Advice for young saver. Best place to grow my savings.

MightBeMagic

I'm 21 and currently living with my parents in London. I've managed to save around £13k but it's just languishing in a current account gaining next to no value.

To put the reasons for saving into perspective, I really think renting is a total waste of money and so I am aiming to save a deposit and go straight into owning my own home and letting out a room or two to cover mortgage repayments.

I've been thinking about putting nearly all of the money into shares to see the returns there but honestly I have no idea about where to start or the rules and I'd like to hear from you older and much wiser people if that would be the right thing and even if my mortgage ideas are pie in the sky. Any help would be much appreciated.

Scarpacci

I don't think shares would typically be suitable for you, given you're likely to have a (relatively) short time frame in mind before you want to access your money. Holding shares for less than five years is not advised and over five to ten years I think it's still questionable when there's a foreseeable time that you will want the money. This is because shares go up and down and you don't know where the market will be when the time comes to withdraw - you don't want to be in the position of having to sell your shares when they're at the bottom. If you have a defined time, you might not be able to wait for the market to rise again and you'd end up losing money. Although it's easy to say the market, typically, will be up in the future, it's much harder to say that it will be up in any specific year.

Instead of shares, I think the best way of growing your savings (or at least trying to keep inflation at bay) would be a high rate current account. Current accounts currently offer some of the best rates. http://www.moneysavingexpert.com/banking/compare-best-bank-accounts Those do have some requirements: pay a certain amount each month - doesn't have to be "new" money so you can cycle it, or number of direct debits, so check they're suitable. Savings accounts aren't paying as well, but may be suitable: http://www.moneysavingexpert.com/savings/savings-accounts-best-interest You'll get more if you lock your money away and for longer, but only do if this if you're sure you won't need the money in the meantime. If you're a few years off needing the cash, this would work but make sure you keep enough to cover unforeseen expenses in easy access accounts.

I don't know how realistic the prospect of owning a house in London is - it will depend a huge amount on where exactly you're aiming to live. Home ownership does appear to be outside the grasp of many people now, especially in London. That doesn't necessarily mean you shouldn't aim for that, but you may need to stay open to the possibility of renting and (hopefully) still building up a deposit further.

Renting isn't necessarily a waste of money - it gives you a roof over your head after all - and it's important to remember when you're paying a mortgage, you're renting money from the bank. The interest you pay the bank is like rent, only on top of that do you start to pay down the capital for the house and actually "buy" the house.

freeof1

As scarpacci alludes to, renting is not necessarily a waste of money. The interest that you have to pay each month for the benefit of the bank lending you the capital may be more than the monthly rent payment. I understand you would be looking to rent out a room to help service the debt a little, but you can't rely on that month in and month out, and so you have to plan for the fact that for whatever reason you can't find a tenant for a year or so (you might think that's extreme but when it comes to your entire savings, and credit score, being on the line it's worth planning for an eventuality like that as it is not likely but is possible!).

Renting is probably a good idea for you for a year or two. It will give you a good indication of your monthly expenditures not living at home, and will not come with the risk of your savings. Figure out what you'd be willing to spend on rent, and work out what that will allow you to add to your savings after a year or two. It will probably be more attractive than you first thought, particularly as moving (all fees including stamp duty) costs a heck of a lot!

Your risk there is that house prices go up a lot and when you do move you won't be able to afford the place that you can now (although with those savings I have to say there's very little that you can afford). However there is also the risk of you purchasing a humble place now and when the interest rates go up and people come off the terms of their fixed-rate mortgages they cannot afford a mortgage and have to sell, or default. This will mean a fall in house prices. Really it can go either way. I'm staying away from purchasing for a few years. I think there's a sh*t storm brewing in London when people have been given a foot up onto the housing ladder by Help to Buy and the bank of mum and dad, but won't be able to afford their increase in monthly payments if the base rate increases to 1% or 1.5% in 3-5 years' time. Although that's for another conversation.

The alternative is you stay at home for a bit longer. I am sure whatever money you pay a month there will be less than you'd pay for rent + bills! That is a good way to build up your savings.

As for what to do with your money, I agree that it's not sensible to lock it away. Have a look at the easy money you can access now by changing bank account. You can move from your current bank to Halifax and First Direct, giving you about 220 up front, and also open a Santander 123 account which will pay a tidy bit of interest on your savings. Get paid into a Halifax account, move it to your First Direct account, and then into your Santander account where it will earn you 3% interest. As scarpacci says you will have to move your Direct Debits so you have a few going out of each account you will satisfy their requirements for the money, but that shouldn't be difficult. Halifax will also offer 5 pound a month for the savings that you have in there.

Hope this helps.

Yorkie1

I agree with the others: S&S is not the way to go for your plans.

There are quite a few regular savers / current accounts out there which pay decent rates of interest.

For example, you can have 3 Lloyds Vantage accounts which pay 3% on £3K-£5K and only need to be funded by £1K per year - just move the money between the accounts.

Or Nationwide have a FlexDirect account which pays 2.5% for the first 12 months on max £2500.

First Direct have a regular saver which you can put £300 a month into - it pays 6% at the end of 12 months on present issue. You have to have a FD One account plus if you put £1 into an eSaver with them then there are no funding etc requirements for the One account. No withdrawals during the 12 months unless you're happy to only get a pitiful rate of interest.

Then there's TSB and (I think?) RBS which have similar accounts to Lloyds Vantage.

If you have 2 direct debits at present then you can open a Halifax Reward account, transfer the DDs across and fund it with £750 per month (can withdraw immediately, as for Lloyds etc). That gives you £5 per month net reward (essentially the same as interest in practice).

Edit: I don't think mortgage providers will take lodger income into account when deciding how much to lend you. You have to be able to afford the whole mortgage without additional help such as lodgers.

Archi_Bald

Yorkie1 wrote: »

For example, you can have 3 Lloyds Vantage accounts which pay 3% on £3K-£5K and only need to be funded by £1K per year - just move the money between the accounts.

It is £1K per month, not £1K per year.

Archi_Bald

Yorkie1 wrote: »

Then there's TSB and (I think?) RBS which have similar accounts to Lloyds Vantage

RBS does have nothing to do with TSB, and also doesn't have any current accounts that pay interest.

You probably mean BOS Vantage. Again, RBS have nothing to do with BOS.

freeof1

Yorkie1 wrote: »

Edit: I don't think mortgage providers will take lodger income into account when deciding how much to lend you. You have to be able to afford the whole mortgage without additional help such as lodgers.

That's a good point.

Blue264

I'm going to throw a wild card in here...

The only one of my close friends who has made serious money, invested £2k when he was 21 in a small firm that was getting patents for an aspect of solar panel technology. Within a few years, they were bought out by a far bigger company and my friends share prices increased dramatically.

That was 16yrs ago, and he's reinvested his funds, supplemented by his work income over the years, to the point were he doesn't need to work again.

If I had my time again, I'd take £1k and invest it in something I really believed in, not some share portfolio set up by a suit in a bank, and buy your own place

bigadaj

Blue264 wrote: »

I'm going to throw a wild card in here...

The only one of my close friends who has made serious money, invested £2k when he was 21 in a small firm that was getting patents for an aspect of solar panel technology. Within a few years, they were bought out by a far bigger company and my friends share prices increased dramatically.

That was 16yrs ago, and he's reinvested his funds, supplemented by his work income over the years, to the point were he doesn't need to work again.

If I had my time again, I'd take £1k and invest it in something I really believed in, not some share portfolio set up by a suit in a bank, and buy your own place

Or an investment in the 2.30 at kempton.

Single company share investments are high risk, even more so in small companies, so this is the sort of thing that many people lose their stake on and then condemn equity investment as gambling.

In terms of investment then putting money into shares should be more of a head than a heart decision rather than what you are passionate about. You can be very green and environmentally conscious but the relative succes of solar panels in teh uk at Keats are down to massive government subsidy, without the feed in tariff people would be losing money on them, which seem people now are that teh rate has reduced.

Blue264

bigadaj wrote: »

Or an investment in the 2.30 at kempton.

Single company share investments are high risk, even more so in small companies, so this is the sort of thing that many people lose their stake on and then condemn equity investment as gambling.

Crossing the roads a gamble / educated guess. Horse racing is a real gamble. There are way too many factors that the punter has no control over. I'm talking about a gut instinct that an idea or product has real potential, enough to attract the interest of the big boys in that field.

There are people who bet low stakes on high risk / odds, high stakes on low risks / odds, and those who stay in bed all day too scared to go out of their front door.

I like to have long term security, and very small dabble on the side at higher risks.

Safe shares are buying into what you use every day, brand loyalty, etc...
Just wish I'd followed my instinct to buy shares in Spurs when I was offered 100 shares at 19p per share back in the early 90's. But I'm turning my interest towards another aspect of green technology that's caught my eye. Like garlic bread...It's the future!

jimjames

Blue264 wrote: »

I'm going to throw a wild card in here...

The only one of my close friends who has made serious money, invested £2k when he was 21 in a small firm that was getting patents for an aspect of solar panel technology. Within a few years, they were bought out by a far bigger company and my friends share prices increased dramatically.

That was 16yrs ago, and he's reinvested his funds, supplemented by his work income over the years, to the point were he doesn't need to work again.

If I had my time again, I'd take £1k and invest it in something I really believed in, not some share portfolio set up by a suit in a bank, and buy your own place

That's fine if you find the right share. What happens if the share you believe in turns out to be a dud? The technology doesn't work or a competitor brings out a superior product.

Some years ago the next hot share was a company called NXT

http://www.investorschronicle.co.uk/2011/09/15/comment/no-free-lunch/the-nxt-chapter-OrYmUMKQJlz0CzOV7pdS4K/article.html

If you'd put your money in them you wouldn't have made your fortune. Same with renewables, they may be the next big thing but they haven't made much money in general.

Probably a lot safer and less of a rollercoaster to buy funds and get rich more slowly.