Life Interest Fund vs Interest accrued in savings accounts

Habib2342

Hello,

In my late mother's will, she has requested a post death life interest fund to be setup for my elder brother who has mental health issues. The financial planner has sent through an illustration on how the fund will work but also mentions there is a chance the capital you invest could be worth less in a year or two due the nature of the stock market and the economy and where the fund will be invested . 

I'm just thinking wouldn't be better to put savings into savings accounts with the highest AER and use the monthly interest after tax to help out with the cost of living ? The capital will not grow but it won't decline where there is a risk of it growing and declining in the life interest fund and the sectors where it is invested.

Thanks. 

eskbanker

If the money will be needed in the short term then saving in capital-protected deposit accounts may be appropriate, but if it's long term money then investing is typically a better solution, as short term volatility is relatively insignificant when viewed over the long term.  What does the will say about the duration, and is this known to the planner?

DRS1

The duration will be the elder brother's lifetime.

I doubt anyone knows how long that will be.

Generally I would have thought savings accounts would not be appropriate though.

Bravepants

With money kept in savings account over many years the biggest risk is inflation; the rising cost of the things that the capital and interest could buy.

If the interest rate in your account is 4% per year, and inflation is 2% per year (the Bank of England target), that means if you spend the 4% interest each year the capital will be worth 2% less each year "in real terms".    

It's even slightly worse than this though because, after allowances, the interest would be taxed by whatever your brother's tax rate is unless sheltered in a tax free account such as an ISA.