Compound interest conundrum

beccajune

I could really do with some help if anyone would be so kind...
Some savings have matured and I am left with the following options unless I'm missing something else.

I have £16500 which could go in a Halifax fixed for 2 years at 1.65
or leave it in the accounts it is currently in (spread across 6 current accounts earning 3%)

For context, we have no mortgage or debt and I have a maxed out LISA, I am 40 in 6 months. I have dipped my toe into bonds and gilts this year and don't wish to any further until I can monitor its return.

Really stuck

bowlhead99

Clearly keeping it in accounts earning 3%, if they will continue to earn that amount for the next couple of years, is better than moving it into an account that only pays a little over half that.

If you can get 3% instead of 1.65%, on £16500, that's a little over £200 more after a year. Before tax.


For reference, £16500 at 1.65% AER for two years is £17049 gross.
While £16500 at 3% AER for two years is £17505.

So, on the face of it, no real pressing need to change your current arrangement and move into the lower rate product.

However, you may not be able to maintain those current rates for the full two years. Although you would probably get a few months out of them before any change and could then just make decisions at that point. Also, if you have more savings building up from month to month over the next year or so, it might not easily fit into those existing accounts and so you might end up putting the new spare money somewhere less lucrative than the 1.65% account.

Stuffing all the money into one account is certainly convenient. But if not instant access, what if you want access?

So, there are a few things to consider. Which route you prefer, depends on what you prefer!

Audaxer

If these are the only two options you are considering then surely you should stick with the current accounts earning 3%. Why would you want to fix the money for 2 years at a much lower rate than you are currently getting?

If you have only invested in bonds and gilts the returns will be very low. If you are prepared to leave the money invested for the long term you would be better off considering a multi asset fund - they come with different percentages of equities and bonds to suit you risk profile.

ceredigion

beccajune wrote: »

I could really do with some help if anyone would be so kind...
Some savings have matured and I am left with the following options unless I'm missing something else.

I have £16500 which could go in a Halifax fixed for 2 years at 1.65
or leave it in the accounts it is currently in (spread across 6 current accounts earning 3%)

For context, we have no mortgage or debt and I have a maxed out LISA, I am 40 in 6 months. I have dipped my toe into bonds and gilts this year and don't wish to any further until I can monitor its return.
Really stuck

Are you sure you have six accounts paying 3% ?

capital0ne

beccajune wrote: »

I have £16500 which could go in a Halifax fixed for 2 years at 1.65
or leave it in the accounts it is currently in (spread across 6 current accounts earning 3%)

I have dipped my toe into bonds and gilts this year and don't wish to any further until I can monitor its return.

Inflation 3.1% - so you're losing spending power right now - even if earning 3%

Bonds and Gilts - worst investment right now - if interest rates go up the value and return from bonds an gilts will go down.

I would put the £16,500 into something like VLS80 Acc in an ISA if poss and leave it to qietly grow.

solartom

do you have any regular saver
or do you have some other c/accounts that give you access regular savers
you could drip feed them into a few of them
there are quite a few that give you more than the 1.65% from Halifax

eskbanker

beccajune wrote: »

For context, we have no mortgage or debt and I have a maxed out LISA, I am 40 in 6 months.

This suggests that you're funding a LISA with a view to not accessing the money for 20+ years - it would also imply that you may not have a need for significant amounts in cash form once you have a decent emergency rainy day fund. Together these would suggest that long-term investment may be a better option than retaining cash, so it would be worth considering either diversified multi-asset investment, perhaps within a S&S ISA, (as recommended by previous posters) or maybe making more use of pension wrappers, especially if higher contributions are available from employers.

ValiantSon

Others have made some good points. I would just add that if other income over the next 1-2 years is going to earn no interest because you have maxed out the 3% accounts then it would make sense to consider some other options. I will assume that you want to keep all of your money as cash, so consider:

1. Regular savers. Drip feed money into these at the maximum (assuming you can) each month. Currently the best are paying 5%, e.g. First Direct on £300 p/m or Nationwide on £250 p/m. Both require you to have a current account with them, but there is no need to actually use the account if you can just cycle money in and out. Obviously the downside with these is the relatively small sums you can deposit, but as one aspect of a savings plan they are worth implementing. If you had both of the above accounts then you could save £550 p/m at 5% (if you add in the Santander regular saver - requires specific Santander accounts, e.g. 123 or 123 Lite - then you could save another £200 p/m at 5%). N.B. If you also had an account that you could switch to First Direct then they will also currently pay you £125 for doing so (assuming you haven't previously held an account with them).

2. Fixed Bonds. This is what you are suggesting, but the rate you are looking at is not that impressive. You can get 1.85% on a 1 year fix with Investec. If you particularly wanted to lock your money away for 2 years, then Paragon Bank will pay you 2.05%. Both these banks are FSCS protected and offering a lot more than Halifax.

2. Easy access savings. Currently the best paying is Post Office at 1.3%. This would be an option that, while paying less than the fixed bonds, gives you access to your savings should you need it.

As others have said, you may want to consider investing the money for better returns over the long term, but equally you may feel that you want a substantial amount in cash. There is nothing wrong with this. If you want to hold the money as cash then certainly don't just give Halifax your money for two years at a sub-optimal rate.

ValiantSon

Thank you to everyone for taking their time to provide advice.

You are most welcome!

(Anyone else think that I might be talking to myself?)