Where to put savings

[mnaylor]

Hi All,

Where should we be putting our savings? At the moment we just have it sat in a Nationwide ISA, as we all know the interest rates on these type of things are rubbish, but what are my other options? I don't want anything particularly high risk. While the plan would be not to touch it for a while, we would need to be able to access the money in an emergency. We have a mortgage and another child on the way so you never know when you might need to dip in, but we try to keep enough in the current account to cover these types of things.

Any advice or thoughts welcome.

Cheers

[Zoon]

Marcus account or premium bonds

[Dave.]

Overpay your mortgage?

[mnaylor]

Thanks, I will look into Marcus accounts and premium bonds.

In regards to overpaying the mortgage, is this best done on a monthly basis even when I have it on a fixed rate deal? The deal we are on runs for another 4 years. My plan was to pay a lump sum of the mortgage off at the end of the fixed rate term.

[mikeiow]

Zoon said:

Marcus account or premium bonds

For ZERO risk and ease of access, they would be my choices....

Dave. said:

Overpay your mortgage?

For usefully using it, but NOT being able to get hands on it again....this would work okay.

Perhaps combine both approaches ;-)

[Mr Pointy]

mnaylor said:

Where should we be putting our savings? At the moment we just have it sat in a Nationwide ISA, as we all know the interest rates on these type of things are rubbish, but what are my other options? I don't want anything particularly high risk. While the plan would be not to touch it for a while, we would need to be able to access the money in an emergency. We have a mortgage and another child on the way so you never know when you might need to dip in, but we try to keep enough in the current account to cover these types of things.

Any advice or thoughts welcome.

You could stick it in an IM GIA account invested in the safest fund. I think Julian PH said it had never had a year of negative growth & the annualised return is around 5.51%. The downside is you need to pay CGT but you can get at the funds if you need to.

[Zoon]

Mr Pointy said:

The downside is you need to pay CGT but you can get at the funds if you need to.

Assuming you make over £12,000 profit

[Mr Pointy]

Zoon said:

Mr Pointy said:

The downside is you need to pay CGT but you can get at the funds if you need to.

Assuming you make over £12,000 profit

True, I should have more accurately said "there may be a CGT liability".

[markyb_lcy]

Stocks and shares ISA with a medium-risk diversified multi-manager type fund.

[Sticks.]

I'm just getting rid of my Premium Bonds as the return hasn't been good enough. There are much better cash ISAs than Nationwide, such as Kent Reliance, if that's the sort of thing you prefer.

[deggles]

markyb_lcy said:

Stocks and shares ISA with a medium-risk diversified multi-manager type fund.

S&S ISA definitely but you'd get a similar risk/reward profile with much lower fees with a passive fund.

[markyb_lcy]

deggles said:

S&S ISA definitely but you'd get a similar risk/reward profile with much lower fees with a passive fund.

That's a fair point if they don't want to go more than medium risk. My only worry with a passive fund is that they're not as diversified (you're talking exchange-tracker funds, I'm presuming?)

[deggles]

markyb_lcy said:

deggles said:

S&S ISA definitely but you'd get a similar risk/reward profile with much lower fees with a passive fund.

That's a fair point if they don't want to go more than medium risk. My only worry with a passive fund is that they're not as diversified (you're talking exchange-tracker funds, I'm presuming?)

An index tracker alone would probably be considered high-risk, I agree, but something with an equity/bonds split according to risk profile might suit (Vanguard LifeStrategy seems to be popular on here)?

I suppose it depends on what you feel is sufficiently 'diversified', I was somewhat persuaded by Lars Kroijer's 'Investing Demystified' book that argues a broad index tracker gives sufficient exposure to things like commodity and property prices, indirectly.

[mnaylor]

Thanks for the replies everyone.

Are premium bonds basically like the lottery? I could put 10 grand in for a year and win nothing? At least I wouldn't lose anything though right?

[Fastpedeller]

mnaylor said:

Thanks for the replies everyone.

Are premium bonds basically like the lottery? I could put 10 grand in for a year and win nothing? At least I wouldn't lose anything though right?

Only the small interest you'd otherwise get in an account. You could 'win' nothing on PB's or come up lucky. You won't come up lucky with the money in the bank, the choice is yours!

[Mr Pointy]

mnaylor said:

Thanks for the replies everyone.

Are premium bonds basically like the lottery? I could put 10 grand in for a year and win nothing? At least I wouldn't lose anything though right?

Apart from losing 2.2% a year due to the effect of inflation.

[mikeiow]

deggles said:

An index tracker alone would probably be considered high-risk, I agree, but something with an equity/bonds split according to risk profile might suit (Vanguard LifeStrategy seems to be popular on here)?

I suppose it depends on what you feel is sufficiently 'diversified', I was somewhat persuaded by Lars Kroijer's 'Investing Demystified' book that argues a broad index tracker gives sufficient exposure to things like commodity and property prices, indirectly.

Another vote for the logic behind Kroijer - quite simple yet compelling really!

You don't have to buy the book: you could invest some time into his free videos at http://kroijer.com/ ;-)

[JulianPH]

Mr Pointy said:

You could stick it in an IM GIA account invested in the safest fund. I think Julian PH said it had never had a year of negative growth & the annualised return is around 5.51%. The downside is you need to pay CGT but you can get at the funds if you need to.

IM Optimum Defensive has indeed never had a negative year (it is very low risk indeed) and has averaged over 5% a year for the last 10 years (over 7% last year).

It can never be described as having the security of cash/premium bonds, but it equally can never be described (historically) as having inflation losing returns.

Thanks for the mention Mr Pointy (and Mike). Sometimes people do not realise you do not have to have to jump from cash to equities. There is a middle ground.

OP - Post on the Intelligent Money sticky if you would like to find out more

[hairy vx220]

Zopa is currently giving me 4.2% and offer 4.8% on their higher risk account:

https://www.zopa.com/invest

[JulianPH]

hairy vx220 said:

Zopa is currently giving me 4.2% and offer 4.8% on their higher risk account:

https://www.zopa.com/invest

And you are taking a massive risk in return for this. It 100% of your money on the line with them charging you/borrowers for the privilege and taking no capital risk whatsoever.

I assume you understand this and so wish you well, but it is not even closely comparable to a cash holding, nor a defensive holding made up mostly of bonds and gilts.

It is incredibly high risk, in fact. I would be looking for 30%+ to even engage (and would probably still not become involved).

Most punters (as that is what they are) cannot get mainstream credit at 45%. You are offering this at a 90% discount.

I understand the risk is diversified by you loaning your money to lots of people, but in the main these are all lots of people who all fail to pass the normal criteria for such a loan.

Good luck and be careful.