Newbie question: 5 year saving

EmmaRW0811 · 14 June 2018 at 8:20PM

After renting for 11 years, my husband and I have just bought the flat we live in from our landlord (hooray).

We’ve not been very sensible with money up until now - in the sense that savings have sat in cash ISAs earning little interest. I’d like the do better now.

After the sale we’ll have about £10k as a safety net savings we’re leaving (£5k each) in our two cash ISAs (we haven’t added to cash ISAs this financial year.

As part of the sales pack we’ve learnt that the housing partnership that runs the flatblock intends to replace the windows of all flats in 2023/24 and we will be liable for 4% of the cost. We reckon we’ll need about £12k then and we have to start saving now for that.

This probably means regularly saving £80 a month each (£160 together) into some form of savings account and/or investment.

I’ve been looking at this webpage and I wonder about a regular saver - but I assume as that’s just one year we’d have to do something else with it then (move into a bond?). Or should we invest? But we don’t have a lump sum at this point (it’s all gone on the house deposit), and if we’re adding, I’m guessing investment is too risky?

I’d welcome some advice - I’ve never thought beyond the cash ISA before, so I’m interested in what options there are.

Thanks. Emma

kidmugsy · 14 June 2018 at 8:46PM

I'd guess that 23/24 is a bit too near for you to risk investing rather than saving. So the regular savers are the thing. To get the 5% ones means opening the right current accounts (M&S, 1stDirect, Nationwide, Santander). As you say after a year of saving you will have to find a home for the lump sum. I saw this week that a 95 day notice account was paying 1.67%, which is distinctly better than any instant access ISA. As long as your interest on savings each is less than £1,000 p.a. you'll have no tax to pay on the interest anyway, so there's no need to add it to an ISA. Another possibility would be to pop it into a fixed rate account maturing before the window bills arrive.

UPDATE: if you don't have a Santander current account do consider their 123 account and the 123 Lite account. Both give you cash back on your utility bills, Council Tax bills etc once you've moved your direct debits there. You could also use the 123 account as an alternative home for your emergency cash, unless you'd be happier keeping it in a separate account.

Terry_Towelling · 14 June 2018 at 9:32PM

You don't say what your ISA's are paying but I'm guessing there are probably many more easy access accounts paying better rates (e.g. Paragon). You can also use something like a Virgin Regular Saver (2.25%pa) as if it were a standard easy access account as long as you don't put in more than £250 per month you can draw out what you like when you like. Virgin brings out a new regular saver issue every couple of months, so you can run several at once (if you have the cash).

You might also consider something like Nationwide's FlexDirect current account. You need to pay in £1K per month but you get 5% interest on balances up to £2.5K - you could have 1 each, get your salaries paid in to them and, if that's not enough to meet the £1K pay-in, transfer your salaries between each other to 'up' the amount. That rate only lasts for a year but you don't need any DDrs to get it. You'd also get access to a 5% regular saver with Nationwide.

There are many more good regular savers and quite a few high interest current accounts but most require DDrs and a certain level of monthly pay-in ranging from £500 upwards.

Perhaps the 'Banking and Saving' tab at the top of this page might give you more ideas. You may be right to steer clear of investments at this stage because it sounds like you need the certainty of a cash amount. Mind you £12K for windows sounds a bit steep - you're not living in a greenhouse are you?:) How sure are you of the amount? (not that it's any of my business).

Just to be a bit radical and throw a suggestion out for pillorying by the IFAs who may be reading (please don't blast me for what follows, it is just a bit of 'off the wall' thinking), I wonder whether you could overpay your mortgage by £180 per month, shorten its term by whatever amount as a result and then renegotiate it in 2023 and include the £12K window cost then. In theory might that put you back near to the original term/payments? You'd need to be sure of finding a mortgage provider who'd do it and you'd not have access to the cash whilst overpaying but I wonder if it would be an efficient way of doing it. Might you save enough in mortgage interest whilst overpaying than you'd get from saving? Another downside is you'd need to be sure of making the extra £180 payment each month and predicting interest rates in 2023 is not going to be easy. I will now lie low and await the blast of criticism for my suggestion.

I suspect you will get quite a few good suggestions from other contributors - reading glasses on!

kidmugsy · 14 June 2018 at 9:59PM

@Terry, I suspect that messing about with mortgages at present low interest rates would be hard pressed to compete with 5% on savings accounts.

EmmaRW0811 · 14 June 2018 at 10:23PM

@Terry Towelling What does a "DDrs" mean? (do you mean we'd have to/not have to set up an account and have it direct debiting, i.e. close our existing current accounts and move across?)

@Everyone: Thank you very much for the comments above. I'm starting a bit of research on this, so these are all helpful suggestions, including things I haven't thought of.

The window cost is an interesting guess, so if anyone has better information on cost, that would be interesting too. Here's our thinking: Each flat is like a maisonnette - we have a property with a living room and kitchen downstairs and two bedrooms and bathroom upstairs. We have a back door onto the communal garden. Then there is another one of those on top of us. In total there are 40 flats, approx. 30 of which are 2 bed, and 10 are 3 bed. It's run by a housing partnership and only about 1/4 of the flats are privately owned. Now, for some reason we don't understand, we are liable for 4.13% of the cost of any major repairs (which is about 1/24 rather than 1/40) - when we've totally completed (we've exchanged, completion is the end of the month) we're going to see whether we can discuss this with the housing partnership.

Our thought was that each flat (maisonnette) would cost around £7k for full new windows - I think we searched online for rough costs for a 2-bed house for that. Multiply that by 40 and divide by 24 and round up is £12k. Of course if we don't need quite that much, then any left over money will be able to be invested elsewhere :-) It would be better to save slightly too much than slightly too little.

Of course we could ask the housing partnership whether they have started to budget for that cost and what they are imagining it might be ... but my guess is that they won't answer that.

firestone · 15 June 2018 at 8:58AM

just a side note to your question - i was once on the residents management committee on a privately run estate and we had our monthly fee for running for cleaners,gardeners & running repairs etc.At one point someone wanted new windows and forced us in to getting legal work done to confirm the lease agreed that you had to pay for your own if you wanted them.It was mentioned that normally on landlord or new build type sites there is a payment fund for major works,decorating etc which you all pay into as why should who ever lives in the property at the time of work pay for what others have benefited from by living there before or after
While i have no knowledge of housing partnership have you bought 100% ownership if so does that not change your rights and do the people renting(or part renting) still pay and what does the owner of the block pay?I do think you should double check with your solicitor what other bills you could be liable for as imagine you are trying to move and there is another big bill such as the roof coming due it may then make it harder to get a buyer.
Also with regards the windows who picks the company & how many quotes to you get as its not unknown for the workmen to be a part of the management company or a "friendly deal" in place for setting it up which could be higher then your budgeting for.Also what happens if flats are empty or others refuse to pay?

kidmugsy · 15 June 2018 at 12:46PM

EmmaRW0811 wrote: »

What does a "DDrs" mean? (do you mean we'd have to/not have to set up an account and have it direct debiting, i.e. close our existing current accounts and move across?)

Often you need a minimum number of Direct Debits going out of your account each month if you are to qualify for a good deal - for example the Tesco current account that pays 3% p.a. on up to £3k needs 3 DDs.

However the excellent FlexDirect account at Nationwide doesn't demand DDs and pays 5% on up to £2,500.

In all these accounts there is typically a minimum sum to be deposited every month e.g. the FlexDirect needs £1,000 per month entering from non-Nationwide accounts. Of course people then set up Standing Orders to flash money back and forward between accounts to satisfy the rules.

The business of switching accounts is somewhat different - you do that to get the switch incentive i.e. a cashback or, in the case of M&S, a voucher-back. For each of these deals you need to check the T&Cs carefully - for example the M&S account will count a DD as "active" if its been activated in the preceding 13 months - so quarterly or annual DDs in your old account are fine if you do a switch. In general there is no need to do a switch but the money is attractive if you can bear the faffing about of reading and abiding by the T&Cs.

Another possibility is to open a current account each at TSB plus a joint current account. They pay 5% p.a. on up to £1,500 per account. On the other hand it is TSB, with customers still groaning under the burden of its calamitous software "upgrade".

LAST THOUGHT: have you considered 0% credit cards?

Terry_Towelling · 15 June 2018 at 1:33PM

EmmaRW0811 wrote: »

What does a "DDrs" mean? (do you mean we'd have to/not have to set up an account and have it direct debiting, i.e. close our existing current accounts and move across?)

Apologies - shouldn't use jargon - I think Kidmugsy has covered this in his post but 'DDr's are Direct Debits.

To get the 5% interest rate (on balances up to £2.5K) on the Nationwide FlexDirect account, you don't need to have any DDrs coming out of it and you don't need to switch any of your other banking to it, you just approach Nationwide (in Branch or Online) and apply for the account. You do need to pay in £1000 per month to get the 5% interest. So, because you have £5k each in ISAs you could both open FlexDirect accounts, take £2.5K from each of your ISAs and put that into each of your FlexDirect accounts.

If the £1K pay-in is likely to be a problem simply set up a standing order from one of your FlexDirect accounts to pay £1K into the other and do the same with the other account. You can set the Standing orders up to occur on the same day as each other and the balance in the accounts will never drop below £2.5K.

If you also set up a nationwide regular saver each you can transfer the (approx.) 2 x £10 per month interest from the FlexDirect accounts into them and also start to put your 2 x £90 (£180 total) in each month. This way, you have increased your planned £180 monthly saving into £200 (+ another 5% interest on the increasing regular saver balance).

Remember, the FlexDirect 5% offer only lasts for 12 months - as does the regular saver - so be prepared to do something else with a different provider next year.

mije1983 · 15 June 2018 at 1:49PM

Terry_Towelling wrote: »

If the £1K pay-in is likely to be a problem simply set up a standing order from one of your FlexDirect accounts to pay £1K into the other and do the same with the other account. You can set the Standing orders up to occur on the same day as each other and the balance in the accounts will never drop below £2.5K.

Just to point out OP, you CAN'T do this. The £1k pay in requirement excludes other Nationwide accounts. So you'd need to move £1k from another providers account. But you can then move it straight back out again.

Terry_Towelling · 15 June 2018 at 4:49PM

mije1983 wrote: »

Just to point out OP, you CAN'T do this. The £1k pay in requirement excludes other Nationwide accounts. So you'd need to move £1k from another providers account. But you can then move it straight back out again.

Apologies, only read the bit that said it can't come from another Nationwide account in your name and missed the bit that said 'or anyone else's name'.

NB that's a bit strange; why did they specify 'Nationwide account held in your name or anyone else's name'? Why not just say it can't come from any other Nationwide account? Has that aspect of the account changed recently?

Anyway, how you handle the £1K pay-in aspect of the account is open to you but, ideally what you really want is to get the process as automated as possible with standing orders rather than having to do manual payments each month.

If your salaries are enough you could have them paid in. You could even do 10 transfers in and out using the same £100 over the course of the month or put another £1K of your ISA fund into an easy access saver and transfer this in and out. There are many solutions, you just need to avoid one that is too 'labour-intensive' or one that causes you to lose interest money elsewhere.

mije1983 · 15 June 2018 at 4:57PM

Terry_Towelling wrote: »

NB that's a bit strange; why did they specify 'Nationwide account held in your name or anyone else's name'? Why not just say it can't come from any other Nationwide account? Has that aspect of the account changed recently?

Probably just to remove any element of doubt and prevent people trying to argue that 'any other Nationwide account' may only refer to ones in their name.

Don't think it's a recent change though.

Newbie question: 5 year saving

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