£35k in ICICI 7%, £35k in Kaupthing 6.86%....Nationwide next?

john_kane_2

I have about £100k i want to put into year long bonds. I am going to put in £35k in ICICI (this looks very good based on you still get 5.75% on any withdrawls). Kaupthing appears to be wise, but I havent found what their withdrawl penalties are.

I currently have a current account with Nationwide and they offer 6.4% on 1 year bonds. I can't see anything out there beating that (though a few very similar) so I may go for Nationwide as well. Though again need to check their withdrawl policy.

Anyone else think that come late 08 we'll be seeing sub 5% interest rates and these bonds at the moment are pretty outstanding value?

whu

Would suggest that you have a look at comparison sites which may show up a better rate than the nationwide eg Halifax are doing a 1 year fixed for 6.5% - just a thought - have you used up your ISA allowance for this tax year?

john_kane_2

ah awesome thanks will do.

im using my ISA for equities, I'm putting this money into bonds as it'll be for a house deposit in a couple of years so i dont want to risk it at all but still get a good return.

im using my ISA allowances for equities I don't want to touch for ten+years.

whu

just remembered - I think BM are doing a year fixed for 6.81% so its worth looking around

Megalomaniac

Just a thought... it seems you are being careful with your money just in case the bank goes bust (by you putting £35k into each bank). If the bank was to go bust, you would only be entitled to £35k back, and therefore no interest you would have made. Just thought I'd point this out...

john_kane_2

i just went on a comparison site, BM does indeed do 6.81% but you can only withdraw if you die. not flexible enough for my liking. Kaupthing is 1% interest rate lower withdrawl penalty, ICICI is 5.75%, and Nationwide is 90 days interest lost if term is less than 1 year till completion.

these all look fine to me. basically if the a bank turns sour (i very much doubt this but worth spending an extra hour of my life doing this i reckon) at least i still get my £35k back.

one other thing though, my salary will average around £28k, ill make about another £10k from online work which is taxable income, so that'll take me up to around £38k. minus my £5.5k personal allowance, that gives £33.5k taxable income.

so the money i make on this ill be having to pay higher rate tax on, so ill only be getting 4% or so. sick! edit: just checked on H&M website that it's 40% for above 36k. hopefully at least some of my interest from the bonds will only be taxed at 40%. but this govt really need to realise that earning £36k is no longer a high income when house prices are so high that £36k wont get you a mortgage to buy an okay 1 bedroom flat in london.

i have a real problem about how much tax we have to pay. i hate the fact that im busting a gut day after day and some of that is going straight to some benefits scammer. (rant over!)

thanks again

DocProc

This concept of RISK is quite interesting.

Suppose you didn't put the money into a savings account(s) but bought some FTSE 100 Dividend Paying shares with it.

Eg, Let's say Lloyds TSB Bank plc. As I type they are trading at £4.43 and so your £100k would buy approx. 22,000 of them (£97,460 + buying costs).

The dividend payable is currently an Interim dividend of 11.2p in August with the Final Dividend of 24.7p per share in March.

This tots up to £2,464 (gross) in August and another £5,434 (gross) in March, totalling £7,898 (gross) altogether.

Using £100k as your buying costs gives a gross yield of 7.898%.

And then you might make a bit of a capital gain as well.

So....just one stock - well that's high risk. You could make a capital loss - that's also a high risk scenario.

But it isn't for some people. They will believe that the current price of the stock is quite cheap and the scope for making a gain is quite high. They will also be quite happy to sit on it for a few years too, perhaps riding out any capital loss until the share price comes back, if it happens to go down in the short to medium time frame. Alternatively, they might sell out in a few years time at a profit and have the dividend and the capital gain as well.

So, it's all about the individual concerned's concept of acceptable risk.

Spreading your £100k around three banks is low risk. Ignoring the fact that only £35k per bank is protected and, should the protection be actually required, then ignoring the earned interest and sacrificing it in the event of a claim, isn't, well, exactly professional IYSWIM?

Anyway, just a thought. I see a previous poster has raised the 'sacrifice of interest in the event of a claim' already. My contribution is just a different angle on it.

john_kane_2

hi doc,

i see what you mean. but i think the odds of a bank run are incredibly low, it is worth my time spending a couple of hours setting it up so i have bonds in 3 different banks, but the associated risk of loss of interest is neglible. also in terms of utility, losing £65k+interest because i stuck it all in ICICI would be a utility destroyer, but losing £5k in interest i could deal with without a noticeable loss of utility.

john

bye_bye_band_G

I am in a similar situation to you with fixed rate bonds with a few banks. I have deliberately set each up with a max of 32K to make sure initial deposit plus interest owed would not exceed 35K if I needed to claim if one goes under.

benjdr

You'll only want to put 35,000/1.07 in ICICI, etc...wth the others.

liitleblackcat

john_kane wrote: »

but this govt really need to realise that earning £36k is no longer a high income when house prices are so high that £36k wont get you a mortgage to buy an okay 1 bedroom flat in london.

i have a real problem about how much tax we have to pay. i hate the fact that im busting a gut day after day and some of that is going straight to some benefits scammer. (rant over!)

Just a thought about your rant. I suspect that most people in the UK would think that £36k was a pretty good salary for one person. Many people are bringing up families on less. Where should the 40% band kick in and who would pick up the difference? How about more taxes on motorists!