Savings Question - Tie your money up or stay flexible?

[Deleted User]

I know from reading this forum that many of you are following the advice re savings in the article on the main website. I.e. Cash ISA's then Regular Savers then high interest instant access accounts.

I'm just about ready to take the plunge with that but then someone on another thread has raised another option:

From EdInvestor:

I recommend NS&I index linked certificates, which will at least protect you against inflation, unlike most other cash investments.

..and in answer to my question as to whether this would beat the current best savings account at 6.5% gross..

From jem16

Just and no more.

Current RPI is 4.3%. Current issue of NS&I certificates is RPI plus 1% so 5.3%. That is equivalent to 6.625% for a basic rate taxpayer. To get this rate you have to tie your money up for at least a year and probably 3 years to get the full value.

It clearly pays to take advantage of the cash ISA's and Regular Investors.

But assuming they are right, the question is whether to go with the nice, low mainteance NS&I in which I bung in my money and forget about it for 3 years. Or keep the money in the instant access account (which currently is earning about as much as the NS&I certificates) with a view to taking advantage of any too-good-to-miss investments that might come along in the next few years.

My inclination is to avoid tying my money up, but I'd be interested to hear other peoples thoughts on this. What do you see as the pros and cons of each approach? (Obviously I'm working on the assumption that we're talking about money we don't need in the near future).

jem16

Deleted_User wrote: »

But assuming they are right, the question is whether to go with the nice, low mainteance NS&I in which I bung in my money and forget about it for 3 years. Or keep the money in the instant access account (which currently is earning about as much as the NS&I certificates) with a view to taking advantage of any too-good-to-miss investments that might come along in the next few years.

NS&I certificates are good for higher rate taxpayers. Not really that good for basic rate and non taxpayers.

[Deleted User]

1. As you're already aware, in general, ISA's are a good place to start:

http://www.moneysavingexpert.com/sav...gs-without-tax
and http://forums.moneysavingexpert.com/....html?t=401374

2. Again as you're already aware regular savings accounts are good too:

http://www.moneysavingexpert.com/savings/best-regular-savings-accounts
and http://forums.moneysavingexpert.com/....html?t=608697

Regular savings accounts are generally a good place for new money e.g. monthly pay cheques, however if for example you have £3k in a 6% high-interest bank account drip-feeding into a 10% regular savings account then you're essentially getting 8% interest on average for your £3k which beats most fixed rate products - albeit with a bit more work.

3. If you want something with a little less work then fixed rate savings accounts are a good option:

http://www.moneysavingexpert.com/sav...interest#fixed
and http://www.thisismoney.co.uk/saving-...&in_page_id=50

4. One other thing you might like to consider is getting a decent instant access savings account:

http://www.moneysavingexpert.com/savings/savings-accounts-best-interest#topaccounts
and http://www.thisismoney.co.uk/saving-...&in_page_id=50

5. This is a decent thread discussing the pro's and con's of NS&I Index Linked Certificates:

http://forums.moneysavingexpert.com/showthread.html?t=966021&highlight=nsi

Here's a quote from Martin:

http://www.moneysavingexpert.com/savings/savings-accounts-best-interest

Inflation Beating Guarantee:

The rate at which prices increase is called inflation. NS&I, the government backed savings organisation, has 3 and 5 year Index Linked Savings offering to pay 1% more than inflation. It uses the higher measure, Retail Prices Index (RPI) inflation, at 4.3%, meaning it pays 5.3% overall.

The big bonus is that these savings are totally tax-free, meaning it could be a winner for higher-rate taxpayers. Anyone on basic rate tax would have to be earning 6.62% in a normal savings account to match this, while higher rate taxpayers would need a huge 8.83% to beat it.

However, the cash must be left there for at least three years, and at least £100 must be deposited (maximum is £15,000), so it's not for those who want a short term place to save. And if inflation drops, its relative performance could drop too. Yet as it's guaranteed to be higher than inflation and tax free, at least you know your money will always grow quicker than prices will rise.

[Deleted User]

Thanks David,

That little thread on NS&I pretty much addresses what I'm asking!!

So NS&I aside, any thoughts on the pros and cons of fixed rate savings vs instant access ? Obviously if you've got a big enough pot of money, it's worth putting some in fixed rate accounts (After cash ISA's, high interest current accounts and regular savers) if they offer a better return, but I'm thinking how much to keep back in a high paying instant access account so that I'm in a position to take advantage of anything better that might come along in the near future?

To those that have been shuffling their money around in this way for a while now....

What FEELS worse:

a) Tying your money up in a fixed rate bond and interest rates go sky high.
b) Deciding against a fixed rate bond and interest rates plummet

My guess is that the former would be hardest to take

[Deleted User]

Deleted_User wrote: »

Thanks David,

That little thread on NS&I pretty much addresses what I'm asking!!

So NS&I aside, any thoughts on the pros and cons of fixed rate savings vs instant access ?

Well the answer lies in their names... If interest rates go down and you've got a tasty looking fixed rate savings account then your quids in. If interest rates go sky high then a variable rate instant access account has always got the chance of increasing too leaving the fixed rate account languishing.

Deleted_User wrote: »

Obviously if you've got a big enough pot of money, it's worth putting some in fixed rate accounts (After cash ISA's, high interest current accounts and regular savers) if they offer a better return

I'd say the order you should go for is as detailed above in my post:

1. Cash ISA
2. Regular savings accounts drip feeding from a high interest bank account
3. Fixed rate savings accounts
4. Instant access savings account
5. NS&I Index Linked Certificates especially for higher rate taxpayers.

Deleted_User wrote: »

but I'm thinking how much to keep back in a high paying instant access account so that I'm in a position to take advantage of anything better that might come along in the near future?

I'd consider "laddering" some of your savings in fixed rate savings accounts e.g. if say you had £100k put 20k (anything less than 35k) in a 6 month bond, 20k in a 12 month bond and then another 20k in a 2 year bond. This way your savings are safe and convered by the FSA and you've got available money to take advantage of new savings vechiles.

Deleted_User wrote: »

To those that have been shuffling their money around in this way for a while now....

What FEELS worse:

a) Tying your money up in a fixed rate bond and interest rates go sky high.
b) Deciding against a fixed rate bond and interest rates plummet

My guess is that the former would be hardest to take

I'll leave this for someone with first hand experience of this...