Savings accounts


(Daniel Hollands) #1

I’m trying to save some money over the next five years to afford the deposit for a house - so I’m looking for some help choosing a savings account.

About a year and a half ago I started saving with a Leeds Building Society Regular Saver (Issue 2). The terms stated that each month I had to pay in between £50 and £500, and that each year I allowed one withdrawal. If I kept to these terms I’d get 3% bonus interest over that of the Bank of England base rate.

That’s been chugging along quite happily, with my payments going into it automatically each month (out of sight, out of mind).

A couple of weeks ago, however, I got a letter from Leeds telling me that my account type was no longer on offer, and that I had a choice to make before the end of Feb: I could opt for the lump sum to be put into a bond (advertised at some percentage rate that I don’t remember) but it would be locked in it for 5 years, or I could do nothing, at which point it’ll automatically turn into a low interest, instant access, savings account.

I’ve also got the option of starting a new Regular Savers account (issue 3), with similar terms to that listed above (except now the range is £25 - £250 each month), but it would have to be a fresh account, starting from a zero balance.

So now, I’m not sure what I should do next. I have a lump sum of money (not a huge amount, but enough) that I want to put away and not touch, and I want to continue saving each month. I’m not against the idea of starting another Regular Saver account with Leeds (unless someone can recommend another bank who offers something similar/better?), but I don’t know what I should do with the lump sum that I’ve got.

Can anyone point me in the right direction on what sort of options I have available to me please?

Thank you.


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(Philip Wattis) #2

Rates are pretty dire everywhere, I’ve previously found Coventry Building Society to be one of the more generous ones.

If you’ve not used up your ISA allowance (£15k for this tax year), then you can generally get a good bonus for opening one of them. Not sure how much money your talking about, but if it’s more than that you can open another one (or deposit more) from 6th April (another £16K I think). Alternatively, if you know you aren’t going to need it for say 3 years, you could buy some fixed rate bonds, which may offer slightly better rates than a savings account.

Obviously, usual disclaimer applies, do your own research, etc, etc.


(Daniel Hollands) #3

It’s just shy of £1,300 right now, so way less than £15k (I would have more, but I decided to buy a Macbook - damn you Apple).

That might be a good option however. Maybe I can start another Regular Saver, and if/when they kick me off of that one, take whatever I’ve got at the end of it, and just dump it into the ISA.

I don’t want anything that’s overly complicated to understand - but at the same time, if I can get a little more by being wise about it, I’ll be a happy bunny :moneybag: :rabbit: .


(Richard Cunningham) #4

I’d suggest having at least 2 savings accounts. One that you don’t ever touch (till you need the house deposit) and another that you use for expenses that occur less frequently than monthly, e.g. insurance, car tax, gadgets etc. It’s typically cheaper to pay for insurance on one go than paying monthly. Savings rates are all pretty poor so it can make sense to shop around every 6-12months if you really want the best rates (though TBH I don’t bother).

The amount in interest isn’t that much either way since it’s mostly eaten up by inflation, the important thing is to keep regularly saving and not to eat into the amount you’ve already saved (hence the two accounts). Another tip is to ask for pay rises at least once a year and to use the extra take home pay to increase your monthly amount.


(Peter Chatterley) #5

Given that you probably need to get decent savings and really at 2% interest, this will be swallowed by inflation and tax, , might I suggest a useful tip. There are a lot of offers at the moment where if you switch account you get £150 or so bonus, if you did this once a year with your current account, you would earn more than any interest payments from savings.
This could potentially be £750 over 5 years, way more than you would get from interest.

In effect you are getting 15% a year on the £1000 pounds. CLydesdale are running one at present.

Also consider getting a cashback credit card and paying it off monthly, rather than paying for everything in debit. As long as you pay it off monthly, then you can save upto 2.5% of your monthly spend this way! Which if you spend £1000 monthly on fuel, shopping, apple macs! etc… can be a useful £25 that you did not have, £250 a year potentially. Look for one that pays you out a cheque rather than a balance on the card, obviously if you don’t have discipline to pay it off, this is not a good method.

The other way depending on where you work is through referral schemes, lots of companies run these for employee referrals, given they are often £500 upwards they can be a great way to earn money.

ISA’s are good as a savings vehicle IMHO due to the tax savings especially if you are higher rate.

I agree with all the other statements, regular saving is the way to do it, just look for ways to save money or be given it for free that you can then transfer out to the savings pot.

No financial advice given- do your own research

Good Luck

Peter


(Andy Henson) #6

I have been using my current account to save since it’s generally offering me a better rate. I have a Santander 123 current account and credit card and I’ve been using it as a savings account as well as my daily account to just consolidate it and get more interest. I’ve had the accounts for a little over 2 years now and to date, across both the credit card and current account I’ve earned around £1300 in interest/cashback. That’s with a £2/month charge on the current account. That’a pretty reasonable rate to me considering we don’t do anything different. We now just buy everything we can on our cards; groceries, petrol, etc and pay off the balance monthly by direct debit so I don’t have to think about it and don’t get hit with any interest payments on the credit card. Basically free money.

I should point out that one of the reasons it’s a bit higher is because my mortgage is also with Santander and I get 1% cashback on that too through the current account.


(Daniel Hollands) #7

I’ve been doing some more research, and I’ve come across this deal:

Long story short - my initial deposit is more or less on par with their maximum threshold, so I can put that in as a lump sum at the start, then just keep topping it up each month until I have enough for my deposit. I like that this account is tailored to someone like me, trying to achieve exactly what I’m trying to achieve, and that they’ll even throw in a cash reward if I take a mortgage with them.

Anyway, as I’ve mentioned, a lot of this whole thing feels scary and confusing to me, so I’m interested in your thoughts.

Thank you.


(Richard Cunningham) #8

Nationwide also have a similar scheme: http://www.nationwide.co.uk/products/savings/save-to-buy-isa/. I use Nationwide for my current account and savings and they’ve always been pretty easy to deal with.


(Andy Wootton) #9

Nationwide currently have a very odd deal between two fixed amounts, for a year I think. You lose it if you allow the balance out of the range. I think they expect most people not to be careful enough and then not to bother moving.

Current account 5% if you can play the game:
http://www.nationwide.co.uk/products/current-accounts/flexdirect/features-and-benefits


(Daniel Hollands) #10

I’ve heard about various schemes where you’re able to set-up multiple accounts, and dripfeed from one into the other to get the maximum amount of interest. The problem with this is that it sounds way too complicated.

I like the idea of the ones from Newcastle and Nationwide, as they’re specifically tailored to my purpose, and simple to understand.


(chrisc) #11

If you’re a cautious investor ignore everything in my post but… Have you considered peer lending?

Riskier than a savings account but they are now regulated and most if not all have insurance schemes these days that pay out if one of your borrowers default. And your capital is spread over many, many borrowers.

Best rates are over 5yrs but there are some over 3 and if you need your money back sooner you can withdraw subject to some penalties.

There is one green energy fund offering 7% over 3 years which is excellent on paper, not done much research on it myself tho:

https://www.assetzcapital.co.uk/green-account/

Just to put that in perspective over 3 yrs if you actually managed 2% in a cash ISA on £10k that’s just over £600 in interest, at 7% it’s £2250, so a huge difference.

I’m currently playing with Funding Circle which is similar but to individual businesses and property developers, where I’m getting more like 8-9% pa. But this is far, far riskier and I wouldn’t play here with money I couldn’t afford to loose.

Chris


(Daniel Hollands) #12

The problem I have with things like this (other than the fact that money scares and confuses me) is that I’m not sure I have enough to make it worthwhile.

Right now I have a lump sum of around £1.3k, and I plan on building this up to around £20k over the next 5 years by adding money on a monthly basis (initially £50 per month until I’ve paid off my laptop, then around £250-£350 per month). I’m also saving for a specific purpose - but don’t actually know how long it’ll take for me to get to get enough for that purpose.

If I had £20k now, and I could afford to play with it and/or not need it for 3-5 years, etc… then I think something like this could be a good route, but right now I’m about 90% sure I’m going to do the Newcastle thing.

But thank you @chrisc very much for the suggestion :smile:


(chrisc) #13

Totally understand. If money scares or confuses you then caution is the order of the day :wink:


(Philip Wattis) #14

I’ve only taken a brief look at p2p lending and was left feeling that they are simply not generous enough for the risks associated with them.

I’ve been playing the stock market for 3 years, and have been beating the market, which I’m quite pleased about. However, if I invested in the FTSE100 as a whole, I would expect to see a return of about 10% per year when measured over any reasonable length of time. On top of this your money isn’t tied in if you need it. The downside is, that if the market loses money, then you lose money, but I’d consider investments in FTSE100 companies to be safer than the smaller companies p2p lending backs.

Always interested to hear more about it though.


(Richard Cunningham) #15

I’ve got some investments in funds (each hold several stocks) in Stocks and Shares ISA, currently it’s up 8.8%/year (according to my spreadsheet) average over about 3 years. I deliberately didn’t mention it, because I don’t think it’s suited your goal or the postition you are in, you could lose a big chunk of your money if the market goes down etc.


(chrisc) #16

Re. peer lending I think the risks associated with them has vastly reduced in recent years which is why the rates are no longer as attractive as they once were. This is why they are priced much closer to cash ISAs but even at 4% they are 3 or 4 times the interest offered by most banks.

I would say about the stock market unless you absolutely know what you’re doing then you’re better off doing something else or at least taking a whole index tracker with low fees rather than trying to pick stocks yourself.

Another thing to look at is Nutmeg https://www.nutmeg.com/ which allows you to wrap an ISA around a mix of investments (with 10 different risk profiles from not much to lots) and take your money out at any time etc. The fees are much lower than trying to do the same thing yourself. Plus you just pay in every month and they do all the work :wink:

Their riskiest portfolio has returned nearly 12% a year after fees over the last 3 years. UI is nice too.

https://www.nutmeg.com/how-we-invest#portfolio-performance

But with any of these types of investment you need to hold your nerve during the losses (the temptation is to liquidate and realise the losses) and worth remembering if you’d have bought a FTSE100 tracker in 2007 you’d only be back in the black right about now :-/

So as others say maybe best to stick to cash :smile:


(Andy Wootton) #17

My only moderately sophisticated investment was in unit trusts, technology stocks and Japanese, just before the .com bubble burst and the Japanese economy collapsed. They were supposed to be high-risk, high profit investments, so they were half right.

Unit Trusts are intended to be a managed package of shares, looked after by an expert. Draw your own conclusions. Sorry, that was unnecessarily negative. Both of those disasters were fairly unprecedented, so unpredictable. I was recommended to Unit Trusts by a single colleague in his twenties with a rich Dad. He bought packages whenever he had a thousand or two saved and spread his risk across different market segments. It worked well for him. I’d phone an Independent Financial Consultant about what lump of money you need to make taking their advice worthwhile. I think they’re moving from a % to fees.

I think you can have a shares ISA as well as/instead of a cash ISA but an IFC is probably better than the high street for that.


(Stuart Langridge) #18

Best sentence ever :slight_smile:


(Philip Wattis) #19

It is bizarre that such people make a living out of doing worse than the market, yet this seems the norm! UTs were favoured by Financial Advisers in the last decade, I think these have been superseded to a degree by exchange traded funds (ETFs). These are passively managed funds designed to track particular indexes, with very low costs (fractions of a percent). It allows you to buy into a whole market without incurring crippling dealing costs. One of my favourites is VUKE.L which quite accurately tracks the FTSE100.

As has been said elsewhere though, probably best to avoid the stock market if not aware of the general risks involved. It’s not unusual for me to see my portfolio move by 4 figures in a matter of hours. Great when it’s up, not so great when it’s down.

I think you’re right about IFA’s fees as well, whereby they now need to be transparent about how much they stand to make by recommending a particular product to you.


(chrisc) #20

@LimeBlast this seems perfect for you:


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