Investment - V - Savings

Stavros_3

I am getting more and more confused over this whole issue. Let me pose you this scenario that is shortly about to happen to me.
In January I will have a 100k tax free lump sum (That I don't intend to touch for 4 yrs ish). my options are to either bang it in a high interest savings account over 4 years which will net me 20k+ in interest making my capital worth 120k+.
Or do I risk this capital over a 4 yr period in the 'hope' it would make more than the 20k by investing in funds,units,stocks etc in a volitile market?.

Jonbvn

4 years is a bit too short a period to invest in S&S.

Assuming you are a taxpayer, have a look at index linked savings certs, which are tax-free. Depending on the RPI, these certs usually beat most savings accounts.

Stavros_3

Is there a link to the best of these certs? thanks

isofa

http://www.nsandi.com/products/ilsc/index.jsp

Also there is a recent thread on this site, with a lot of info:

http://forums.moneysavingexpert.com/showthread.html?t=528781

The_Fiddler_2

How do these certs. actually work? From reading the site my understanding is you would need to keep them for at least a year. After that year if you cash them in do you get the same perks as if you had kept them for the full term?

What is the difference between taking them out for 3 or 5 years?

How do they compare to fixed term bonds and fixed rate savings accounts, and also the high variable rates that are arround just now?

ManAtHome

They always pay inflation+ something after the first year, but it's a stepped rate, so you only get the full rate if you keep them to maturity (useful "get out" clause though).

As to whether they will be better or worse than any other - only time you'll know is at the end... With them being tax-free, the more tax you currently pay, the better deal they are.

Stavros_3

So going back to my question, are these better than banging it all into a risk free savings account gaurantee to net me 20k + ?

EdInvestor

You can only put 30k in NS&I certs, 15k per issue.

Personally I would also aim to max out my investment ISA @7k a year, there are lower risk options in there, such as property funds.

Putting 10% (say) of the money into a couple of lower risk equity funds also won't expose you to much risk.

How about something like this:

Year 1

30k into N&SI certs
7k into 2 property funds in a maxi ISA
10k into a couple of equity income funds direct.

The rest in a couple of high interest accounts.

Year 2

Another 30k into N&SI for a total of 60k invested
Another 7k into ISA property funds for a total of 14k invested
Another 10k into equity income funds for a total of 20k invested.

The rest in the high income account.

If you are a basic rate taxpayer, the only tax you should pay on all that is 20% on the income from the 6k invested in the high interest account

With two thirds in cash and the rest in low-medium risk assets, that's a very cautious overall strategy.

agal

Stavros wrote: »

So going back to my question, are these better than banging it all into a risk free savings account gaurantee to net me 20k + ?

Your savings account may be risk-free but it certainly isn't guaranteed to return 5% net interest per year. Interest rates are likely to be lower during those four years than they are at present.

Stavros_3

The rates are likely to be going up b4 the end of the year according to the BOE

isofa

Like I said before, pretty much all these questions are discussed and answered on this recent thread:

http://forums.moneysavingexpert.com/showthread.html?t=528781

Better to read first, otherwise we'll all be reposting the same advice!

You don't get anything (interest wise) if you cash in before 12 months.

They are very hard to beat if you are a high rate tax-payer.