The best way to save? or pay off student loan
Discussion
Hey guys
Looking at starting a new savings account or similar
Me and my girlfriend had a joint savings account that matured January this year. We didnt save that much because we didnt have a lot to put in it, but we managed about £1500. The thing I didnt like really was that the interest on the savings was equal to about the kind of sum you might find down the back of your sofa (though I know with such small sums, even decent interest rates wont net you much).
I understand savings accounts, but I dont understand things like ISA's. I need to read up. You often seem to need a good wedge up front with those anyway so as we're starting from scratch ill stick to savings, unless anyone here has a better suggestion.
Who's got good deals on savings accounts this year? I suppose none of them are brilliant given the situation, but if the money's put away its not liable to be wasted. Investing in stock has always interested me, but to be honest I would only want to do that when I have money I can afford to potentially lose without it doing much harm. Thats for later in life.
Alternatively ...
Student Loan. I have spent 1 year working in industry and paying the loan back directly from my paycheck. However now I am a PhD student and thus not required to pay it back because despite the tax free aspect of my pay, the total sum is less than the threshold for the SLC. Ill need to get hold of the account information with them, but I assume that while I'm not paying it, that loan debt is increasing.
My question is, is it going to be better to save in a bank, or put similar amounts voluntarily towards paying off the student loan?
Looking at starting a new savings account or similar
Me and my girlfriend had a joint savings account that matured January this year. We didnt save that much because we didnt have a lot to put in it, but we managed about £1500. The thing I didnt like really was that the interest on the savings was equal to about the kind of sum you might find down the back of your sofa (though I know with such small sums, even decent interest rates wont net you much).
I understand savings accounts, but I dont understand things like ISA's. I need to read up. You often seem to need a good wedge up front with those anyway so as we're starting from scratch ill stick to savings, unless anyone here has a better suggestion.
Who's got good deals on savings accounts this year? I suppose none of them are brilliant given the situation, but if the money's put away its not liable to be wasted. Investing in stock has always interested me, but to be honest I would only want to do that when I have money I can afford to potentially lose without it doing much harm. Thats for later in life.
Alternatively ...
Student Loan. I have spent 1 year working in industry and paying the loan back directly from my paycheck. However now I am a PhD student and thus not required to pay it back because despite the tax free aspect of my pay, the total sum is less than the threshold for the SLC. Ill need to get hold of the account information with them, but I assume that while I'm not paying it, that loan debt is increasing.
My question is, is it going to be better to save in a bank, or put similar amounts voluntarily towards paying off the student loan?
You can start an ISA with £50 and save the same each month, ok its going to add up VERY slowly and you have to leave it alone for a while but it might be a nice idea over the longterm and will probably give a higher rate of interest than the high street banks offer.
I wouldn't worry too much about the student loans now especially with your PHD you will have more loans from that to worry about.
Ofcourse the standard PH's answer is not to save but to spend all your money on coke, hookers and cars.
I wouldn't worry too much about the student loans now especially with your PHD you will have more loans from that to worry about.
Ofcourse the standard PH's answer is not to save but to spend all your money on coke, hookers and cars.
BoRED S2upid said:
You can start an ISA with £50 and save the same each month, ok its going to add up VERY slowly and you have to leave it alone for a while but it might be a nice idea over the longterm and will probably give a higher rate of interest than the high street banks offer.
I wouldn't worry too much about the student loans now especially with your PHD you will have more loans from that to worry about.
Ofcourse the standard PH's answer is not to save but to spend all your money on coke, hookers and cars.
Nah I'll have zero loans from the PhD. I know some places you must fund your own way, but here there is a lot of private and public investment in research so fee's get paid no problem and if you need anything, be it computers, stationary, hardware... as long as theres a proper reason for the need, you got it.I wouldn't worry too much about the student loans now especially with your PHD you will have more loans from that to worry about.
Ofcourse the standard PH's answer is not to save but to spend all your money on coke, hookers and cars.
For instance I just spent £5k yesterday on new bits for the engine test cells. So no fees for me, Im dead lucky to be in such a well funded place. I think between my two supervisors there is over a million pounds.
Also lucky was that when I started uni, Fees were of the order of £1100 ish. So the minimum loan at the time was £3k which I recieved for a total of 4 years. So that left me at just over £12k + interest made it somewhere close to £14k. Im gonna ring them tomorrow so I can get my log on details and get a breakdown of what I owe. I should of paid around a grand of that back up to now.
My girlfriend was even more lucky in that her dad paid for all the uni stuff, but took the 3k a year loan anyway and invested it all. Pop out at the end of 4 years, pay back the loan and keep the return. Nice.
At the moment I do have a couple of grand just sat in my bank not doing anything. i did ponder about using some of it to pay back some of the student loan. Just not sure where that money is best placed.
Common wisdom is to never pay off the student loan any earlier than you have to. It is linked to inflation, so in theory you can never borrow cheaper from anywhere else and can achieve better returns by saving rather than paying of the student loan.
I don't know if any recent changes and rubbish interest rates have significantly changed this.
I don't know if any recent changes and rubbish interest rates have significantly changed this.
http://www.moneysavingexpert.com/loans/student-loa...
Probably explains it more eloquently than I can.
Probably explains it more eloquently than I can.
mgmrw2003 said:
My current rate is around 9.7% from the SLC.... Far from what it started as
That seems extraordinarily high - is that annual?I think the math is simple - you need to compare what you have at the beginning of the year vs. the amount at the end in the two scenarios you are considering.
Scenario 1. Pay into a cash ISA which gives you a rate of interest, say 3%.
Scenario 2. Pay off some SLC.
Let's assume you have the money in a lump sum just to keep it simple again. Perhaps £1,000.
You have say £13k in student loans. I am not sure of the exact rate but let's say the student loan interest is 5% per annum.
In scenario 1 after a year you will have £1,030 in savings and a debt balance of £13,650.
So net you owe £1,030 - £13,650 = £12,620
In scenario 2 after a year you will have ZERO in savings but the debt balance will be (£13,000-£1,000)*1.05 = £12,600.
Obviously a debt of £12,600 is better than a debt of £12,620 so scenario 2 is better.
The trick here is simply to understand the ACTUAL INTEREST RATE you get from the ISA vs. the loan.
If ISA rate > loan rate then save in the ISA.
If ISA rate < loan rate then pay off the loan.
ALL THAT b
kS ABOUT "REAL", "INFLATION", etc DOESN'T MATTER. Ignore it.Find out the ACTUAL interest rate in terms of how much bigger the sums will be in a year's time.
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