£7500 to invest, advice welcome

Options
Alf_Garnet_2
Alf_Garnet_2 Posts: 2 Newbie
in Savings & investments
Hi,

I have £7500+ in my current account plus £1500 overdraft(0% interest on repayment). Firstly i'm a newcomer to investing and wanted to know if theres any problem in investing your overdraft?

If not, that leaves me with £9000. I am tempted to go the premium bond route, with £6,000/£7,000 in bonds and £2,000/£3000 in an ISA. I know my other option is an onlive saving account, but i dont know whether to go for a solid 5%+ saving account, or possible high winnings on premium bonds.

Any advice is welcome,
Thanks.
«1

Comments

  • grumbler
    grumbler Posts: 58,629 Forumite
    Name Dropper First Post Photogenic First Anniversary
    Options
    Combine any 5% instant access account with Halifax 7% regular saving account and you will get more than 6% on £3000. If you have children you can get even higher rates and on bigger amount.
    The next £3000 - cash ISA.
    So you have only maximum £1500 left to settle.
  • arrowsmith
    arrowsmith Posts: 197 Forumite
    Options
    I think perhaps you should have a good mixture, make sure your £1500 is in instant access just in case your free overdraft has to end quickly.

    I would start up an ISA for £3000,
    £3000 in premium bonds (if you feel lucky),
    savings account for the other 3000.

    To maximise the interest you could start a regular saver with some like principality.co.uk and put in £1500, leaving you £1500 in your savings account.
  • DavidLaGuardia
    DavidLaGuardia Posts: 603 Forumite
    Options
    Your question is akin to "how long is a piece of string?" How long and what type of risk do you wish to take?

    Make sure that at least 3 months expenditure is in readily accessible things. A cash ISA normally fits this bill up to £3,000. Premium Bonds have a short notice period, but have a very low overall return unless you are lucky, but at least you keep your capital.

    If you want to take some risk, one of the the most attractive forms of investment this year is VCT funds (Venture Capital Trust) While individually these are high risk, to reduce it select a fund that invests accross manty smaller companies (unquoted is more risky but there are funds with all in the AIM (the stock market below the FTSE) and they can hold up to 30% iin cash or FTSE shares to further buffer the risk. The reason these are so good this tax year is that you can claim 40% tac even if you are a basic rate tax payer! £1,000 invested costs just £600 (note you can only claim back tax you have actually paid in the tax year ergo you would have to have paid £2,000 in taxes if you want to get the full benefit of, for example a £5,000 investment which costs ust £3,000 after the rebate. I think the lowest minimum is £1,000. You have to keep the investment for three years or the tax rebate is repayable, but it is better to keep this type of investment longer anyway. These can have excellent returns, but you also take a risk on the success of the investment. However, the fund would have to fall 40% for you to actually lose becasue of the tax relief.
  • cheerfulcat
    cheerfulcat Posts: 3,341 Forumite
    Name Dropper Combo Breaker First Post First Anniversary
    Options
    May I just sound a note of caution? *Investing* with borrowed money is a very bad idea, especially for an inexperienced investor. Using borrowed money to gain interest in a savings account is OK. The premium bond idea is a goer as well.


    VCTs are highly illiquid ( hard to trade ) and extremely risky investments. They should only even be considered by very experienced investors who already have a well diversified portfolio.

    Cheerfulcat
  • SpongeBobSP
    SpongeBobSP Posts: 75 Forumite
    Options
    I agree with cheerfulcat. Never invest borrowed money. You should only think of investing money that you can spare, and possibly risk losing (esp. on equities).
    [interpreneur]
  • DavidLaGuardia
    DavidLaGuardia Posts: 603 Forumite
    Options
    cheerfulcat wrote:
    May I just sound a note of caution? *Investing* with borrowed money is a very bad idea, especially for an inexperienced investor. Using borrowed money to gain interest in a savings account is OK. The premium bond idea is a goer as well.


    VCTs are highly illiquid ( hard to trade ) and extremely risky investments. They should only even be considered by very experienced investors who already have a well diversified portfolio.

    Cheerfulcat

    I agree with nearly all of this -although many diversely invested VCTs that have evloved as a result of the tax incetnives are not necessarily more volatile than more often used smaller company OEICs and many often used overseas funds with exchange rate movemnts etc.
    The point is the question posed was "what is the best place to invest £x amount of money?" with little elaboration on what was actually being sought such as term, purpose, risk etc hence rendering it meaningless without many ideas being explored. The original questioner may decide they can afford to risk £1,000 out of the total into a VCT or a less risky equity fund (the rest being in cash) or maybe they won't, but they should at least have as many options as possible in order to make an informed deicision.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    Options
    Hello David

    It seems quite obvious to me that the OP is a) inexperienced and b)only interested in savings, not investments, because he effectively says so in his first post.

    Many people confuse savings and investments.THe two words are not interchangeable. To clarify, "saving" means taking no risk with the capital."Investing" means there is a risk of losing your capital.

    Clearly VCTs fall in the latter category and thus won't be suitable for the OP.
    Trying to keep it simple...;)
  • Alf_Garnet_2
    Alf_Garnet_2 Posts: 2 Newbie
    Options
    Hi,

    Yes sorry for the misunderstanding, i am only interested in saving for the time being. Do people still think its risky to use borrowed money for a savings account (including premium bonds), perhaps theres some factor i havent considered?

    To elaborate some more on my situation, i have no debts, i dont pay taxes and have no urgent need for the money. Does anyone know the odds of premium bonds and how much you can expect to win with say a whole £9000?

    Thanks.
  • grumbler
    grumbler Posts: 58,629 Forumite
    Name Dropper First Post Photogenic First Anniversary
    Options
    Alf_Garnet wrote:
    Do people still think its risky to use borrowed money for a savings account (including premium bonds), perhaps theres some factor i havent considered?
    I don't remember somebody saying that savings are risky :confused:
    i dont pay taxes
    if you don't have any plans to become a taxpayer in future there is no point for you to have ISAs.
    Does anyone know the odds of premium bonds and how much you can expect to win with say a whole £9000?
    The odds are 3.25% at the moment. For £9000 this makes £292.5 p.a., but this is gamble. 3.25% could be good for a taxpayer because this is tax-free. IMO this is too low for non-taxpayer.
    I think for you it is better to use instant access savings and regular savings. See links in the blew box above and a link to all articles in the green bar above.
  • R_._Tatac
    R_._Tatac Posts: 22 Forumite
    Options
    EdInvestor wrote:
    Hello David

    To clarify, "saving" means taking no risk with the capital."Investing" means there is a risk of losing your capital.

    That's what I always thought but on http://www.nsandi.com/ where there is NO RISK TO CAPITAL when you buy online you have to click on the "Invest Now" button !

    If the government cant get it right then what chance has a novice

    RT
This discussion has been closed.
★ ★ ★ Meet your Ambassadors

Categories

  • All Categories
  • 343.7K Banking & Borrowing
  • 250.2K Reduce Debt & Boost Income
  • 450K Spending & Discounts
  • 235.9K Work, Benefits & Business
  • 608.9K Mortgages, Homes & Bills
  • 173.3K Life & Family
  • 248.4K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.9K Discuss & Feedback
  • 15.1K Coronavirus Support Boards