money investment

yellowdog_2

My mother in law has around £100000 to invest. Being an OAP she needs something that will give her a monthly income. We've looked at a 1 year bond with Abbey , which is called Super Bond and which we think would make her around 6.5% after tax. She says she only wants a 1 year bond in case she needs to take any money out after a year.Would this be the correct road to take? Does anyone know of any other high interest bonds? Any other suggestions welcome.

dunstonh

We've looked at a 1 year bond with Abbey , which is called Super Bond and which we think would make her around 6.5%

Its rubbish.

would this be the correct road to take?

Absolutely not.

Does anyone know of any other high interest bonds?

When you say bond, are you talking about investment bonds or fixed term deposits?

The abbey super bond is a mixture of products and the interest rate on one side is being subsidised by a commission rebate on the other which is tied in.

The 1 year tie in you mention reduces the options significantly and you can forget 6.5% after tax. The interest is going to make her a tax payer, if she isnt one already so you are only really looking at around 4-5% after tax.

Does she really wish to withdraw £100k in 12 months time? Or would an open ended investment with no tie in be a better option? What is her risk profile? How old is she? How is her health? What is her income (important in case she is close to £20,900 a year after including interest, pensions and dividends)?

jamesd

yellowdog, it's easy enough to put together a collection of investments involving things like government bonds, corporate bonds and equity funds of various sorts using sector allocation that provide the ability to draw out significant amounts of money, don't vary in capital value more than 20-30% in a bad year but over the long term pay 5-6% income that grows with inflation.

Putting it all into products like this one won't do that sort of good job.

It's worth considering if using an investment bond as a tax wrapper would be suitable. As well as their useful investment properties, they don't count for age allowance reduction or against means tests for council care and are helpful for inheritance tax reduction. It's usually intended to take out 5% a year but more can be taken out by paying tax on it.

Splitting some into stocks and shares ISAs, some into cash ISAs as well as whatever goes into other products can also be useful.

yellowdog_2

dunstonh, we were thinking about a fixed interest bond. She isn't going to take the whole 100K out, after a year, she just wanted to be able to take money out, if she needed it for anything, after the bond matured after the year, so it wasn't tied up, and have a bond which had a high enough interest paid monthly for her to pay any bills etc. and have a bit left over to play with. She's 74 and in decent health. Besides income from the bond, she would have a private widows pension and state pension, that would be all.

yellowdog_2

jamesd, she won't have anything to do with stocks, shares or anything like that, as her late husband lost quite a lot of investment some years ago and believe me she won't change her mind.

jamesd

Would she go for funds that invest in real commercial property, not shares? In loans to companies (corporate bonds)? In government bonds, UK or otherwise? Those three could still give her higher returns without using shares.

While she wants access to some of the money, some might perhaps be usefully put in NS&I Index-linked saving certificates. She could put 15,000 in each of the three and five year issues or do the three year one once each year, so starting three years from now she gets back 15,000 plus interest each year. It's only RPI+1.35% but it is safe.

Zopa.com might be interesting because it's not shares, but it is lending to lots of other people, with the risk reduced by limiting how much is provided to each person. Taxable interest rates of around 10-12% are achievable, perhaps better when investing around new car buying times and after Christmas. The money is paid back monthly, so some is tied up for say three years but within the first year she could have 1/3 back (really more like half, since people tend to overpay). But a few people will fail to repay, so she will lose a little to those cases, even while profiting overall.

Putting all she can into cash ISAs is one of the "definitely do this" items.

sand2880

with a 100k investment you have the options of spreading your money around. Start with fixed rate bond 6.55% at A&L. use maxi isa to invest into fixed interest securities and look into an investment bond to provide fixed income. Making sure enough money is in her bank account for 3-6 months of living.

All will provide income, some easy access some tied up for a period of time.

baby_boomer

Anglo Irish Bank will currently give her 6.9% gross for one year if she is not quite sure about the IFA suggestions above.

I year fixed rate bond rates are currently very high - so keep an eye out for the best rates at http://www.moneyfacts.co.uk/savings/bestbuys/fixed-rate-savings-accounts.aspx

I suspect that by "money investment" you actually mean "cash savings". If your m-i-l only wants a 1 year bond then she shouldn't be looking at commercial property, corporate bonds or equities. IFAs would usually point that out.

1 year cash rates, after basic rate tax, now comfortably beat inflation .

cheerfulcat

baby_boomer wrote: »

1 year cash rates, after basic rate tax, now comfortably beat inflation .

Not if you're taking the interest as income...