Confused

lofty_2

Hello all,

I am slightly confused as to what is the best deal. I have just over 2k to invest. What is my best option for optimal interest? I dont need to touch the money long term so would be happy for an account that I cant touch for 5 or even 10 years. I currently have a mini stocks and shares isa but not sure how safe that is with the current financial situation. Any advice would be appreciated.

Thanks

Matthew

p.s. I can invest a further bit every month if that improves the rate avaliable...

tradetime

Depending on when you last paid into your S&S ISA and how much of your ISA allowance you used, then a cash ISA would be one of the best options, other than that there are a few fixed rate savings accounts around offering between mid 6% - 7%.

johng_uk

It all depends on various factors:

How much access to the cash do you require?

Are you likely to need the cash anytime soon?

What rate of tax do you pay?

I would assume with the amount that your talking about you are not close to retirement and pay tax - Possibly in the 20% bracket?

If this is the case and you can afford to lose access to the cash for a year, I would invest it in a cash ISA as you will pay no tax and can get a decent rate of return.

If you provide more details, the experts around these forums (not me!) will be able to point you in the right direction.

martinman3

You really should consider some kind of Index Linked savings as a protection against inflation.

If you haven't subscribed to cash ISA this tax year.

The Leeds Buiding Society has the Inflation Buster ISA which pays RPI+2.0% tax-free for 2 years. http://www.leedsbuildingsociety.co.uk/savings/inflation_buster_isa.html

If you have subscribed ..
either

NS&I Index Linked Savings certs pay RPI+0.25%/0.35% tax-free based on 3yr/5yr term.

or the Leeds BS Inflation Buster Bond pays RPI+2.0% taxable for 2 years http://www.leedsbuildingsociety.co.uk/savings/inflation_buster_bond.html
(note the whole RPI+2.0% is taxable)

You must hurry for the Leeds BS products though, they will close on 31st May 2008.

tradetime

You would also have to subtract 20% (basic rate tax) off the RPI component of the infaltion buster bond would you not?

martinman3

tradetime wrote: »

You would also have to subtract 20% (basic rate tax) off the RPI component of the infaltion buster bond would you not?

Yes, you are correct, I have changed it.:o

The 16th/43rd Issue NS&I product is definitely better for higher rate tax-payers but may or may not be better than Inflation Buster Bond issue 7 for basic rate tax-payers depending on RPI.
(For basic rate payer, the NS&I 3yr is better if RPI > 6.75%, the NS&I 5yr is better if RPI > 6.25%.)
(For higher rate payer, the NS&I 3yr is better if RPI > 2.375%, the NS&I 5yr is better if RPI > 2.125% , which is always !)

Leeds BS bond product is better for non-tax-payers especially children as it can be held in trust by an adult and paid tax-free after filling in the R85.

The bond also has a £1,000,000 investment limit (£2,000,000 for joint accounts). (If you are brave enough to invest that much in one institution!)

NS&I really should increase the investment limit on Index Linked certs.

tradetime

Damn, I was actually hoping I had missed something, since I have one of the Leeds Bonds from the issue prior to this one, they seem to bring one out quite regularly, they just tweak the rate slightly.

martinman3

After you do the calculations you realise that it is the fact that the RPI element of the NS&I cert is not being taxed which probably makes it a better option than the Leeds BS bond if you are a tax-payer.

However, for non-tax-payers it is the other way around. I am really surprised that Leeds BS haven't advertised the bond specifically as a child's account for this reason.

And the Leeds BS ISA is a no-brainer if you haven't subscribed and don't need access for 2 years.

wriggly

martinman3 wrote: »

NS&I Index Linked Savings certs pay RPI+0.25%/0.35% tax-free based on 3yr/5yr term.

How quickly things change! New issues already - now RPI+0.7% for 3 or 5 years.

martinman3

The new calculations comparing 17th/44th Issue NS&I Index Linked certs and Leeds BS Inflation Buster Bond issue 7 are
(For basic rate payer, the NS&I 3yr/5yr is better than Leeds BS Bond if RPI > 4.5%)
(For higher rate payer, the NS&I 3yr/5yr is better than Leeds BS Bond if RPI > 1.25% !)

I would say that it makes the NS&I Index Linked certs better for all tax payers now as RPI is currently at 4.2%.

I wonder what Leeds BS will do after 31st May ?