lreg saver £250/month from above
ISA 1 =£3000 lump sum
ISA 2=£250 /month from prem acc


dunno if i covered every thing there but worth a thought
just try and keep the current account at around £2000 a month

I'm at the same place you are and was looking at the same Acc this is how i'm lookin at doing things.

also like to say i'm inexperienced at this so other people will probably have better advice but like i said worth a thought