Getting the most out of 9k

Miss_Sparkly_Star

Hi there,

Have now convinced all my work colleagues to join this brill site and wondered if I could pick other users brains of how to get the most out of 9k.

Scenario
Colleague has 9k sitting in a current account and will need to access the money in 2 years time. He has not used his 3k isa allowance this year and is keen to do so. Also..his mum and brother have said he can use their 3k isa allowances as they don't want/need their ISA's. SO what's the best thing to do...


1) Split the 9k into the three best performing ISA accounts..one in his name, mums and brother.

2) Put 3k into his ISA and the rest into a higher saving accounts with a rate of say 12%

3) Some other questions that are been fired at me.....

a) If an ISA has a fixed rate of say 6% does it mean that you get 6% on your money REGARDLESS at what point in the year it's deposited so..would he get the same rate if he put it in say today, or just before the financial year ends?

b) If these regualar saving accounts have such good rates such as 12%, which is the better return. 6% ISA tax free or 12% reg savings?

That's it I think..thanks in advance

Aegis

Miss_Sparkly_Star wrote: »

Hi there,

Have now convinced all my work colleagues to join this brill site and wondered if I could pick other users brains of how to get the most out of 9k.

Scenario
Colleague has 9k sitting in a current account and will need to access the money in 2 years time. He has not used his 3k isa allowance this year and is keen to do so. Also..his mum and brother have said he can use their 3k isa allowances as they don't want/need their ISA's. SO what's the best thing to do...


1) Split the 9k into the three best performing ISA accounts..one in his name, mums and brother.

Not sure, but I believe that this option might be classed as tax evasion, as it would be his money but not his entitlement to the tax-free status. In addition, the transfer of 3k each time might end up being subject to Inheritance tax should the unforeseen happen and one person dies within 7 years. Even then, the legal status of the money would change from being your colleague's while it was in the posession of his family, so any quarrels might result in financial angst.

Probably better to play it safe and get him to only open accounts for himself!

2) Put 3k into his ISA and the rest into a higher saving accounts with a rate of say 12%

If you can find a savings account at 12%, let everyone here know ASAP! That would be a phenomenally good rate, almost twice the level of the current best savings accounts.

3) Some other questions that are been fired at me.....

a) If an ISA has a fixed rate of say 6% does it mean that you get 6% on your money REGARDLESS at what point in the year it's deposited so..would he get the same rate if he put it in say today, or just before the financial year ends?

Cash ISA interest generally accrues daily, so you get paid the sum of the days in the account multiplied by the daily amount (ignoring compounding for simplicity). You certainly don't get the full year's interest if you haven't been in for a year.

b) If these regualar saving accounts have such good rates such as 12%, which is the better return. 6% ISA tax free or 12% reg savings?

Generally the ISA will be better because regular savers will only give you about half (or a little over) of the top rate of your investment, and often require you to take out and use an inferior product if you want the really high rates. At the moment about 7-8% is the highest you're likely to see with a no-catch regular saver. A cash ISA at 6-6.5% beats that hands down for most savers in the long run simply because of the tax-free status.

With regard to the £9000, it's certainly always a good idea to use the cash ISA first, and if your colleage wants to use the rest to save too, then great. If he hasn't got any short-term plans for the money and is ok with a little risk, he might want to trade his capital security for a greater growth potential by investing, and can do so with the other component of his ISA allowance (£4k in stocks and shares), leaving him £2k to play with other options with.

Hope this helps!

Miss_Sparkly_Star

Aegis,

Thanks for this - yes we did have the conversation about whether it was a tad dodgy to put the rest of his money in other people's names!!!


Just found this on another thread..which is why the 12% stuck in my head.

01-05-2007, 12:01 PM #21 BiscuitLily vbmenu_register("postmenu_5053383", true);
Newbie MoneySaver


Join Date: Feb 2007
Post Count: 13
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New A&L Regular Saver
Just noticed that Alliance & Leicester have a 12% (gross) regular saver for people opening a new premier current account. Existing account holders can apply if they take out legal and general insurance (for life, critical illness or something along those lines). I have only had a very quick look as I am busy at work but thought I would let you know....


I find it fascinating how everyone knows so much about rates/deals here it's great, I'm sreu I'm going to get sacked cos I'm doing no work, then I really will need the advice of MSE..lol
X

Aegis

If I remember, A+L are very competetive with their current account rates too, so that might be worth a close look. Pay close attention to the Terms and Condisions though, as they're probably going to be quite inflexible with an offer like this! 12% is certainly well-worth looking in to as a supplementary savings account to an ISA (I'm going to make my asserion that good cash ISAs are better in the long run again )

Aegis

Evidently I remember incorrectly... In order to get the 12%, you need to use a current account offering a woeful 1.5% gross AER. Better than a standard current account, but a bit rubbish compared to the decent ones (i.e. above 6%) at the moment. If you're anything like me, that's a payout of about £80-100 per year for the privilage of their regular saver. Which is probably more than the difference between that regular saver and a standard savings account for most fixed saving amounts!

You could feasibly get around this by paying your salary into the current account and immediately transferring it out, but that's a lot of faff and several days lost interest every month, so probably not worth the stress.

Miss_Sparkly_Star

Colleage says he can't be bothered with the hassle....:rotfl:

He's looking for deals online now..will keep you updated!