Best option for savings

[Cyder]

So we're starting on the long and winding road of trying to save to buy a house and have just over £2k to put into savings to start building to a deposit.

I've been having a look around at ISA's and savings accounts and the current rates of return are pathetic ~ 1.5-2%.

Is there any better option? What kind of returns can you get with a Stocks and Shares ISA? Would we be likely to get more than 1.5-2% with Premium Bond's taking into account the 0% interest but opportunity for monthly prizes?

[NorthDave]

An ISA can take many forms. Maybe have a look at a stocks and shares ISA instead of the traditional savings version?

Obviously the capital can go down as well as up but it may give you more freedom whilst still being tax free.

[bogie]

stocks and shares - depends on what you put your money into ...could get 3,5,7,10,20% or more, if you get choose right...theres always a risk though

premium bonds - pure luck and odds are you might make 3% ...you are buying lottery tickets that you can get your money back on...not as good as they used to be for sure

[BoRED S2upid]

With that kind of "investment" I would stay clear of premium bonds you tend to get more luck with a big block ie 10,20, 30 grand. I know people who win every month without fail with tens of thousands whereas I havent won for years with a grand.

[Tino]

Nationwide Flexdirect account at 5% only up to £2500 and you need to pay in £1000/months(simply pay out into your account and then pay it back in.
http://www.nationwide.co.uk/current_account/defaul...

[DSLiverpool]

My current love in

http://www.moneyobserver.com/portfolio/dogs-footsi...

[uknick]

Lloyds do a similar account to Nationwide but offer 3% on balances between 3k and 5k. Similar conditions, i.e.pay in £1k per month

If you can tie the money up for 2 years, the Buckinghamshire Building Society do a tracker savings account that pays 1.6% above the base rate. So currently paying 2.1%.

Edited by uknick on Monday 8th July 17:46

[walm]

Don't forget that you should pay tax on any interest from a regular savings account which reduces the effective rate somewhat.

RE: the stocks & shares ISA - very high risk. I would only go into that if I wasn't expecting to reach my deposit target for 5 years +. Otherwise the volatility might lead to big disappointments.

[gaz1234]

horses.

[Octoposse]

I keep about £6k in my everyday current account - Lloyds TSB Vantage - which pays 2% on £1-3k and 3% on the rest up to £5k . . . better than my ISAs which are about 2.5% tied in for 12 months.

Otherwise Regular Saver accounts seem to offer decent (by current standards!) interest rates if you can commit to saving every month.

[CRB14]

I'd be tempted to go with a managed fund which you could set up a standing order to pay into monthly. You just have to watch out of the management fees.

With a good share you could earn 5 - 6% dividend. Don't get hung up on the share price though.

I find this website quite good... Www.monevator.com

[Centurion07]

Octoposse said:

I keep about £6k in my everyday current account - Lloyds TSB Vantage - which pays 2% on £1-3k and 3% on the rest up to £5k . . . better than my ISAs which are about 2.5% tied in for 12 months.

Otherwise Regular Saver accounts seem to offer decent (by current standards!) interest rates if you can commit to saving every month.

Santander do 3% up to £20K on their 1-2-3 account. Needs £500 paid in each month and 2 direct debits set up on it though.

[walm]

CRB14 said:

Don't get hung up on the share price though.

What? Until you actually want to buy your house and need the deposit in CASH!!!
Then I suspect you will be VERY "hung up" on the share price!!

[walm]

Octoposse said:

I keep about £6k in my everyday current account - Lloyds TSB Vantage - which pays 2% on £1-3k and 3% on the rest up to £5k . . . better than my ISAs which are about 2.5% tied in for 12 months.

Otherwise Regular Saver accounts seem to offer decent (by current standards!) interest rates if you can commit to saving every month.

Once again YOU HAVE TO PAY TAX.

If you are in the 40% bracket (what am I talking about this is PH and we are all company directors it's obviously 45%!!) then the EFFECTIVE interest rate on 3% in a REGULAR savings account is really 3% * (1-40%) so 1.8% which is obviously WORSE than the tax free 2.5%.

(Obviously you get faster access to the cash with the regular savings account but my point still stands on the LIKE-FOR-LIKE comparison of the rate you ACTUALLY earn...)

[Tino]

walm said:

Once again YOU HAVE TO PAY TAX.

If you are in the 40% bracket (what am I talking about this is PH and we are all company directors it's obviously 45%!!) then the EFFECTIVE interest rate on 3% in a REGULAR savings account is really 3% * (1-40%) so 1.8% which is obviously WORSE than the tax free 2.5%.

(Obviously you get faster access to the cash with the regular savings account but my point still stands on the LIKE-FOR-LIKE comparison of the rate you ACTUALLY earn...)

You are right, and I think even if on the lower bracket would put you under the 2.5%(Who is offering a risk free ISA at 2.5%
So stick £2500 in the 5% nationwide, put a small amount in the 2.5% ISA mentioned above to secure that rate,and as you go along, drip feed into the ISA

[CRB14]

walm said:

What? Until you actually want to buy your house and need the deposit in CASH!!!
Then I suspect you will be VERY "hung up" on the share price!!

The OP doesn't state how long the purchase is but it could be 5 years away. A good solid stock bought for income (at say 5% annual div) obviously needs to be watched.

What i'm getting at is that a good income stock needn't be watched daily compared to a growth stock. Many investors get 'hung up' on this point.

[smckeown]

Your attitude to risk needs to be determined in order to review the options. If I were saving for a deposit i would only consider a savings account or premium bonds. My preference is and has been PB.

[walm]

CRB14 said:

What i'm getting at is that a good income stock needn't be watched daily compared to a growth stock. Many investors get 'hung up' on this point.

Ah fair enough.
I still think you need to be careful though.

You have to remember that some of the super high yielding equities are really signs of problems expected in the future since the price implies that the dividend is not sustainable.

For example check out almost ANY of the incumbent telcos. They seem to yield c.10% on the div which sounds awesome.
Then you check out the KPN chart...
Thenm you check out the France Tel (Orange) chart...
Then you check out the Belgacom chart...

I agree though a "more comfortable" 5% yield isn't necessarily a sign of trouble... and probably needs less maintenance.
Just make sure the divs are well covered and sustainable.

[Tino]

walm said:

Ah fair enough.
I still think you need to be careful though.

You have to remember that some of the super high yielding equities are really signs of problems expected in the future since the price implies that the dividend is not sustainable.

For example check out almost ANY of the incumbent telcos. They seem to yield c.10% on the div which sounds awesome.
Then you check out the KPN chart...
Thenm you check out the France Tel (Orange) chart...
Then you check out the Belgacom chart...

I agree though a "more comfortable" 5% yield isn't necessarily a sign of trouble... and probably needs less maintenance.
Just make sure the divs are well covered and sustainable.

I think you're missing the part that the OP has £2000 to invest. Surely with him having to pay to buy and sell, he risk involved and the complication of having to pay any tax on income it would be sensible to just place it in a savings account and know that money will be there when you need it, plus a bit of interest

[walm]

Tino said:

I think you're missing the part that the OP has £2000 to invest. Surely with him having to pay to buy and sell, he risk involved and the complication of having to pay any tax on income it would be sensible to just place it in a savings account and know that money will be there when you need it, plus a bit of interest

Hey - I'm the one who said stocks and shares were high risk!
Also you make a good point on the transaction costs.
If you wanted a reasonably diversified basket of high yielding equities it is going to cost you what? £100 to set up perhaps? Which is 5ppt gone right there.

I am not an IFA but if it were me and I was aiming for say 5 year time horizon I might put 50% in cash ISA and 50% in a very low fee equity tracker ISA. (You can do both right?)