Repay mortgage; invest in ISA; or SIPP?

MotT

Hi All,

I've got c. £15,000 sitting in a bank account and considering a few options with this. What would you do?

1. Put it aside in a fixed savings account until I can make an overpayment of my mortgage in 3 years time.
2. Put it in a cash ISA (split over my and my wife's allowances.)
3. Add it to a SIPP in which I hold £12,000 and currently don't put any money in.

Thank you for any thoughts,

MT

Yorkie1

Do you currently have any other savings for an emergency fund?

What interest rate are you paying on your mortgage?

Can you make any overpayments at present without incurring a fee?

Are you and/or your wife tax payers?

Do you both have any other pension provision?

What are your ages?

jimjames

MotT wrote: »

Hi All,

I've got c. £15,000 sitting in a bank account and considering a few options with this. What would you do?

1. Put it aside in a fixed savings account until I can make an overpayment of my mortgage in 3 years time.
2. Put it in a cash ISA (split over my and my wife's allowances.)
3. Add it to a SIPP in which I hold £12,000 and currently don't put any money in.

Thank you for any thoughts,

MT

What about option 4, use a S&S ISA?

If putting it in investment funds inside a pension that cannot be accessed till age 55 then I'd imagine that S&S based investments should also be on the radar.

MotT

Hi Yorkie1, thanks for your reply. I should have said all that in the first place I suppose.

Here are the answers.

Thanks, MT

Yorkie1 wrote: »

Do you currently have any other savings for an emergency fund?

Yes, a 4-5k are sitting elsewhere.

Yorkie1 wrote: »

What interest rate are you paying on your mortgage?

2.34% for the next 3 years. (Fixed rate until then.)

Yorkie1 wrote: »

Can you make any overpayments at present without incurring a fee?

Yes, I can and I intend to do this. The 15k are there on top of the money I put aside for the overpayments.

Yorkie1 wrote: »

Are you and/or your wife tax payers?

We both are basic rate tax-payers.

Yorkie1 wrote: »

Do you both have any other pension provision?

My wife's got a company pension scheme she pays the maximum amount into. I don't have anything else.

Yorkie1 wrote: »

What are your ages?

We're both 32.

MotT

jimjames wrote: »

What about option 4, use a S&S ISA?

Thanks jimjames. Yes, I should probably consider this. I guess I'm a little bearish at the moment and don't know what to invest in as everything seems either overpriced or declining in value.

atush

I'd say Personal pension (not Sipp as cheaper) or option 4

atush

MotT wrote: »

Thanks jimjames. Yes, I should probably consider this. I guess I'm a little bearish at the moment and don't know what to invest in as everything seems either overpriced or declining in value.

You do realize that both pensions and S&S isas tend to invest int he same assets? But as pensions get a tax uplift, that can buffer you from immediate losses.


Another thing that can do this is to not invest in one single lump sum, but to phase it in over the next 12 months?

cjno1

Remember that it's only worthwhile overpaying on your mortgage if you don't think you could earn at least your interest rate anywhere else. For example, if you can get a savings vehicle that returns more than 2.34% (after tax) for the next 3 years then that is a better use of your money than overpaying your mortgage.

I would only put it in a SIPP if you're completely confident you won't need the money before retirement, but this would be a good way to turn your £15k into £18k (or £21k if you're a higher rate payer). But this does mean you're limited with what you can do with the money at the other end.

The other thing to consider is peer-to-peer lending. Companies like Zopa offer expected returns of 5% after all fees and bad debts, which is more than you can get in most savings accounts. Plus your money goes towards helping real people borrow in the economy, rather than sitting in those big nasty banks as reserves!

kidmugsy

MotT wrote: »

We both are basic rate tax-payers


We're both 32.

Then the only pension contributions I'd make in your shoes are contributions that get an employer's boost - such as your wife gets. Can't you do that too?

Anyway, if you can't then look on pension contributions as avoiding your current rate of tax (20%) while exposing you to whatever tax rate you'll face in your sixties - and there's no guarantee that that will be only 20%. S&S ISAs would be wiser.

Or if you think financial assets are too expensive (and you may well be right) try to work out whether the £15k has the prospect of lowering your LTV so that a future mortgage would be usefully cheaper. If that looks promising, then Cash ISAs would probably be attractive. Or even just interest-bearing current accounts such as those at Santander, Lloyds Group, or Nationwide.

atush

I don't agree. T4eh OP has no pension apart from the 12K, so needs to make some pension provision for the future. Telling them to invest inc cash that will be wittered away by inflation over the years is not wise. Pension and S&S would be a better place for it, both of which can beat inflation.


In any case, the whole 15K doesn't have to go the same place.

kidmugsy

atush wrote: »

I don't agree. T4eh OP has no pension apart from the 12K, so needs to make some pension provision for the future.

No he doesn't: there's no Law of Nature that his provision for old age must be a pension. An S&S ISA might be better; reducing the outgoings on his mortgage might be better.

atush wrote: »

Telling them to invest inc cash that will be wittered away by inflation over the years is not wise. .

I said no such thing. I suggested that he could save it in cash until a mortgage renewal might give him the chance to get his LVT down to a level that saved him a lot in outgoings. There was not the least suggestion of the sort of timescale that people imply by "invest".

All this telling people to get pensions is a dangerous game. What if they avoid 20% tax now only to face 33% in retirement? (That was the basic rate when I was younger.) Avoiding tax at 40% is a different game; harvesting an employer's contribution is a different game. But just avoiding 20% tax might prove to be a mug's game.