What to do with savings in 2015

TBS2014

Hello All.

I am a 26 year old earning £45,000 per year. At the moment, I have £26,000 in a closed ISA at 2.4%, £6,500 in an open ISA at 1.4%, and £4,000 in a santander 123 account (3%)

That means I have total savings or around £35,000 at varying interest levels, my question is: am I making the best use of my capital at the moment? - I save around £1000 a month and am currently waiting for the Help2buy ISA to release on December 1st.

I know that someday I would like to own my home, however is it worth investing in property at this stage? (interest rate historic lows for the time being).

I feel like savers are getting a harsh deal at the moment, whereas property prices are (at the moment) on the rise?

Many thanks.

TBS2014

jimjames

If you need the money short term then cash is the only real option. You can do better than those rates by maximising the rates using the best current accounts but that may be too much hassle for you.


Also worth looking at pension arrangements and S&S ISAs if you have money that isn't needed in the next 5 years.


Just because property has risen recently doesn't mean it will carry on. Remember the warning - Past performance is not a guide to future performance. Property can be useful if you need somewhere to live and as diversification if you have a large portfolio but some people have all their eggs in one basket with no other investments.

eskbanker

TBS2014 wrote: »

I save around £1000 a month

Regardless of what you do with your existing capital, you can get up to 6% on these monthly increments by opening some regular savings accounts.

mkdavies

I know that someday I would like to own my home, however is it worth investing in property at this stage? (interest rate historic lows for the time being).

For what it's worth this is what I did and without it I wouldn't have been able to be where I am today. It's a hard investment to swallow and will really push you to the limit but if you can make it, IMO, now is the time to make the move onto the ladder! All the best and remember that even the act of you caring so much about your finances stands you in good stead!

badger09

TBS2014 wrote: »

Hello All.

I am a 26 year old earning £45,000 per year. At the moment, I have £26,000 in a closed ISA at 2.4%, £6,500 in an open ISA at 1.4%, and £4,000 in a santander 123 account (3%)

That means I have total savings or around £35,000 at varying interest levels, my question is: am I making the best use of my capital at the moment? - I save around £1000 a month and am currently waiting for the Help2buy ISA to release on December 1st.

I know that someday I would like to own my home, however is it worth investing in property at this stage? (interest rate historic lows for the time being).

I feel like savers are getting a harsh deal at the moment, whereas property prices are (at the moment) on the rise?

Many thanks.

TBS2014

Can you clarify what you mean by 'a closed ISA at 2.4%'?
Do you mean a fixed rate ISA which doesn't mature for some time? Or an ISA to which you subscribed in 2013/14 or 2014/15? If the latter, are you sure it is still at 2.4%.

What do you mean by 'an open ISA at 1.4%'?

The £6500 would earn more interest in your 123 current account, even after HR tax. Though it should be very easy to avoid HR tax by additional pension contributions.

As others have said, there are many current accounts paying decent rates up to 5%, and regular savers paying up to 6%.

PeacefulWaters

£45,000 per year

Make pension contributions to avoid 40% tax.

bigfreddiel

Invest in a global ETF like SWDA

TBS2014

Thank you for your advice everybody.

Buy Closed ISA I mean that it is no longer accepting funds, so I have £26,000 in there at 2.4%, and the only increment to that will be the interest on that £26k

In contract, the 1.4% is an open ISA, so I can contribute as much as I like to that one (up to the yearly £15,000 limit), but am currently holding off for the Help2Buy ISA.

I don't think I will be opening a number of new accounts to take advantage of the up to 6%, as many of these accounts have a limit (LBG offer 4% on £3,000, then not much after that). I chose the santander account because I get a flat rate of 3% on everything up to £20,000, which I am likely to remain under for at least another year.

I guess the question comes down to the following in this case, which is preferable assuming that I do not need the cash in the short term (1-3 years):

1) Keep investing £1000pcm into Santander123 until it reaches the £20,000

2) move the £6500 from the 1.4% ISA into the santander123 and lose the 'tax free' wrapper, potentially making increased pension contributions to avoid the HR tax, then continue with (1)

3) wait for the help2buy ISA (offers £50 a month when you contribute £200), and put the rest into the santander account

4) something else!?

Also please forgive my ignorance, but when we talk about the difference between HR and SR taxes, you only get HR tax on earnings over the threshold (£3X,XXX), does that mean if I pay ANY HR tax, all of my interest is 40% taxed, too?

Tom.

TheTracker

TBS2014 wrote: »

I don't think I will be opening a number of new accounts to take advantage of the up to 6%, as many of these accounts have a limit (LBG offer 4% on £3,000, then not much after that). I chose the santander account because I get a flat rate of 3% on everything up to £20,000, which I am likely to remain under for at least another year.

I acknowledge that sounds easiest but you should really analyse the price you are paying for the ease.

£20k in a Santander 123 account will bring you £456pa after basic rate tax and the monthly £2 fee.

However, using a bit of nous you can spread 20k to earn £809pa after basic rate tax and pay no fees.

Your effective interest rate is 5.0% before tax vs 2.9% at best with Santander 123.

In other words you are paying £353 or giving away 44% of the interest you could earn as a price for this "ease".

If you have less than 20000 then the difference is even more stark.

It took me about 5-10 min in a spreadsheet to work that out. This Interest Generating Machine (IGM) uses a TSB Classic Plus and Nationwide FlexDirect at 5%, Lloyds Club at 4%, and two BoS (or Tesco) at 3%, plus Regular savers with First Direct, HSBC, and M&S at 6%, TSB at 5%, and Lloyds at 4%, plus Halifax £5 reward.

I make no judgment as to whether you feel setting up those accounts once is worth an extra few hundred quid a year, it is for some and not for others. Few people bother with the "effort" of opening 14 accounts but it's possible to do in a few hours. Personally, I do it just to shaft the banks. To shaft them further, throw in some Switching Bonuses at £100 a pop and quidco/TCB referrals to boost it further.

If you're able to save £1000 a month I'd shove it in regular savers rather than any current account. You can get 5.8% gross 4.6% net on £1000/month by using 4 Regular Savers (FD, HSBC, M&S, TSB).

Also, if you're earning £45k a year the first thing you should do is contribute enough into a pension to bring you under the higher rate tax threshold.

Eco_Miser

TBS2014 wrote: »

I don't think I will be opening a number of new accounts to take advantage of the up to 6%, as many of these accounts have a limit (LBG offer 4% on £3,000, then not much after that).

They're paying me 4% on £6200 (in 2 accounts) at the moment, rising to £9800 in 8 months time, after which it'll be back to £5000 if their terms don't change.

TBS2014 wrote: »

I chose the santander account because I get a flat rate of 3% on everything up to £20,000, which I am likely to remain under for at least another year.

You're doing this the wrong way round, You should be filling the 6%, 5%, 4%, and 3% accounts before the 3% less fee one, unless you gain by the cashback. But it's open now, so keep at least £3000 in.

TBS2014

With reference to the HR tax on savings interest. I am a Higher rate taxpayer, does that mean that ALL of my savings interest is taxed at 40%, or only a portion that is over the allowance?

If the former, it makes sense for me to make pension contributions until I am under the threshold? - Do you know what that would be for a salary of £45360 on 1060L?

Tom