Friendly society tax free savings

honey06

I have one of these policies with Teachers Assurance. I took it out in 1992 for 25years saving £18.50 per month.

I have jsut received the bonus certificate which says the current guaranteed amount at maturity is £9684.65, and when I rang they said to cash this in now I would receive £5407.

Previous threads have suggested friendly societies savings arent the best way to save.:rolleyes:
Should I continue with this policy, or would I be better saving this money elsewhere?

nicko33

I don't know about the tax situation if you cash in early,
but,
if you were to cash it in and put £5407 in a savings account, and add £18.50 monthly, for 9 years
you could get £9687 (after basic rate tax) if the account paid 4.33% (before tax)

honey06

thanks Nick, sounds like cashing in now would be a better option then

jamesd

For ten more years you should be looking to use your stocks and shares ISA allowance. If you were to take the money out now I suggest that you consider using Hargreaves Lansdown and the following mixture:

30% BlackRock UK Absolute Alpha
20% Cru Investment Portfolio
20% Invesco Perpetual Monthly Income Plus
20% Invesco Perpetual Income
10% Neptune Global Equity

The chart shows how the volatilities differ and why so much is in the more stable ones (colors are red, blue, yellow, green, gray in fund order).

This particular mixture is for a year in which there's a fair chance of significant drops in global markets, so most of the money is in funds that will do well regardless of what the markets do. The mixture needs to be reviewed once a year. If you don't want to do that or don't know how then asking here or selecting just the last three choices in an even split would be reasonable.

Fifty Pounds a month is the minimum regular contribution that HL will accept but you could set that up and cancel it after three or four months, using a normal savings account in the meantime. At fifty Pounds the regular money could only go into one fund at HL and I suggest considering the Invesco Perpetual Income fund as the one.

LongTermLurker

jamesd wrote: »

For ten more years you should be looking to use your stocks and shares ISA allowance. If you were to take the money out now I suggest that you consider using Hargreaves Lansdown and the following mixture:

30% BlackRock UK Absolute Alpha
20% Cru Investment Portfolio
20% Invesco Perpetual Monthly Income Plus
20% Invesco Perpetual Income
10% Neptune Global Equity

At fifty Pounds the regular money could only go into one fund at HL and I suggest considering the Invesco Perpetual Income fund as the one.

That sounds dangerously like a recommendation, though it does say "suggest you consider" I suppose.

Milarky

The return over16 years (£5407 as against premiums of £3552) is about 5.4%. As nicko states, the current 'at maturity' valuation implies a future return of about 4.3% but if annual bonuses are paid - at the rate of approx 1.1% this would bring it up to past performance. (what % age were the last few bonuses declared I wonder?)

This investment isn't sinking by the look of it but it has taken on water (you have to take the rough with the 'smoothing' ho-ho) and even a switch to the better paying cash deposits will match past performance - at no risk.

The usual caveats when considering early surrender apply - does your policy include 'valuable' life assurance or other non-investment benefits? Is the money earmarked for some purpose beside general savings? Can you trust yourself?...

(This amount could actually be a candidate for an investment in a stocks and shares ISA - for the next nine years could it not*? Tax free status largely retained and the Chancellor's happy)

*Bear in mind that if future premiums are also stopped when cashing in, the value of the subsequent 'lump' will not keep pace and will only grow to the currently projected value if performance is that much higher [than 4.3%]

ad44downey

The charges on these rip-off plans are scandalous. They're to be avoided at all costs.