Ns&i

phoebe03cat

Went on the website following NS&I thread as looking for somewhere to stash cash for my 14 year old. At present a couple of thousand sitting in Nationwide. Granny has left her a few thousand more so we want to put them for uni in about 4 years. Confused though by the website as it would appear that there are two types of index linked units available. Please could someone be kind enough to explain the differences and how these work for me. Am I on the right lines considering these for her? Thanks if you can spare the time...

Liz_the_Whizz

hi phoebe03cat,

Do you mean whether to choose 3 or 5 years for the index-linked certifcates?

The rate of RPI + 1.35% is the same for both.

If your daughter is 14 now, presumably you will want access to at least some of the money when she starts uni at around 18 (ie 4 years)?

So one possible approach would be to put money in the 3 year index-linked certificate now, then look at alternatives when it matures.

You may want something a bit more flexible by then depending on what aspect of university life the money is going to be spent on.

phoebe03cat

Thanks for that.

martinman3

Liz_the_Whizz wrote: »

hi phoebe03cat,

Do you mean whether to choose 3 or 5 years for the index-linked certifcates?

The rate of RPI + 1.35% is the same for both.

If your daughter is 14 now, presumably you will want access to at least some of the money when she starts uni at around 18 (ie 4 years)?

So one possible approach would be to put money in the 3 year index-linked certificate now, then look at alternatives when it matures.

You may want something a bit more flexible by then depending on what aspect of university life the money is going to be spent on.

You can cash in certificates in whole or in part if you need the money but as the extra interest paid on top of RPI grows each year, you lose a bit of interest the earlier you do it.
You can also buy both 3 year and 5 year if you will need some of the money in 3 years but leaving the rest for 5 years.

isofa

As she isn't a tax payer (unlikely) and certainly not a high-rate tax payer, you may well be better off putting the money away in fixed rate bonds (essentially an account with a guaranteed fixed rate interest rate) for x amount of years, with some in instant access high rate funds - which may well offer a better rate of interest for a non-tax payer.

The Index Linked Saving Certificates make more sense for tax-payers, and a no-brainer for high-rate tax payers.

Very good discussion on this here: http://forums.moneysavingexpert.com/showthread.html?t=528781

Jonbvn

Since your daughter is not a tax-payer, then she may be able to get a better return with a instant access savings account - ensuring you complete a form R85 to get your interest gross.

The only drawback I could see doing this is your daughter may have access to the money.

isofa

Completely agree with Jonbvn.

Also a fix rate bond with a set term, will keep her from dipping into the money too.

PS by "high rate funds", in my post above, I meant high rate accounts, such as Icesave, ICICI or all manner of other high rate instant access accounts.

MrMicawber_2

You should be able to open an account with you as a signatory and her as the beneficial owner. I.e. it would need your signature as well as hers to get money out, but the account is in her name for interest and tax purposes.

JoviAli

isofa wrote: »

As she isn't a tax payer (unlikely) and certainly not a high-rate tax payer, you may well be better off putting the money away in fixed rate bonds (essentially an account with a guaranteed fixed rate interest rate) for x amount of years, with some in instant access high rate funds - which may well offer a better rate of interest for a non-tax payer.

The Index Linked Saving Certificates make more sense for tax-payers, and a no-brainer for high-rate tax payers.

Very good discussion on this here: http://forums.moneysavingexpert.com/showthread.html?t=528781

A no brainer for higher-rate tax payers? Sorry, but what do you mean? (I'm looking into sorting out my finances and have just tipped into the higher-rate tax band....) I know this may take us off topic, so if there is already a thread somewhere that deals with this, I'd be grateful for a point in the right direction.

Thanks

Aegis

JoviAli wrote: »

A no brainer for higher-rate tax payers? Sorry, but what do you mean? (I'm looking into sorting out my finances and have just tipped into the higher-rate tax band....) I know this may take us off topic, so if there is already a thread somewhere that deals with this, I'd be grateful for a point in the right direction.

Thanks

Index-linked savings certificates are tax free and guaranteed to be a certain percentage above RPI, meaning they're likely to generate over 5% tax free in the current environment. As a higher-rate taxpayer, you'd need to be generating interest of around 9% in a normal savings account to top them.

nrsql

Here's one I posted earlier

Currently first year of 3yr index linked returns 5.1% which is the equivalent of 8.5% taxed at 40%.
In the third year it would be 5.66% - equivalent to 9.43% taxed.
Average over the 3 years is 5.35% - equivalent to 8.92% taxed.

This has gone down over the last month (think by .4%) but you would still struggle to beat it with taxed savings.

They are best in the last but curretly good even in the first year. There's no guarantee as to how they will do in future but at the moment are good value.
Be aware that if you cash them in during the first year you will get no interest - after the first year (or for re-invested certs) you would receive the interest accrued at the end of the previous month.