time frame - how long 'till income stream develops

Mr_S_in_Easton

Hi everyone - hope you are all staying well.  I understand the idea that a savings account pays interest, based on the balance of funds in the account, but I'm not clear how often the interest is calculated. Can somebody explain?  Let's say I'm lucky enough to also have some investments, in a mixed portfolio.  Does it take some time for the income stream from the investments to build up?  I don't expect the income behaves in the same way as the interest in the example of the savings account, it's just that I don't understand the difference.  And lastly, were I to have both - some money in savings account/s and a pot of cash invested, would I have to make a tax return each year?  Or would that depend on the sums involved?

Zanderman

That's a lot of questions.  Have you read up about savings and investments and how they work? There's lots of info on savings on the main (non-forum) part of the site.  Perhaps you should read through some of that.  https://www.moneysavingexpert.com/banking/ and re tax https://www.moneysavingexpert.com/family/filing-a-self-assessment-tax-return--you-ve-got-until-31-january/#who  

eskbanker

Mr_S_in_Easton said:

I understand the idea that a savings account pays interest, based on the balance of funds in the account, but I'm not clear how often the interest is calculated. Can somebody explain?

It's typically added to the balance monthly or annually, based on retrospectively applying the annual gross interest rate, divided by 365, to each day's balance throughout the period in question.

Mr_S_in_Easton said:

Let's say I'm lucky enough to also have some investments, in a mixed portfolio.  Does it take some time for the income stream from the investments to build up?  I don't expect the income behaves in the same way as the interest in the example of the savings account, it's just that I don't understand the difference.

Depends on the investments - some don't generate any income as such but many pay dividends, typically quarterly, bi-annually or annually, regardless of how long you've held the investments for.  With or without dividends, investment return is usually driven by (separate) capital value growth, whereas with savings it's only the interest that increases the capital.

Mr_S_in_Easton said:

And lastly, were I to have both - some money in savings account/s and a pot of cash invested, would I have to make a tax return each year?  Or would that depend on the sums involved?

Savings interest is paid gross and basic rate taxpayers have a band of £1,000 taxable at 0%.
Likewise there's also a dividend allowance of £2,000 to shelter that income stream from tax.
Above either of these figures, there's a tax liability, which can sometimes be dealt with outside a full tax return, but it depends on the overall complexity of your tax affairs....

Mr_S_in_Easton

OK, so far so good... fast-foward 18 months by which time I'll be past my state pension age. I'll be in receipt of a) state pension b) lgps pension, totalling iro £22K pa gross - how does any tax due get paid?  (I've spent x years relyign on the PAYe system to do tax for me!). What if I'm also in receipt of a modest income from a mixed bag of savings and investments, say another £12K gross annually?  I'm asking here specifiically about tax matters, as that's what I have least experience of... for example, would tax returns, if required, fall within the remit of an financial advisor, if I chose to emply one to manage the savings/ investments?

eskbanker

Mr_S_in_Easton said:

OK, so far so good... fast-foward 18 months by which time I'll be past my state pension age. I'll be in receipt of a) state pension b) lgps pension, totalling iro £22K pa gross - how does any tax due get paid?  (I've spent x years relyign on the PAYe system to do tax for me!). What if I'm also in receipt of a modest income from a mixed bag of savings and investments, say another £12K gross annually?  I'm asking here specifiically about tax matters, as that's what I have least experience of... for example, would tax returns, if required, fall within the remit of an financial advisor, if I chose to emply one to manage the savings/ investments?

PAYE will be applied to your pension income, so the relevant income tax will be deducted from these (the state pension will usually be fully within your personal allowance and so all income tax deduction is likely to be from the other pension).

£12K pa is quite a significant income from savings and investments, so depending on the complexity HMRC may put you onto self-assessment - it's not a massively difficult process but there are plenty of accountants who'll do it for you if you find it too intimidating.

Are you making use of tax shelters such as ISAs, SIPPs, etc?  If you have a substantial six-figure portfolio (as implied) but aren't getting any advice then you may find it beneficial to engage with an adviser, or if you post more details on here then people may be able and willing to offer suggestions as to how best to manage your money....

Mr_S_in_Easton

"PAYE will be applied to your pension income, so the relevant income tax will be deducted from these (the state pension will usually be fully within your personal allowance and so all income tax deduction is likely to be from the other pension)." Good - that's clear. Thanks.
With respect to tax shelters and advice, I have come to the conclusion that I would prefer an IFA to look after the arrangements and furthermore, I would like to use one of the increasing number of investment advisors who specialise in ethical investements. As I considered my options, I wanted to know if investing ethically could have a negative effect on potential returns and I have been advised that there is no reason it should.  I realise that so-called ethical investment is on-trend at the moment and so I'm concerned that anyone can set themsleves up as a ethical specialist, so I'm in a hiatus at the mo' trying to determine exactly how to choose the most suitable IFA.

eskbanker

Mr_S_in_Easton said:

As I considered my options, I wanted to know if investing ethically could have a negative effect on potential returns and I have been advised that there is no reason it should.

Why would someone looking to invest ethically be influenced by the impact on their returns, i.e. do your principles have a price?!

AnotherJoe

"Ethical" is meaningless. Literally. It can cover so many areas and be completely diverse.

So you'd need to be VERY clear what an ethical investment is for you.

I suspect you'd be very lucky to find an IFA that specialized in that area, because again, what does it mean, so its not really an area,  plus its so niche.  What a good IFA should be able to do is advise on investments, and tell you whether each covered your definition.

I am currently advising on investing for my granddaughters JISA.  One of the investments will be INRG who invest in solar and wind. Many might say that's ethical. And in the long term as she grows up i see nothing but a bright future for renewables. However, for all I know your definition of ethical doenst match that at all, thats still encoraging consumerism by using electrcty, or you are looking for companies that don't do animal testing, or no Nestle because of their third world issues, or no tourism because of greenhouse gases, or no armaments, or even no wine companies because they use fish products in their wine and you are a vegan. etc etc.

Mr_S_in_Easton

"Why would someone looking to invest ethically be influenced by the impact on their returns, i.e. do your principles have a price?!"
I'm surprised you ask - isn't that simply part of any / all individual's moral compass. Some people will not give a hoot about a company's practices so long as the shares do well, others at the other end of the spectrum, will seek to invest only in agencies involved in industries they approve of, with transparency and high standards (they must exist!).  Most of us, I understand, shelter from the issue by investing in packages that make it hard to understand where the money goes.  I'd have thought that the primary purpose of investment was to obtain a return (I may be wrong...) - if so, it follows that the level of that return must form part of the choice of where to place the money.
"'Ethical' is meaningless. Literally. It can cover so many areas and be completely diverse.  So you'd need to be VERY clear what an ethical investment is for you." That's what I thought... the word 'ethical' is used in much the same manner as the word 'green'.  Nearly everyone thinks they know what's meant, but when you stop to tease out the precise meaning, it poofs away, like smoke.  So, leading on from there, the notion of an adviser who claims to specialise in ethical investment is either someone who has recognized that folk may need help in being very clear about what they want, or else has seen an opportunity to ride a wave. Hence the hiatus.

Mr_S_in_Easton

I should add that from what I've read, there is also an idea that investment can be used as a political tool, so that for example, the investor could choose to put their money into a sector mentioned upthread, renewable energy, in the hope that the sector may gain and that by not investing in say coal mining, the other sector may be somehow disadvantaged.  I can see that if this is the primary motive for investment, then the expectation of maximum returns may have to take second-place. However, like most of life, I expect that the two principles will get jumbled up in the minds of all but the very purposeful & organised!