/ ISAs

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Fluvial - on 10 Jan 2013
We have some money saved not a lot but its for our son's future and we put into it on a monthly basis (£100) - cars, marriage, univeristy, house or whatever he needs it for my question is we have stuck it in ISAs and the returns are absolutely pitiful in fact scandalous.

Can anyone suggest a better rate of return being given out at the moment given that its making us less than a tenner a year which I could possibly get more from searching down to back of the sofa on a yearly basis.

Thanks
JM - on 10 Jan 2013
In reply to Fluvial: If you are investing for longer than 5 years consider a managed stocks and shares ISA with low to medium risk which could yield between 5 and 10%.
CurlyStevo - on 10 Jan 2013
In reply to Fluvial:
nationwide are giving 2.2% on a standard eisa, which is probably less than inflation but is atleast half decent.
krikoman - on 10 Jan 2013
In reply to Fluvial: My mam invested for the kids in an ISA £1000 each for 8 years she got back £1100 each!!
Flinticus - on 10 Jan 2013
In reply to JM:
You'd need the Midas touch to get anywhere near 10% on a low to medium risk S&S investments. Even 5% consistently over such a term would be considered good. And then there is the risk of a fall, especially when you may need to access the funds.

Look at this for current offers re bank accounts etc http://www.moneysavingexpert.com/banking/

www.moneyfacts.co.uk is another good site.

but beware those offering initial high interest rates than then fall dramatically, unless you fancy continuously moving your money around to chase the best offers.

If not using an ISA, and you are part of a couple, hold the cash in the name of the one with the lower rate of income tax (assuming you trust each other!)

Depending on when you forsee an access need, you can put your cash into fixed term cash bonds, these are generally found under 'Savings' if you are visting bank account comparison sites, e.g. http://moneyfacts.co.uk/compare/savings/fixed-rate-bonds/

Generally the longer the term held, e.g. 3 years rather than 1, the higher the interest offered, though you may then miss out on subsequent better offers if interest rates rise. Of course, you can hedge your bets by spreading your money across several different bonds.

Bjartur i Sumarhus on 10 Jan 2013
In reply to Fluvial: I use stock share ISA's and buy my own (shares/etfs)

Having said that, my performance has been woeful in the short term. But I am confident (I have to say that to myself and wife ;-) that in the long term it will all come right.



DNS on 10 Jan 2013
In reply to Fluvial:

The fact that you know what return you're getting puts you a step above most savers.

Look on moneysavingexpert.com, or similar, if you want to stay with a cash ISA. If the money is for your son, and assuming he's not a taxpayer, you may get a better rate of return in his name in a standard savings account as opoposed to an ISA.

Otherwise it's risk vs reward. There are a whole bunch of FTSE100 shares paying above 5% gross dividend any of which could be accessed in an ISA, but a managed fund is a better route into equities for the small investor.
Flinticus - on 10 Jan 2013
In reply to Fluvial:
For an idea of volatility (tendency of markets / value to go up & down), look at this with relation to the main UK stock market indices

http://www.ftse.co.uk/Indices/UK_Indices/Downloads/MCX.pdf

Look at the Performace & Volatility - Total Return table. For example, annualised returns over a 3 year period for the FTSE 100 are 6.6%, but over a 5 year period are only 2%!
Flinticus - on 10 Jan 2013
If you are putting your savings into an account in your child's name, you need to be aware of the following:

A child is likely to be a non-taxpayer and therefore can earn gross interest on their account, without the automatic deduction of 20% tax. Children, like adults, have a personal allowance (£8,105 for the tax year 2012-13) which is money they can receive tax-free.

So as long as their annual income, including interest from savings, is below this amount, they can receive interest on savings without having tax deducted. To make sure savings interest is paid gross, parents or guardians need to fill in an R85 form, available from all banks and building societies or downloadable from hmrc.gov.uk.

But the tax authorities are worried that it would be too easy and tempting for adults to put all their savings in their children's accounts to avoid tax. So while you can invest as much as you like in an account on a child's behalf, if the money you give your child earns more than £100 a year, the whole lot will be taxed as if it were your own, and no interest will be paid gross. The £100 rule applies to young people until they reach 18 or marry, whichever comes first.

The rule applies separately to each parent (or civil partner), so if both parents contribute equally the child can earn interest of up to £200 a year without tax. But the rule doesn't apply to grandparents, who are free to deposit as much as they like into a children's account
Simon4 - on 10 Jan 2013
In reply to DNS:

> The fact that you know what return you're getting puts you a step above most savers.

Due to QE among other things, most savers are not getting any return at all, they are to a greater or lesser degree losing money due to inflation.

There is precious little that the prudent can do to protect themselves against the future or to make provision for their dependents, possibly money is better spent on wine, women and song (on second thoughts, song is probably best avoided for the discerning).
Fluvial - on 10 Jan 2013
In reply to Flinticus:

At the moment we are investing the child benefit allowance in his account for him when he's older so its £82.50 a month, we have split this once or twice and used some once when we had a very rainy day!

Though we have tried to replenish it that said there is nigh on £4200 to play with given the money without interest should be worth around £11500 at 18 I would like to make sure we get it working as hard as we can for us.
(Equivalent to one months car insurance by then I reckon)
Fraser on 10 Jan 2013
In reply to krikoman:
> (In reply to Fluvial) My mam invested for the kids in an ISA £1000 each for 8 years she got back £1100 each!!

If she didn't move them every year and just left them to revert to SVR then I'm not hugely surprised. If she did switch annually, then that's a very poor return and could/should have been much better.

Philip on 10 Jan 2013
Have you paid your mortgage off? Because if not you might be better off putting £100 / month off that while interest rates for saving are low. Then when you've finished paying your mortgage you can save more for your son, and rates might be better.
EeeByGum - on 10 Jan 2013
In reply to Fluvial: I have to admit that I am considerably going off the stock market since I read the Parable of the Ox.

http://www.ft.com/cms/s/0/bfb7e6b8-d57b-11e1-af40-00144feabdc0.html#axzz2HZoR4i2d

The stock market no longer seems to perform the purpose that it was designed for and the fluctuation of share price doesn't seem to reflect the underlying value of the companies listed.

A really good discussion about this parable here:
http://www.bbc.co.uk/programmes/b006qshd
Fluvial - on 10 Jan 2013
In reply to Philip:

I agree - sadly my wife does not she has been brought up with the understanding that money in the bank earning buggar all interest is better than paying money off at a higher interest, no matter how many times you tell her this is not true :(
Jim at Work on 10 Jan 2013
In reply to Fluvial:
Yep, returns are pitiable. and the stock market is risky. The advice re paying off your mortgage is sound. Saving tax on 2% interest isn't great!
one place you could keep an eye on is national savings. every so often they do an index linked thingy where you get 75% of FTSE growth up to a limit, and a guarantee of no loss. I put a little in a 5 year one of these when the FTSE was at 3400 (Now 6000). Wish I'd put more.
Flinticus - on 10 Jan 2013
Offwidth - on 10 Jan 2013
In reply to Fluvial:

My stock ISA's after an admittedly bad (but not terrible) period just made me an average of 16% in the last 6 months. I used Cofunds and Fidelity through an independant agent with discounted purchase fees and fund transfer fees. It's galling to pay upto 1% management fees for funds decreasing in value but the average decrease wasn't as bad as the market and my funds overall even at the bottom were still just better than if I'd had the money in good cash ISAs all along instead. Such investment is long term and assessing growth prospects from performance in the depths of a recession isn't wise. Shop around!
Trangia - on 10 Jan 2013
In reply to Fluvial:

You really need to be watching the market all the time for the best deals at any one time. Probably best not to tie anything up for more than a year and review your portfolio annually. A lot of deals have a 12 month introductory bonus, then drop to zilch!

This is a useful site

http://www.moneysavingexpert.com/
EeeByGum - on 10 Jan 2013
In reply to Flinticus:
> (In reply to EeeByGum)
>
> This should interest you
>
> http://smartorg.com/2011/10/the-stock-market-does-not-have-a-probability-distribution/

Indeed Nassim Taleb's book, The Black Swan as mentioned in the article has been mentioned several times on More or Less and seems to give some nice examples of the fact that crashes seen as obvious to everyone after the event can never be predicted. The Ox analogy suggests that stock market players are more interested in what each other think rather than the underlying items (companies) in the market. I think he has a point.
Flinticus - on 10 Jan 2013
In reply to EeeByGum:
In the long run, the monetary value of anything is what someone will pay for it, irrrespective of any intrinsic value. (I think that is basically a summary of the Ox analogy)
EeeByGum - on 10 Jan 2013
In reply to Flinticus:
> (In reply to EeeByGum)
> In the long run, the monetary value of anything is what someone will pay for it, irrrespective of any intrinsic value. (I think that is basically a summary of the Ox analogy)

This is true, but not what the analogy is about. The analogy started as a simple game of guess the weight of the pig but ended up being a guess what everyone else was thinking game and had nothing to do with pigs.

The stock market's primary purpose is to enable companies to raise cash by issuing shares, but these days it is more about traders making short term bets (microseconds) on whether something will go up and down. By doing this, they are sucking a huge amount of cash out of the system without really adding any value. I would love to know where all the money is coming from.
Flinticus - on 10 Jan 2013
In reply to EeeByGum:

'The weight of the ox was officially defined as the average of everyone’s guesses'.

There is more than the one meaning from the analogy: the weight of the ox (pig) being the average of what someone will 'pay' for it.

Surely now the stock market's primary purpose is to make profit for the investors?
Coel Hellier - on 10 Jan 2013
In reply to EeeByGum:

> The stock market's primary purpose is to enable companies to raise cash by issuing shares, ...

Which still happens.

> but these days it is more about traders making short term bets (microseconds) on whether
> something will go up and down. By doing this, they are sucking a huge amount of cash out of the system ...

Really? How are they sucking a huge amount of cash out of the system? They would only be doing so if they were very good at the short-term bets, which I don't think they are.
EeeByGum - on 10 Jan 2013
In reply to Coel Hellier:

> Really? How are they sucking a huge amount of cash out of the system? They would only be doing so if they were very good at the short-term bets, which I don't think they are.

Well traders must be getting paid somehow. But what value are they giving in return. Don't shoot me. Shoot John Kay who wrote that parable as his way to describe what he feels is currently happening in the stock market.

I have certainly heard a few commentators mention that there is very little new investment going into the market and that most of the transactions are just going round in circles. So if this is the case, how can traders still get paid huge sums of money? Where is it coming from given that effectively everyone is just swapping bits of paper?
JJL - on 10 Jan 2013
In reply to Fluvial:
> the returns are absolutely pitiful in fact scandalous.

You have no idea how depressing it is to read that.

But hey, it's all the banks' fault, right?

On your actual question, if you want low risk, then it's in the right place (go to moneysavingexspert and look for a better rate). If you know a bit about shares and can take the risk then a few blue-chips or an ETF (but make sure the dividends return in the ETF)... and stick them in an equity ISA.

I'm not a IFA btw, but for these sums I doubt it'll be worth the expense.
MG - on 10 Jan 2013
In reply to EeeByGum: The value of the companies being traded goes up over time and they pay dividends too. It's not a zero sum game. (Unlike currency trading, I think).
wilding - on 10 Jan 2013
In reply to Fluvial:

Philip is right. Your greatest ability to give money to your child will come from your salary, not investing. Try to remove any debt that reduces your salary.

Get rid of all of your debt. I assume you don't have credit card debt, but if you do then pay it off. the same with the mortgage, pay it off. You will be able to contribute much, much more to your child by paying off the mortgage earlier rather than through investing. Every bit of debt means money to the bank rather than to you.

After you have removed all debt, then make sure you have a 6 month emergency fund. Best to have the emergency money in a money market account.

After that invest in low-fee index funds. It is crucial that you chose low-fee funds. Fees can drastically reduce your investments over the long term. In the US we have Vanguard, which is by far the cheapest and best fund company. I am not sure about the UK.

Also, make sure you are utilizing all tax benefits for investing. If you were in the US I could help, but I have no knowledge of the UK.

Ignore the 'sky-is-falling' brigade. I have yet to hear any wothwhile investing advice from these people. If they are right, then it won't matter were your money goes. If they are wrong, then you have just lost any gains through investing.

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