Savings advice, 2 year plan before buying house

anonymon

Hi there,

I have never managed my finances properly before but I have started to accumulate money and am looking to sort them out. I've read a few books on investing and had a think about what my plans are.

- I have about £103k to save / invest.
- Each month I could probably set aside £3k, although I will later need access to some of that to pay tax (I'm self employed.)
- I plan to buy a house in two years time somewhere in the UK, in the mean time I plan to save what I can.
- I'm not interested in investing for now because of the relatively short 2 year duration and because I want to avoid risk. (I will likely start with investments to a Vanguard index tracker after I have secured a house in the future.)
- I want to minimise the amount of accounts I have, i.e. one ISA and one savings account. (I already have business and personal accounts with the cooperative.)
- I want to sort out a will or something so that if I should die the proper people receive my savings. I have no idea how to go about that though!
- I have £1.8k student loan outstanding at 1.5%, I'm thinking of just paying this off right now.

So far I have applied to open a cash ISA with NS&I for £15k, I'm thinking of opening a savings account / income bond with them as well for the rest of the money (minus some safety net).

Questions:
- Is 1 - 1.5% really the best rate I can get without risk + without messing around with multiple accounts like the Santander one?
- Does my plan seem to roughly make sense / no glaring problems?
- What is the difference between an income bond and savings account with NS&I?
- Does interest earned on these accounts (income bond, savings accounts, cash ISAs) go straight back into the account or is it paid to my personal current account? (I'm looking for a savings account where the former happens.)
- Does it make sense to pay off my student loan?
- How do I set up a will / make sure my chosen loved ones receive my savings in the event that I die?

Thanks, Anonymon.

anonymon

So I phoned NS&I, apparently income bond pays out to your existing current account and you have to pay money in via their website using your card in amounts of £500+.

I think with a savings account the interest would accrue in the account itself and I could set up a standing order to add savings each month. Bad side for me would be that I'd get an interest rate of 1.1 instead of 1.26.

I'm leaning towards the savings account, any opinions?

anonymon

I just paid off the student loan, it seemed to make sense to me. Paying 1.5% interest on a loan whilst putting money in a savings account that yields 1.1% seems plain stupid.

mgdavid

not being bothered to put £20k in a Santander 123 account paying 3%, or a 1st Direct reg saver at 6%, or TSB classic £2k at 5%, or Nationwide £2.5k at 5% seems completely daft IMO.
Paying off the student loan just 5 hours after asking for advice on whether you should or not, also seems daft IMO.

jimjames

anonymon wrote: »

I just paid off the student loan, it seemed to make sense to me. Paying 1.5% interest on a loan whilst putting money in a savings account that yields 1.1% seems plain stupid.

But paying off a loan at 1.5% when you can earn 5% on it or have to borrow a larger amount on the mortgage at 4% doesn't make much sense either.

anonymon

mgdavid wrote: »

not being bothered to put £20k in a Santander 123 account paying 3%, or a 1st Direct reg saver at 6%, or TSB classic £2k at 5%, or Nationwide £2.5k at 5% seems completely daft IMO.
Paying off the student loan just 5 hours after asking for advice on whether you should or not, also seems daft IMO.

OK let's supposing I do what you say with the ~£88k I need to put somewhere. I put £20k in a 3% Santander account after setting up direct debits etc, £300 a month in a 6% First direct regular saver, £2.5k in a 5% Nationwide account. I put a note in my calendar to do it all again in a years time when the introductory offers expire. Finally I put the ~£62k remainder in a NS&I saving account for 1.1% interest

I now have four savings accounts with my money split up, direct debits set up for the Santander account so they think I'm using it as a "real" current account and a direct debit for the £300 a month payment to First direct.

For that year I believe I'd earn £600 from the Santander account, £115.96 from the First direct account, £150 from the Nationwide account and £720.5 from the remainder in the NS&I account. Bringing a gross total of £1586.46 or an overall rate of about 1.8%.

If instead I put all of that money straight in the NS&I account I'd get £946 at 1.1%.

So in fairness I would make an extra £640.46 for the year but it sounds like an awful lot of extra work for the money. Am I missing something here?

(Fair enough point about paying the student loan off so suddenly, I should have waited longer for a response first.)

fwor

anonymon wrote: »

I would make an extra £640.46 for the year but it sounds like an awful lot of extra work for the money. Am I missing something here?

It depends how much you value your time. The Santander account doesn't time expire, so you don't need to do anything after year 1 - it's only the regular savers that need yearly attention.

In all I probably spend a couple of hours spread over the year finessing my high(er) interest accounts. For me, £600+ for a couple of hours work would certainly be better pay than I could get anywhere else...

anonymon

Yea, fair enough, the Santander provided the majority of the extra interest in that example as well. (My aversion to all of this is partially laziness, partially valuing my time and partially due to the fact I find this kind of thing quite stressful!)

I'm tempted to set up an income bond with NS&I for £68k at 1.25% and put £20k in the Santander 123 account. I think that would yield £850 + £600, so £1450 or roughly 1.65% gross.

So I'd still be leaving £136.46 on the table compared to the previous example but it would be much simpler. Only thing is it raises questions how I go about it practically:

- How do you convince Santander you're using the current account like a current account? What's the minimum you can do to convince them whilst not actually using it as your main account and without manual work each month?
- If I got the income bond instead of a savings account with NS&I would there be a way to automatically deposit money each month like I could have done with a standing order with the savings account?

Archi_Bald

anonymon wrote: »

- How do you convince Santander you're using the current account like a current account? What's the minimum you can do to convince them whilst not actually using it as your main account and without manual work each month?

Why do you want to convince Santander of anything? The terms of the account, and the terms for receiving interest, are clearly defined (as they are with other interest paying current accounts). As long as you can comply with those terms, it's reasonable to assume you can have the account.

anonymon

Archi_Bald wrote: »

Why do you want to convince Santander of anything? The terms of the account, and the terms for receiving interest, are clearly defined (as they are with other interest paying current accounts). As long as you can comply with those terms, it's reasonable to assume you can have the account.

Well I suppose that is what I meant, although I didn't word my question very well.

I've looked it up myself now, is this right?

I could put £20,000 in to start with, set two of my direct debits for bills to come out of the account instead and then each month withdraw £500 and deposit that into an income bond. At the same time deposit £500 from my business account.

So the balance would stay as close to £20k as possible, I'd have two direct debits coming out and an income of £500 going into the account.

anonymon

OK after doing a bunch more research I realised that it makes more sense to just switch my personal current account over to the Santander 123 account.

So new plan:

- Finish opening NS&I ISA for £15k at 1.5%
- Open savings account with NS&I for £68k at 1.1%
- Switch personal current account to Santander and keep balance close to £20k at 3%
- Keep business account with Cooperative for now, although consider changing it in the future.
- Set up a standing order to pay monthly budget into Santander account from business account and most of the rest into the NS&I savings account.
- Once a year move £15k from savings account into ISA.

That would leave me with a pretty simple set up that means my money is completely covered by FSCS and is paying slightly over 1.5% interest. (Currently I have £20k not covered and am getting almost 0 interest on it all arg!)

Now just playing the waiting game, waiting for NS&I to post me confirmation / request for proof of identity for my ISA. Also need to do research into good business bank accounts, currently paying £3 a month for the one with The Cooperative and getting 0.12% interest + paying fees for using my bank card and doing standing orders etc!