Scottish Friendly Bond... cash in now or wait?

psychopathbabble

Good morning all,

I currently have a Scottish Friendly bond (yeah, I know, no judgement please). I pay in £25 per month and have so far paid £1875. It will end with my final payment in June 2020 and I will have paid in £3000.

After reading some feedback on the returns, I'm now not sure whether to leave it running or cash it in.

The current value is £2736.96 and the cash-in value today is £2029.33, meaning a 'profit' of £154.33 in my pocket now.

Any thoughts on whether it's worth keeping it running or cashing it in now?

To add in additional factors... I will be going on maternity leave in 6 weeks and we are currently trying to get our monthly outgoings down by paying off our debts (as you can see from my signature). Taking the money now would mean we will have both our loan and 2 credit cards paid off in April 2017 with just the bed finance remaining (having just reconfigured budget taking into account the bond money now, the bed would be paid off in August 2017).

However, in 2020 we will be looking at both remortgaging and paying off the government loan on our house (help to buy) before the interest kicks in which is currently £55k - this will vary depending on value at the time.

My thoughts so far are that unless I get a significant return on the £3k that I have put in, it won't make much of a difference to the £55 we need to find, however any small lump sum is better than nothing? Short term it would pay off at least 1 card and end our loan a month earlier than I have budgeted for (been overpaying it for a couple of months now).

If I have omitted any useful information, please just let me know!

fwor

psychopathbabble wrote: »

The current value is £2736.96

My personal instinct would be to get rid of debt before saving, all other things being equal.

That value is equivalent (very roughly) to an annual interest rate of around 6.2% - so the simplistic view would be that if any of your debts cost less than that, you should keep the bond. And if none cost less than that, you should jack it in and use the resulting funds to over-pay your most expensive debt.

It's simplistic because there is no guarantee that you will get as good a return for the remaining term of the bond. You might, but my own personal view is that stock market returns have been better during the last 2 years than we can expect of the next two years (but then that's sheer 100% guess!).

psychopathbabble

Thank you for posting fwor

All our debt is 0% except the loan which is being paid off in November at the latest

I guess potentially IF rates stayed the same, I could make a return of well over £1000... but as you say, it's unlikely to remain the same going forward.

Hmm... I guess it's just a matter of weighing up whether the money is more useful now or in 4 years time. And of course, there is always the possibility that the market could completely crash and I end up with less than the £3k I put in.

I ended up having to sell shares a few years ago and would have tripled the money I made had I been able to wait another couple of years. It's all a risk, but just worried about making the wrong decision.

euronorris

Investing in funds is always tricky. Like you have said, there are no guarantees, and you may end up with less than you invested.

Are there any guaranteed return amounts on this bond? Presumably it comes with a small amount of life cover too?

That said, investments should really be seen as just that - investments. Long term. As, generally (very generally) speaking you will always get a better return from over the long term than standard savings rates.

If the debt had been on an interest basis, I'd say cash it in and pay that off, but it's not.

It is very difficult, and the majority of this decision comes down to how comfortable you are with risk. ie, if you waited, and the value has dropped, would you be OK with that? Always a possibility.

Equally though, unless you have an emergency fund saved elsewhere, it would be beneficial to keep some form of savings. With that in mind, even if you decide that you are not comfortable with the investment risk, I'd be inclined to keep the money in some form of savings (as the debt is all at 0%). You never know when you will need it to fall back on.

psychopathbabble

Thanks Euro I'm struggling with ignoring that it exists when it can help out quite a lot right now. However, yes that would mean we have zero savings until we have spare income from August 2017 onwards and means we reduce our committed minimum outgoings by 5 direct debits. If we don't cash it in, it'll likely be more towards the end of 2017 before we can start to save anything.

jimjames

Personally if I could cash it in with no penalty and get back more than I'd paid in then I'd do it and put the money into another investment that is actually flexible and allows you to access the money whenever you want.

euronorris

What would you do if the car broke down, or the boiler, during maternity leave for example? Would it go on finance? And if so, would you have to pay interest on that?

If so, I'd rather keep it in savings of some form (or at least some of it), to cover those what if scenarios.

Even if you can't start saving until end of 2017, that'll still give you 2 full years before you're looking to remortgage. And all being well, this money would still be in savings/invested somewhere too.

The alternative is only an extra 4 months worth of savings, with the added risk of needing to take out more debt, but with interest. Which, potentially, could cancel out the benefit of those 4 extra months savings anyway.

psychopathbabble

jimjames there is a penalty... i'm 'losing' £700 of value.

Euro, didn't think of that really, just desperately trying to get rid of the debt! Thanks

euronorris

You're welcome hun

As for the debt, got anything to sell? If so, do it before bubs arrives. It's much harder to get stuff done once they're here! Lol

psychopathbabble

Sadly already got rid of most of it when we moved and then when we had to clear out the mountain of stuff to be able to make a nursery I am waiting for a load of cashback to confirm though and have a couple of bits still to sell.

The debt isn't costing us anything, it's more than I don't want our outgoings to be more than our income while I'm on maternity and then maybe part-time once I go back to work. It's stressing me out no end! We are on top of it, although could still do better with our general spending.

psychopathbabble

I have just found this example of what you might get back in 10 years (on page 3) so it looks like you pay a huge chunk of fees regardless

http://www.scottishfriendly.co.uk/uploads/pdf/products/scottish-bond/scottish-bond-key-features.pdf