Emergency Fund (Cash Cushion / Contingency Fund)

DIGIMAN

Hello,
I'm 30 years old and am happy to report becoming debt free - other than a mortgage. I would like to store / save / invest app. £6285 as my Emergency Fund. I haven't used my ISA allowance. I work in Education in a Mangerial capacity - on the support side not teaching. I have no ideas yet where the best place to keep this money will be? Can anyone offer any suggestions please?

Liz_the_Whizz

hi digiman,

Best to make a start on that ISA. A nice simple cash ISA is offered by National Savings & Investments paying 6.3% tax free. You need to put in at least £1k, but given your wish to stash your cash, you are probably best off putting in £3k straight off. You can apply on line, I did mine with them this year, no hassle.

You can get a higher rate with ING (6.55%) but beware the 6 month introductory bonus rate - you will need to remember to move your money out before it turns into a pumpkin at 5.13%!

After that, best to put the rest in an easy access account in case you need to get at it. I use Icesave paying 6.2% gross, but there are others (ICICI @ 6.3%, Sainbury's 6.25%) - for me, it's not worth the effort or loss of interest to move accounts for such a tiny rate increase.

Have fun saving!

Franko43

I just put away 3K into the NS&I ISA as a rainy day fund. Good return and your money is there if ever you need it

Primrose

If it's emergency money, it must be completely risk free so equities are out and you need the reassurance that you can get at the money in a hurry, so longer term National Savings certificates are also out unless you are prepared to lose the interest if you withdraw before the term. As a taxpayer it definitely seems that taking out a tax-free Cash ISAs of up to £3000 this tax year, and another one next tax year would be your best option and National Savings are currently offering a good deal, as are Kent Reliance, who do a Direct ISA without a passbook. You can withdraw cash from these at any time, although not replace it in the same tax year. I think you are very wise to set up this emergency cash option. So many people don't and then find themselves in difficulties. If you can save more than your emergency fund in one year and are happy with internet banking, ICESAVE or Sainsburys are still very competitive options for any additional money, although of course, the interest on that will not be tax free.

isofa

I'd say the above are all very good recommendations.

If you want instant access to the "emergency fund" you could look at a decent paying branch account, depending on your locality like Skipton, Northern Rock, or any others offering a good rate (but not quite as good rate as on-line ones).

ixwood

One other alternative is offset against your mortgage, but in effect not much difference. Depends on rates and mortage suitability really.