MSE News: Would you lock savings away for 10 years for 4% interest?

grumpycrab

Santander123 gives 3% on between 3K and 20K. No brainer?

Pincher

If you can get £10,000 Balance Transfer at 0% interest (some people can), at 2% fee. The monthly interest helps towards paying the minimum payment.

Spending on the credit card is paid off first, so potentially you can spend £200 each month, and pay £200 minimum payment, and end up with £10,000 at the end of the 0% promotion for transfer onto the next card.

Borrow at ~2%, get 4%, minus tax. Isn't that 1% on £10,000 (£100 a year) for FREE? If they do a 10 year ISA, it's more like £200 a year.

You might even improve your credit score by borrowing and paying back £10,000 a year.

Blackdog

Big fat no from me!

marathonic

marathonic wrote: »

Then again, I'd consider the "Full £85,000 FSCS protection". Will this still be around in 2, 3 or 5 years?

Archi_Bald wrote: »

why wouldn't it?

I don't see any reason why it wouldn't but I would consider there to be a risk, however small, that any piece of government legislation or scheme may not exist in it's current form in 5-10 years time.

zebb

Interesting that so many people are saying no to this (and I'm probably one of them) yet the top annuity rate for a 55 year old at the moment is under 5%. I know you'd get a 25% uplift (more if you're a high rate taxpayer) if you put taxed money into a pension but then you've lost your capital. At least here you still have it. As an example, it would interesting to know which would work better over an average lifetime - putting 10k into a pension at 55 and immediately taking an annuity or put 10k into this scheme for 10 years and then putting it into a pension and taking a (higher) annuity.

I know there are other options but I'm just curious as to why people immediately dismiss this yet when annuity rates are so low too.

JimmyTheWig

Pincher wrote: »

If you can get £10,000 Balance Transfer at 0% interest (some people can), at 2% fee. The monthly interest helps towards paying the minimum payment.

Spending on the credit card is paid off first, so potentially you can spend £200 each month, and pay £200 minimum payment, and end up with £10,000 at the end of the 0% promotion for transfer onto the next card.

Borrow at ~2%, get 4%, minus tax. Isn't that 1% on £10,000 (£100 a year) for FREE? If they do a 10 year ISA, it's more like £200 a year.

You might even improve your credit score by borrowing and paying back £10,000 a year.

Nice idea. It's called Stoozing.

However you couldn't guarantee getting a new card to tranfer £10k onto when the original 0% has ended. But the money would be locked away for 10 years.
So you might end up with a huge debt attracting real interest rates which would dwarf any profits made in the first few years.

Consumerist

zebb wrote: »

. . . I'm just curious as to why people immediately dismiss this [4% fixed for 10 years] yet when annuity rates are so low too.

For me, the reason is that in the next 10 years I believe there is likely to be a significant rise in interest rates (primarily due to inflation resulting from money-printing exercises such as QE and a general attempt to catch-up on living standards).

For annuities, you are forced by pension rules to take them, no matter how unfavourable the rate is but you are not forced to put £10,000+ into what might well be a low fixed-interest vehicle for 10 years.

Any

marathonic wrote: »

If I was retired and wanted to secure a guaranteed 4% on my 25% lump sum from my pension pot with minimal risk, I may consider something like this. The remaining 75% could remain invested in more risky assets.

I was just thinking that...

You can buy annuity
100k = £4975 pa if retiring at 55

While you can earn just interest, without giving your pot away
100k = 4k pa

The annuities are lowish right now.. question is what is the risk that they will be even more rubbish in 10 years time..

Your pot should buy you more though, as you will be 65 by then..

For me it really depends on how money educated are you, can you provide bigger income on 100k by yourself?

Any

Under no circumstances would I lock for 10 years at 4% without that pension and financial education consideration I mentioned above though..