short term investment

JackRS

We're one of the many who have been flooded this year.

We have our contents settlement but we have to move out for 3-6 months while the house repairs are being completed. So the high cost furniture items will not be replaced until we move back in, several months from now.
So where to put the money to earn a bit of interest, bearing in mind that we'll need to get to it a bit at the time in a few months from now.

We're with First direct so an easy option is their e-savings at 5.75% AER but as soon as you start withdrawing you don't get interest that month?

We currently don't have any ISA's etc but not sure how accessible that is and that would only take care of the first £3000, we're talking around £10,000 in total to invest between 4 to 6 months maybe not worth a lot but even 5% for 3months would be around £125 which has to be worth it?

Anyone want to give some advice? Not used to being this side of the fence!

Aegis

If you're not planning on using your ISA allowance for long-term savings, it would be worth putting the first £3000 into one of those (there's a great thread about the best mini cash ISAs in the ISA sub-forum beneath this one). After that, getting into the highest rate instant access account would be a good idea. Off the top of my head, I think Sainsburys and ICICI are still right up there, though I don't check those regularly.

Look around though, and sanity check what I say!

JackRS

Thanks

I never really understood the advantage in real terms of ISA's. For example how much more interest would you have in your pocket for a £3000 in an ISA compared to a normal savings account for say 1 year?

First Direct e savings at 5.75% may not be competitive but for us ease of access and use is important. An extra 0.5 over 3 months on 10k is around £12?

We're also with Nationwide, would that be a good option?

jem16

ISAs are tax -free savings. All other accounts have tax to pay on your interest. If you are a basic rate taxpayer you lose 20% of your interest to tax. If a higher rate taxpayer you lose 40%.

So that 5.75% becomes 4.6%(basic rate) and 3.45%(higher rate) compared with 6.3% in the NS&I ISA.

So interest within the ISA is £189 at 6.3%

At 4.6% this is £138. At 3.45% it's £103.50

So it all depends on your tax situation. You can put £3k each into an ISA so £6k into tax-free savings.

Aegis

JackRS wrote: »

Thanks

I never really understood the advantage in real terms of ISA's. For example how much more interest would you have in your pocket for a £3000 in an ISA compared to a normal savings account for say 1 year?

First Direct e savings at 5.75% may not be competitive but for us ease of access and use is important. An extra 0.5 over 3 months on 10k is around £12?

We're also with Nationwide, would that be a good option?

To work out the advantage of an ISA, you need to account for tax. If you take the gross interest rate on a normal savings account and multiply it by 0.8 for basic rate tax (0.6 for higher rate) then you get the net interest rate. For an ISA, the net rate is the same as the gross.

So, the e-saver has a net rate of 5.75% * 0.8 = 4.6%, while, say, NS&I's direct ISA has a net rate of 6.3% IIRC. In other words, 25% more interest over any given period.

Don't underestimate the power of tax-free savings

JackRS

OK thanks guys, So both my wife and i can have £3000 each in an ISA?

Then if we take money out of it during that year, are there any penalties?

jem16

Depends on the ISA. If it's an instant access ISA then no.

Aegis

JackRS wrote: »

OK thanks guys, So both my wife and i can have £3000 each in an ISA?

Then if we take money out of it during that year, are there any penalties?

You can usually find out about that in the terms and conditions. Certainly some ISAs will lose almost half a year's interest by leaving early, so it's definitely worth checking those once you find one you like.

JackRS

I guess the another option is to get a 1 year 0% interest card invest the money buy the stuff on the card then pay the card off 12 months time with the lump sum and take the interest. All sorts of possibilities and I know lots of discussion on this site???
Thansks guys, obviously i need to do a lot more reading and research.......