40k ... how can it be a problem

trademark

im getting 40k next week from a work pay off .... i havnt used this years ISA and i have 2 teenagers , i intend to use their allowance , they are 16 and 17.

im very tempted to use the abbey super isa for my wife and i (kids have to be 18) to get rid of 12k , and then another 6k in the kids names in another isa .... that leaves me fully invested and i have 30k's of premium bonds.

any good ideas ..... as i understand it the abbey isa is coupled with a bond , i was intending on going for the 5 year deal where i think they promis back 24%

thanks

jem16

trademark wrote: »

any good ideas ..... as i understand it the abbey isa is coupled with a bond , i was intending on going for the 5 year deal where i think they promis back 24%

thanks

That basically means in 5 years you get a return of 24% - i.e. 4.8% each year. Very poor. I wouldn't touch it.

Techno

And you can only put £3k in a cash isa (it is going up but to below £4k) - the rest would have to go in stocks and shares. And remember if you put the money in the kids name they might not give it back!!!!!!

wannabedebtfree_2

There are plenty of good offers available, really it might be best to just do a one year bond or something short term with some of it, so that next year you can top up your ISA allowances again, but it all depends on the available rates.

dunstonh

Abbey Super ISA should be avoided. They are charging you on the bond at full commission basis and using a tiny bit of that to improve the savings rate. If you are intent on using a bond (which are typically best value with £100k plus investments) then you may as well buy it cheap on execution only basis from an IFA or go with unit trusts and stocks and share ISA and a different cash ISA.

jamesd

You're talking about five years so why aren't you thinking of using 7000 this year and 7200 next year for you and wife to start with in stocks and shares ISA investing, perhaps mostly in the UK equity income sector? That uses 28400 before you start to give away money to your children so they can put it in their cash ISAs or spend it as they see fit.

24% spread over 5 years is a very poor return, just 4.4% a year. The best of the UK equity income funds will do more like 12-15% a year, 76%+ over five on average, though with ups and downs along the way.

To get 9-12% before tax over 5 years on the remaining money you could lend it via zopa.com in the C markets or use a regular saver account or two until you get the 2009-10 ISA allowance to use. Or you could go with unit trusts or OEICs held outside a tax wrapper until you can move them inside the ISA.

The Premium Bonds aren't a wonderful idea, since you can expect lose money to inflation each year.

trademark

the premium bonds are a bit of a dreamers choice i know .... but ive been winning and until it stops ill leave them in place.

after 4 years of a bull market im not sure whats left in it , yes i know weve had a correction but i dont want to lose anymore money on stocks as i invest on my own in the AIM markets.

does anyone offer a better guarantee on a fund than the abbeys 24%

how do these funds work ? are thay a mix of stocks and other investments , who is the best ?

thanks

jamesd

trademark, those GEB types of fund use derivatives, generally speaking.

A 50:50 mixture of Invesco Perpetual Income and Invesco Perepetual Higher Income could be expected to pay you "winnings" of about 3.1% a year on average, split four times a year, with a downside potential of 25% or so and growth of income and capital averaging 8-12% a year. Tax free in an ISA or taxable otherwise. That 8% level would be about 47% over five years, more than the 25% capital downside you might see in a bad year.

Loss to inflation (10% to 28% total over 5 years) in the GEB is the capital loss you have to watch for. 24% guaranteed means that you would break even and make a profit if inflation averages below 4.4%. That's doable but it's uncomfortably close. The funds even with a bad year at the end can be expected to grow by more than inflation (47-68% total less inflation) plus pay out its regular income (17%+ over 5 years).

Still, the funds aren't 100% guaranteed. Just really unlikely to end up lower.

If you want to reduce the risk further, at the cost of some reduction in growth, you could use a four way split of the two equity income funds plus a corporate bond fund and a commercial property fund that holds real property. Yield paid out as income could be around 3.8% a year, 20.5% if reinvested and compounded over 5. The capital loss potential of a bad year would fall to around 13-15% and the capital growth potential to around 4-6% a year, 22-34% total (ignoring any from the property and corporate bonds). This can be expected to do more than twice as well as the GEB, with minimal chance of a capital loss - the two UK equity income funds would need to fall by more than 41% for there to be one, when their expected result is a 47-68% gain.

But it's still not a 100% guarantee.

If you're pessimistic about the stock market for a while you could put the money into 3 and 5 year C market loans at 8-12% at zopa.com and invest the repayments as they come in.

nrsql

Have a look at the ns&i tax free index linked certs.
You can put 15k into each of a 3 and 5 year cert but can withdraw after 1 year with reduced rate above index but still tax free.