Help choosing my path forward with my savings and investments

DzF

I've always been careful to save money over the years, but admit I should have looked into things in more detail years ago, but it's better late than never.

My wake-up call recently was that HMRC have changed my tax code, as I have not paid enough tax, due to me earning more than £1,000 interest. I admit, I never used to even think about this, as interest rates were low, I have never gone over that threshold before, but have now.

It's now led me to try and reduce my taxable interest, and take a long look at what accounts and methods I should be doing going forward. And this is where I need some help please!

Current situation:

Cash ISA = £35k

Help-to-Buy ISA = £12k (max for a £3k bonus, so I've stopped paying into this now)

Easy Access Savings = £120k

Premium Bonds = £25k

Workplace pensions = Currently only have about £15k overall in the pot, so relatively small.

I've always stayed pretty savvy with interest rates, so my Cash ISA is at 5%, and savings accounts average around 4.5%.

My circumstances are:

- Age 34

- Basic rate tax payer (my salary is £26k)

- No debts/loans of any kind

- The biggest factor is that I am looking to get on the property ladder in the next 2-3 years if possible. So a good chunk of the money I have will need to be set aside for when I get a property.

Hindsight's a wonderful thing, so I wish I hadn't bothered with the HTB ISA if I'm honest, and used a few years of £20k ISA allowance to build my Cash ISA (and invested in a S&S ISA years ago).

What I was thinking:

- I have just under £18k of my ISA allowance still to use up before April. Thinking of putting this in a S&S ISA, as I can't put into my Cash ISA as I have been contributing into my HTB ISA this year.

- Then after April, putting the majority of the new £20k allowance from Easy Access Savings into my Cash ISA

- Maximising Premium Bonds to £50k

It really did open my eyes when I was getting taxed on my interest, and I know I need to work on rearranging my savings. It would be great to get some general guidance on what it might be worth me doing in this situation.

Thank you!

amanda1024

That makes sense to max this and next years’ ISA allowances as soon as you can. For this year, if you’re just using the S&S ISA because you can’t do another cash ISA, it might be worth looking for one which will pay the most interest on cash in the S&S wrapper (that way you don’t have to actually invest), then you can transfer over to a cash ISA in the next tax year. Also worth shopping around for cash ISAs to get the best rates - and think about if you want an easy access ISA or if you’re ok fixing for a year or two.

Premium bonds - worth comparing the median return (lower than the headline rate) with the best easy access savings/fixed rate savings, even after 20% tax - they’re not necessarily the best option.

masonic

A few points

1) Investing in a S&S ISA looks odd if you are planning to buy your first home in the next 2-3 years. Are you confident that you won't put this money towards your new home or costs associated with moving into it? Presumably not if the £192k in cash is anything to go by.

2) Have you considered a Lifetime ISA as an alternative to a HTB ISA? Although time is running out, there are 3-4 tax years to accrue a balance of £15-20k plus interest in a LISA. You would need to be sure you will buy after approx. June 2026 to equal the bonus possible from the HTB ISA, and if you buy at least a year later, you'd get a larger bonus. There are advantages to LISA vs HTB ISA, such as the higher value limit and more flexible use of the bonus. If you think these will be helpful, it may be worth it. Is there any reason for not buying this year? The house purchase should certainly solve the tax on savings issue.

3) Have you compared returns from Premium Bonds to the net return from a non-ISA 1 year fix (currently about 4.16% after BR tax)? Do you feel luckier than average (median return 3.9% on a full holding)? The return from PB is likely to decrease further when interest rates are cut.

4) Pension is only about 5% of your total assets. Seems like this should be an area of focus.

Linton

At 34 you need to start paying more attention to your pension.  You say you are on £26K/year now.  How do you fancy living on half that for the final 25% of your life?  In the long term this is far more important than putting large amounts into cash savings.

WHy do you need more in easy access cash savings?  Is the £120K sufficient to pay the deposit on the house and associated costs?  Apart from the house costs and an emergency fund of say 6 months expenditure to cover the loss of your job or similar one off need for cash, what is the cash for?

Over the long term cash savings are likely to lose out to inflation whereas a sensibly invested pension or S&S ISA should provide signigicantly higher returns.  A company pension is better value than an S&S ISA because of tax savings and employer contributions but has the disadvantage that you wont be able to access it until you are 58.  

DzF

I really appreciate your responses @amanda1024 @masonic @Linton

That's some very useful information and insight for me to have a good think about.

Sounds like I really need to focus on pension options, which I certainly will do. Again, something I didn't think about too much prior if I'm being honest.

I'll also look into S&S ISA options, both short term with cash, as well as longer term options.

Also with Premium Bonds, I might think twice about maxing this out then. As you said, I might actually be better off having them in a high interest savings account, even with the tax on the interest. I've also heard Premium Bonds rate is going down soon as well.

My house purchase will indeed take away the majority of my easy access savings, but it'll still be useful for me to invest wisely in the meantime and for the long term. Appreciate all your help, thank you!