Savings Advice Needed Please

simonleblank

I am currentlt in debt on 0% CC's. I pay tax @ 40%. My current savings are:

£700 Abbey current a/c @ 2.5%
£1200 Abbey e-save @5.1%
£3000 Abbey isa @5.35%
£3000 Abbey isi (in 16 year old sons name ) @ 5.35%
£3000 Abbey e-save (in 11 year olds name with R85) @ 5.1%

I use Abbey so I can tranfer between accounts.

I am getting another £8000 on 0% CC, where should I put it?

I thought of £3000 into isa for my 11 year old?
Could I get in trouble with the tax man?

Please advise

cloud_dog

Firstly, I think you are probably already in trouble with the tax man (if / when you have to complete a Self Assessment) as the two £3k's in your childrens names (assuming the money came from you) already exceed the £100 interest limit for parent deposited money in a childs account. Of course if this money came from a grandparent (for example) then this would not apply.

Secondly your children are too young to open an ISA account.

cloud_dog

simonleblank

I did not get a self assesment tax form this year. My 16 year old has opened an Abbey isa. Money has only been in kids accounts for 2 months. Should I withdraw it when it hits £100 interest? Does the isa also need to be £100 max interest as well?

sneekymum

...getting another £8,000 ...

- I'd put it in a Property Fund or Bond Fund and watch it grow safely tax free (except for capital gains tax on withrdrawals for which you've got an £8,200 annual allowance anyway).

deemy2004

yeh the tax rules are you can only earn £100 interest per child per parent... above that and its all taxable at the parents marginal rate ... which in your case is 40%

Since your a 40% tax payer why not look at tax free accounts such as National Savings index linked certs or premium bonds

cloud_dog

simonleblank wrote:

I did not get a self assesment tax form this year. My 16 year old has opened an Abbey isa. Money has only been in kids accounts for 2 months. Should I withdraw it when it hits £100 interest? Does the isa also need to be £100 max interest as well?

Apologies, misread your sons age as 6 not 16. ISA's are tax exempt, although I'm not sure of the tax standpoint regarding parents usings a childs ISA allowance. As there is no income tax liability I assume it is ok except there might be inheritance tax considerations should you die - although I would hope this is not likely ;-)

I assume you do not have a partner of they work and use up their allowances?? As this money may be required to repay debt I would avoid investing it just in case you need to repay the debt.

I know I've still not answered your original question but if you look on this board you will see some good offers from an Indian bank ICCI 5.4% (I think) and I think the Derbyshire BS has a monthly saver account but you can open two in each persons name (I think, again please read the other threads).

cloud_dog

simonleblank

Whats property/bond fund please?

sneekymum

Funny - we were just discussing Property Funds - HERE

Bond Funds are like Equity Funds.

Whereas equity funds are a just a pile of shares managed (bought and sold on your behalf) by an investment company, bond funds are just a pile of bonds - but are not subject to the wind of the Stockmarket (because they're traded on the Bondmarket).

Mother's doing rather well on a couple of Equity funds - see post 28 HERE

cheerfulcat

sneekymum wrote:

...getting another £8,000 ...

- I'd put it in a Property Fund or Bond Fund and watch it grow safely tax free (except for capital gains tax on withrdrawals for which you've got an £8,200 annual allowance anyway).

Unfortunately there is no such thing as a free lunch! Neither property nor bond funds are entirely free from volatility and they are by no means as safe as a deposit account.

Simonleblank; what about premium bonds? Tax free winnings...I know that there is a constant debate about PBs and their usefulness or otherwise but since this is in effect someone else's money, may be worth a gamble?

Cheerfulcat

EdInvestor

Unfortunately there is no such thing as a free lunch! Neither property nor bond funds are entirely free from volatility and they are by no means as safe as a deposit account.

Indeed so. Property funds have been remarkable stable for quite some time, but may now be entering a period of more volatility, due to the rapidly increasing demand for the asset class: last year returns were 15+% and that can't last.

Personally it doesn't seem to me that the returns from bonds are sufficently in excess of cash to be worth the risk,especially since you are virtually forced into buying them in funds rather than directly, thus incurring additional charges. Even the experts seem to be getting quite puzzled about the behaviour of the bond market these days. The equity market is much easier to understand IMHO and the returns are usually considerably better.Interested to hear any other views about bonds though.

sneekymum

Editor wrote:

Personally it doesn't seem to me that the returns from bonds are sufficently in excess of cash to be worth the risk,especially since you are virtually forced into buying them in funds rather than directly, thus incurring additional charges. Even the experts seem to be getting quite puzzled about the behaviour of the bond market these days. The equity market is much easier to understand IMHO and the returns are usually considerably better.Interested to hear any other views about bonds though.

In tax terms its better to keep money in accumulating funds which produce no income and are subject only to CGT on withdrawals - than pay 40% tax on income. Perhaps I should have been more specific - I assume everyone think in terms of Acc funds. - Bond Funds (Acc) have their place as an asset class and volitility is very low.

In Mother's case we have suceeded in pulling her income someway below the higher tax threshold (through a pension contribution) but she has taxable Capital Gains (from property sales). So even income as interest which fits below that threshold too, and is taxed at 20%, pushes her gains higher up the 40% bracket. With the help of Bond Funds (she already has 30% in equities, & lots of other asset classes) she can pay 20% and not 40% tax on some of that gain.