Where to invest £500 per month?

AlphaWaves

Hi, I am turning to the forum for some advice on where next to invest up to £500 per month?

I am currently holding:
BOS Vantage £5k @ 3%
Nationwide FlexDirect £2.5k @ 5%
Nationwide FlexPlus £2.5k @ 3%
TSB Classic £1.5k @ 3%
Nationwide Regular Saver £500/month @ 5%
P2P lending £1k @ 3.8%
Cash ISA £20k @ 0.75%

I am a higher rate tax payer and the interest on the above non-Isa accounts will exceed my personal interest allowance so any further interest will be taxed at 40%.

So where is the best place to invest next? I’m 30 years old and I have up to £500/month to invest.

I am already contributing over 25% of my salary to personal pension contributions to maximise the benefit from the 40% tax relief, any further monthly contributions would only attract 20% relief. I have also overpaid my mortgage for the year and this time next year I will be withdrawing some of the cash ISA to pay off the balance leaving me mortgage free.

I don’t have any specific investment goal in mind, but I assume in the next five years I will most likely start a family and/or move to a bigger property, so I anticipate my next choice should be one which is relatively low risk and fairly liquid in case I need access to the money in the next five years. My initial thought is that a SAS ISA with funds heavily weighted in favour of bonds may be ideal so as to shelter any gains from tax and provide a low risk return which should outperform cash savings. Maybe the Vanguard Life Strategy 20? Or are their better investment options to explore first?

masonic

I would probably lean towards some more P2P lending (within an IF ISA) before considering bonds. It would be sensible to keep your overall P2P exposure a relatively low percentage of your total balance, say 10%, maybe 15% at a push. I also don't see any mention of the 5% regular savers from First Direct, HSBC, and M&S bank, which would net you 3% after tax.

The trouble with bonds is that yields are very low and capital values seem more likely to go down rather than up in the next few years.

msallen

You seem to imply that all your income above the higher rate limit is going into your pension (as any more would only get 20% relief).

This being the case then you should be entitled to the full £1000 of tax free interest per year (as long as that £1000 doesn't push you back over the tax threshold again).

Thats what I do - I pay enough into my pension, that my taxable income comes down to about £40K - that leaves me enough space to earn just under £1K in interest plus some wiggle room for any unexpected income at the end of the tax year. I'll be changing that next tax year to aim for a taxable income of around £42-43K (plus interest).

JohnRo

As a higher rate tax payer have you considered utilising your maximum premium bond allowance?

With average luck you'd expect to get a 1.25% annual rate of return (dropping to 1.15% in May) tax free.

also,

Why don't you have

Tesco 3K @ 3% (x2)
BOS Vantage 5K @ 3% (x2) three in total

that's another £16K @ 1.8% net

It's not an Earth shattering return but it's relatively risk free and the capital is guaranteed against everything but inflation.

xylophone

Tesco 3K @ 3% (x2)

http://www.tescobank.com/current-accounts/

In order to best serve our existing customers, we have decided to pause accepting new applications for the time being. In the coming weeks, we will let customers know when they can apply again for the Tesco Bank Current Account.

AlphaWaves

Thanks for the replies, some interesting points and options to consider from which it looks like bonds are not the way forward but more 'high interest' cash savings.

msallen, good point on the interest allowances, I am on the edge of the tax threshold at the moment being just inside the 40%. I shall have to review the feasibility and benefits of adding a little more into my pension contributions to bring my taxable income down into basic rate to obtain the £1k interest allowance.

JohnRo

xylophone wrote: »

http://www.tescobank.com/current-accounts/

In order to best serve our existing customers, we have decided to pause accepting new applications for the time being. In the coming weeks, we will let customers know when they can apply again for the Tesco Bank Current Account.

I hadn't realised it was as ongoing as that, I'd assumed it was just a brief stop gap until they sorted out the recent security breach.

vacheron

Hi AlphaWaves.

I assume you are an employee rather than self employed?

If you are it is worth checking if your company runs any kind of Sharesave scheme. This will allow you to contribute up to £500 per month, it is virtually risk free and has a promise of a very good return at the end.

I am putting £500 each month in to the one ran by our parent company and am 1 year in to their 5 year scheme. The current share price is already double the original option price so if it keeps doing that for the next four rears I should make £930k from a £30k stake! :rotfl:

Wishful thinking, but even if it stays where it is I'll be more than happy!

AlphaWaves wrote: »

.......msallen, good point on the interest allowances, I am on the edge of the tax threshold at the moment being just inside the 40%. I shall have to review the feasibility and benefits of adding a little more into my pension contributions to bring my taxable income down into basic rate to obtain the £1k interest allowance.

It is definitely worth taking care here when you are skirting around the 40% threshold. There are a lot of pitfalls in the way HMRC will consider you a higher rate taxpayer even though you don't pay ANY higher rate tax.

Take a look at this thread which proves that even HMRC get it wrong!