£10k to save, best return without risk?
Discussion
I'm hoping some of the financial wizards here on PH can proffer some advice. I'm trying to organise my finances and, having finally rounded up all my various savings accounts, old ISAs etc etc, I appear to be in the happy position whereby on top of my A8 Fund, Wedding Fund and Rainy Day Fund, I have £10,000 which I don't intend to spend for a few years.
What would be the best way to save or invest this money, given that I am highly risk averse (i.e. I won't take any chance of losing money whatsoever)?
My fiancee has suggested I put the money into one of the fixed-rate bonds offered by, for example, the Post Office (3 year fixed rate at 2.35%), which I understand are covered by the FSCS and therefore "safe".
Another option would be to find the highest-paying cash ISA and put the maximum amount into that (I haven't used my 2013-14 allowance yet), with the remainder either going into another ISA come the 2014/15 financial year, or into one of the bonds. Principality Building Society have a 5 year ISA paying 3.05% which thus far is the best I've found.
I already have a 1-2-3 account from Santander, however the A8/Wedding/Rainy Day money takes this to the £20k ceiling up to which interest is paid (at 3%).
Those are the best options I've spotted, but I'm not in any way knowledgeable about finances or investments. Are there any alternatives I should look at that will give a better return over a 3 to 5 year term without taking any chance of losing my money?
Mucho gracias,
Jonny.
What would be the best way to save or invest this money, given that I am highly risk averse (i.e. I won't take any chance of losing money whatsoever)?
My fiancee has suggested I put the money into one of the fixed-rate bonds offered by, for example, the Post Office (3 year fixed rate at 2.35%), which I understand are covered by the FSCS and therefore "safe".
Another option would be to find the highest-paying cash ISA and put the maximum amount into that (I haven't used my 2013-14 allowance yet), with the remainder either going into another ISA come the 2014/15 financial year, or into one of the bonds. Principality Building Society have a 5 year ISA paying 3.05% which thus far is the best I've found.
I already have a 1-2-3 account from Santander, however the A8/Wedding/Rainy Day money takes this to the £20k ceiling up to which interest is paid (at 3%).
Those are the best options I've spotted, but I'm not in any way knowledgeable about finances or investments. Are there any alternatives I should look at that will give a better return over a 3 to 5 year term without taking any chance of losing my money?
Mucho gracias,
Jonny.
These all sound fine- also Nationwide currently pay 5% on up to £2500, you just need one direct debit a month I think. Also depends on your tax position- 3% in an ISA is potentially just as good as 5% externally. Have you a set-off mortgage? You could pay it down and then draw it back in a few years, if that's possible. The effective "savings" rate there is pretty good, especially if you're a higher rate tax payer.
RichS said:
These all sound fine- also Nationwide currently pay 5% on up to £2500, you just need one direct debit a month I think. Also depends on your tax position- 3% in an ISA is potentially just as good as 5% externally. Have you a set-off mortgage? You could pay it down and then draw it back in a few years, if that's possible. The effective "savings" rate there is pretty good, especially if you're a higher rate tax payer.
Thanks Rich. I'm tied into a fixed-rate mortgage for the next 2 years so offsetting isn't an option unfortunately - that said, my mortgage interest rate is 2.49% so I'll actually be better off with that cash making 3% as savings.I do pay 40% tax so as you rightly point out, I'd only see 3% of that 5% rate. In fact, now you've mentioned tax, that pretty much rules out the bond option as that would be subject to tax so again I'd need a 5% rate to compete with the ISAs!
Jonny_ said:
Thanks Rich. I'm tied into a fixed-rate mortgage for the next 2 years so offsetting isn't an option unfortunately - that said, my mortgage interest rate is 2.49% so I'll actually be better off with that cash making 3% as savings.
I do pay 40% tax so as you rightly point out, I'd only see 3% of that 5% rate. In fact, now you've mentioned tax, that pretty much rules out the bond option as that would be subject to tax so again I'd need a 5% rate to compete with the ISAs!
Yes 3 is more than 2.49 but only if you get to keep all of the 3%. If you're taxed on it then you're better paying down the mortgage. But sounds like the mortgage isn't a runner anyway. I do pay 40% tax so as you rightly point out, I'd only see 3% of that 5% rate. In fact, now you've mentioned tax, that pretty much rules out the bond option as that would be subject to tax so again I'd need a 5% rate to compete with the ISAs!
Could you give it to your fiancé if she pays a lower tax rate? I have nothing apart from my ISA in my name, all our savings are in my (non-earning) wife's name. She could take out the bond and pay zero tax.
Jonny_ said:
What would be the best way to save or invest this money, given that I am highly risk averse (i.e. I won't take any chance of losing money whatsoever)?
My fiancee has suggested..................
You can't be all that risk averse to losing money if you are planning on getting married.My fiancee has suggested..................
RichS said:
Yes 3 is more than 2.49 but only if you get to keep all of the 3%. If you're taxed on it then you're better paying down the mortgage. But sounds like the mortgage isn't a runner anyway.
Could you give it to your fiancé if she pays a lower tax rate? I have nothing apart from my ISA in my name, all our savings are in my (non-earning) wife's name. She could take out the bond and pay zero tax.
Sorry, I should have been more specific, it's better off making 3% in the ISA, otherwise tax would indeed swing things in favour of the mortgage. I do have facility to pay off up to an extra 10% of my outstanding balance (currently around 150k so I could pay up to 15k) but again the interest rates make 3% from an ISA the best option (although part of the money would earn nothing until April when I can use next years' ISA allowance).Could you give it to your fiancé if she pays a lower tax rate? I have nothing apart from my ISA in my name, all our savings are in my (non-earning) wife's name. She could take out the bond and pay zero tax.
Using her allowance isn't a bad idea, she pays 20% tax so if I can find a good non-ISA rate for her that might be worthwhile
Although that could be viewed as a different kind of risk, I think Joe would agree!
JoeBolt said:
You can't be all that risk averse to losing money if you are planning on getting married.
ISA rates are historically crap at the moment, and I wouldn't want to tie up anything past 2 years. I can see mortgage rates going up pretty soon though so if I were you I'd overpay as much as you can.
A 0.5% difference between your mortgage and ISA rates works out as £50 a year on 10k, a very small price to pay to be in a better position when your 2.49% rate runs out.
A 0.5% difference between your mortgage and ISA rates works out as £50 a year on 10k, a very small price to pay to be in a better position when your 2.49% rate runs out.
I am afraid that your real return will be close to zero or in fact negative once inflation is factored in.
If you are not prepared to risk capital (although capital can be eroded through the negative effect of inflation) you are limited. Your best case scenario is barely net flat performance.
If you are not prepared to risk capital (although capital can be eroded through the negative effect of inflation) you are limited. Your best case scenario is barely net flat performance.
Edited by Mankers on Monday 13th January 21:16
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