How to split savings across different accounts?

lovehackney

Hello all,

I was hoping some more experienced savers could help me think about how best to structure my savings.

My partner and I are in a lucky position of being able to afford to save around £5,000 a month. We don't have any credit card debt but do have a mortgage with around £320,000 outstanding at 1.38%, at around £1,400 per month (although the fixed rate ends in June 2020).

Our main goal is to save to buy a bigger house in around 3 years time. We are expecting to fix our mortgage for another three years from June this year so possibly more like 3.5 years.

I'm completely lost with how to split the savings- previously we've always used instant access as our goals were more short term. Now I'm thinking we should do some kind of spread, e.g.,

Fixed savers (eg HSBC advance £250/month)
Overpay mortgage (maybe £600 additional? No rationale for this other than £2000 is a round number)
Cash ISAs (we are both higher rate tax payers)
Stocks and shares ISAs?
Easy access savings (would like some in here for emergencies)
Premium bonds?
Investing directly in the stock market?

Not including pensions in this as with employer contributions we are each paying in 20%+ (we are early 30s), so happy to not up this for the next few years unless someone strongly disagrees.

Any advice? I realise it's a fortunate position to be in, but any guidance would be welcome!

Dazed_and_confused

we are both higher rate tax payers

Not including pensions in this as with employer contributions we are each paying in 20%+ (we are early 30s), so happy to not up this for the next few years unless someone strongly disagrees.

Pensions are clearly no use for your current requirements but I think the common view will be you are potentially missing out some generous tax relief.

Are you both paying 40% tax or is it 41/45/46%. Or even one of the anomalies where it can be an effective tax rate of 60%+?

lovehackney

Thanks for your speedy response.

My partner is paying 40%, I am in an anomaly area - earning around £106k so in the part where you lose your tax free allowance.

colsten

The way you spread your savings is in the first instance governed by how much of your savings you expect to need when. If you need most of it for you planned house move, you should stay absolutely clear of investments. If you can put some away for 7 - 10 years minimum, you can then think of investments, in the form of S&S ISAs and/or additional pension contributions, up to the maximum you are allowed. But you need to watch your LTA.

You might also wish to pay an IFA for proper professional advice.

lovehackney

Thank you, yes most of it indeed is for the house move, so we should focus on the best fixed rate savers / highest paying accounts then for now it sounds like

colsten

lovehackney wrote: »

Thank you, yes most of it indeed is for the house move, so we should focus on the best fixed rate savers / highest paying accounts then for now it sounds like

Definitely*. Check the usual comparison sites for the best deals, but also have a look at HL Active Savings and Raisin, as they sometimes have deals which don't appear in comparison engines.

With interest rates being so low, you might also want to take a gamble with Premium Bonds. Whilst you are most likely to end up with a relatively paltry 1% - 1.3% return, you never know whether your luck comes in, and your capital is not at risk (other than from inflation but you have a similar risk in savings accounts).

* I would still consult an IFA if I were you. Throwing most of your money at property might not actually be the smartest thing you could do.

HCIMbtw

I was going to mention premium bonds.. with your tax levels you might need to be careful about how much you are saving and if any of it is taxable.. while the return!on premium bonds probably wont!beat a savings account!you can hold £50k for tax free winnings..!

Other than that i'd personally just split it between some cash isa's!(not S&S given volatility and short term of 3 years), some fixed terms savings accounts and overpaying on the current mortgage a bit

Cisco001

Personally would open S&S ISA and overpay mortgage if it is penalty-free.

Also, since you are high earner, it may worth looking into offset mortgage in future.

18cc

If it were me, I would save a small amount in instant access somewhere just so you have something for emergencies (£500/month?), and then use the remaining £4500 to overpay your mortgage.

There are few places you can get 1.38% tax free for 40% payers, risk free and soon to be going up to whatever the rate you will pay will be.

I am assuming when you buy your new house you will be selling the old one of course.

As I said, that is just what I would do (and have done).

colsten

Cisco001 wrote: »

Personally would open S&S ISA

S&S ISA with a 3.5 year horizon? Sounds a really bad suggestion IMO.

lovehackney

Yes correct, we would be selling our current home- we live in London so house prices are high!

Okay so I'm going to go for a mix of easy access (emergency fund, agree £500 a month sounds sensible), overpaying the mortgage (it is max 10% a year so will aim for that and see if we can chuck some more at it before we remortgage), and the remainder to split between premium bonds and an ISA each.

Thanks everyone