Is this a good plan for £70k savings?

Hallion

H guys,

Due to having to get a mortgage for a new house quickly, I had to leave First Direct and go with the Halifax (First Direct time frame for a new mortgage was weeks longer).

I had £70k of savings offset in my old FD mortgage/savings account which was saving me a lot of mortgage interest and knocking years off the life of the mortgage.

With the Halifax, there is no offset facility so my savings are setting earning noting at present. My plan is:

1. Move £20k into my Santander 123 current account for 3% interest rate.

2. Move £15k into Fundsmith as an ISA (done quite a lot of reading on this and seems like a good fund).

3. In April 2015 open a new ISA with Hargreaves Lansdown and spread £15k across these funds:

Standard Life UK Equity Unconstrained
Marlborough Multi Cap Income
Schroder UK Dynamic Smaller Companies

4. Put remaining £20k into premium bonds and keep adding more savings into it.

Does this seem like a good way to save/invest my money? BTW, my mortgage is £200k.

Thanks for any advice.

planteria

my first thought is that it does seem a shame to move from a nice offsetting position, to one in which you can't. the extension of that thought, though, is that you could just have a £70k smaller mortgage. that may actually be the best decision....time will tell.

i quite like the split of Cash, Equity Funds and Premium Bonds you have in mind. if you are going to hold long term, then almost certainly the Equity Funds will be the best holdings...and perhaps you should actually just put all of your offset funds into Equities?...it depends on your overall financial position i suppose.

ColdIron

I think Schroder UK Dynamic Smaller Companies (nee Cazenove) is hard closed and is no longer accepting new investments. Personally I wouldn't bother with Premium Bonds, if you are a higher rate taxpayer there is just about a case for them but even then there are better homes for your cash

jimjames

Personally I think it is a good idea to have some equity exposure.

The only comment I'd make on your selection of funds is that it seems almost entirely UK based. I think having some other worldwide elements would make sense even if you just have them as trackers for those regions.

atush

I agree with James, some equity exposure is good, but too much in the UK only is not.

When will you need these funds? What is your new mtg rate and for how long?

Thrugelmir

Why do you need so much "cash" sloshing about?

Personally I'd pay down the mortgage before speculating with premium bonds.

enthusiasticsaver

What interest rate are you paying on your mortgage and is there a penalty to overpay? So long as you have an emergency fund (presumably the Santander 123?) I would always choose to pay down debt unless the interest rate on the mortgage is less than your savings rate. As you do not know what the performance of your stocks and shares will be and premium bonds have no return (unless of course you win) then my choice would be to reduce your mortgage to say £150,000 (keep £20k as emergency) and that would take years off mortgage if you kept payments the same.

kidmugsy

Hallion wrote: »

£70k of savings....My plan is:

1. Move £20k into my Santander 123 current account for 3% interest rate.

2. Move £15k into Fundsmith as an ISA...

3. In April 2015 open a new ISA with Hargreaves Lansdown and spread £15k across these funds:

Standard Life UK Equity Unconstrained
Marlborough Multi Cap Income
Schroder UK Dynamic Smaller Companies

4. Put remaining £20k into premium bonds and keep adding more savings into it.

I suggest that you calculate your new monthly outgoings, and keep 6 months worth as Emergency Cash using high-interest current accounts at Santander, TSB, Nationwide, Lloyds or Santander. If you have surplus monthly income start by putting it into high interest regular saver accounts at e.g. Lloyds or First Direct. As these mature, consider what to do next with the capital.

If you want to invest in equities then I suggest ISAs, with the money principally invested "passively" e.g. into one or more of the Vanguard range of mutual funds. You might also diversify by putting some of the money into Investment Companies that invest "actively", trying to defend the value of your capital by timing the market. The obvious ones are Ruffer Investment Company, and Personal Assets Trust.

P.S. I've assumed that you've got no other debt to clear, and that you're already making sensible amounts of pension contributions. True?

jimjames

enthusiasticsaver wrote: »

What interest rate are you paying on your mortgage and is there a penalty to overpay? So long as you have an emergency fund (presumably the Santander 123?) I would always choose to pay down debt unless the interest rate on the mortgage is less than your savings rate. As you do not know what the performance of your stocks and shares will be and premium bonds have no return (unless of course you win) then my choice would be to reduce your mortgage to say £150,000 (keep £20k as emergency) and that would take years off mortgage if you kept payments the same.

Again speaking from personal experience I've not paid off the mortgage and have invested in share based funds instead. Rather than being in the situation where I could pay off the mortgage I could now pay it off three times over if I wanted. The security is still there but I'd prefer to try for higher return on funds than clearing the mortgage when debt is so cheap.

Hallion

Thanks for the replies guys. The savings are mostly from my part time ecommerce business which has grown a lot more than I anticipated (I work in IT infrastructure for my main job).

I'm a higher rate tax payer and my mortgage rate is 4.49% and fixed until 31/12/16. I would be keen to get another offset mortgage once I'm out of the current deal (LTV % will be no problem) so I want to do something with this money until I can move some of it back into the offset account in a couple of years (depending on how my investments perform).

I'm 32 in February and would like to be mortgage free by 40 (I don't have any other debt). I pay 5% into my company pension and my employer matches that. I would like to have easy/penalty free access to the money so don't really want a SIPP yet or pay it directly off the mortgage (which is why I liked the offset account so much).

kidmugsy

Hallion wrote: »

I'm a higher rate tax payer and my mortgage rate is 4.49% and fixed until 31/12/16. I would be keen to get another offset mortgage once I'm out of the current deal ... I want to do something with this money until I can move some of it back into the offset account in a couple of years.

In which case the equities idea is less attractive (two years is too short term for equities), the high interest idea less attractive - though not unattractive - and the Premium Bonds idea not too silly.

Hallion wrote: »

I pay 5% into my company pension and my employer matches that. I would like to have easy/penalty free access to the money so don't really want a SIPP yet or pay it directly off the mortgage (which is why I liked the offset account so much).

It could be worth your while to contribute a bit to a personal pension of some type while the 40% tax relief is still available. There's talk by some of the political parties of reducing it to 30%.