UKC

Asking Internet strangers on UKC for financial advice, episode 243

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 Blue Straggler 19 Feb 2023

Hopefully a quick one. After years of living on a low salary, I have become more comfortably-off in the past 7-8 years. Due to having been used to having very little money, I learned nothing about the mythical thing called "savings". 


I have now got a chunk of money (let's call it £20k) just sitting in a current account which I assume is by far not the best place for it to be. Mortgage-free. House could do with various improvements which are ongoing. I already pay sizeable additional contributions to my pension via a work scheme (before tax etc). 

What should I do with my chunk of money? Something simple and conservative. I am not given to playing with stocks/shares/investments - I haven't the knowledge and I haven't the time or inclination to gain the knowledge.

ISA seems a fairly obvious choice but is that too easy?

 SouthernSteve 19 Feb 2023
In reply to Blue Straggler:

Cash ISA or see a financial advisor If you are not so risk adverse
https://www.moneysavingexpert.com/savings/best-cash-isa/

1
 tjhare1 19 Feb 2023
In reply to Blue Straggler:

What Steve has said above might be true, but only if you have already, or would as a result of these savings, exceed the tax free personal interest allowance and aren’t prepared to take more risk than that implied by cash savings. The allowance is £1000 at the moment, so if you had £20000 to put away, ignoring any other interest you might earn on current accounts etc, you’d need to be earning 5% plus on that for the cap to bite (which you won’t…).

The reason I say this is that if that cap doesn’t bite all you are interested in is finding the cash savings vehicle that delivers the highest rate of interest, whether ISA or not. At present, those accounts aren’t ISAs - just regular high street accounts. Sticking with the money saving expert theme, here might be a good place to start:

https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#t...

 girlymonkey 19 Feb 2023
In reply to Blue Straggler:

You should give your chunk of money to me! I will keep it very safe for you 😀

 SouthernSteve 19 Feb 2023
In reply to tjhare1:

That's a really good point. I was showing my bias after the last few years of terrible savings interest and knowing you could get 4% in an ISA I hadn't investigated the better rates in other accounts. 

 Ciro 19 Feb 2023
In reply to Blue Straggler:

If you're a basic rate taxpayer you can earn up to £1k in interest without paying tax on it, so with £20k as long as your rate is below 5% it doesn't matter whether your money is in an ISA or not - just look for the best rate.

If your "let's call it 20k" is actually 40k, or you're in a higher tax band then ISA becomes a much more attractive proposition, as the ISA could outperform a higher headline rate savings account.

First thing I'd do is open an app based instant access savings account (tandem and Zopa are the two I've used) so that your money is earning something* while you decide what to do with it, but maintaining complete flexibility.

I'm currently getting 3.1% for instant access savings with Tandem, calculated daily paid monthly, so even if it's only in there for a couple of weeks you'll get a few quid for the 10 minutes it takes to set an account up and transfer your money over.

Some of the internet banks don't take part in the pre-transfer account verification checks - in that case I'd always transfer £1 over first, then move the rest over once I see that's been successful.

Be prepared for your bank to block transactions and/or your account when you start moving large sums out to savings accounts for the first time - unusual patterns can trigger KYC/AML checks.

If they mess you around too much complain - I got £100 for distress and inconvenience because they blocked my account three times.

* In reality of course, with inflation at 10% this means losing less rather than earning something.

In reply to girlymonkey:

You could invest it in setting up climbing walls at airports

In reply to Blue Straggler:

Thanks for replies so far. I was going to try to make this an anonymous post, and to be coy about the amount, but neither of those actions is required really. To be clear, the amount is currently around £20k. I've had a couple of the (actually quite useful and not the irritation that you might assume) "account review" phone calls from my bank, during which my de facto "manager" pointed out that the current account was pretty much the worst place to keep that money, at least from a security point of view. The bank is NatWest, it's the account I set up when I started university in 1993, I've never had a strong service-based reason to move (let's not get into banking ethics here and now, please )
I am thinking of squirrelling away about 75% of it, to leave me with a decent chunk of easily accessible money "just in case". Or should I squirrel away 90% of it?! 

Post edited at 13:37
 Ciro 19 Feb 2023
In reply to Blue Straggler:

If you can be bothered setting up multiple current accounts, and don't mind the hit that your credit rating will take for that, you can set up a bunch of regular savings accounts to drip feed a grand or so a month from your savings at up to 7% - if you're a basic rate taxpayer that could be worth it over a cash ISA even if you're crossing the £1k threshold.

https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/

 alimckay 19 Feb 2023
In reply to Blue Straggler:

I have read in a lot of places that it is recommended to have at least 3 months  salary/expenses in an account that you can easily access incase of emergencies and that seems like a good idea to me and what I have tried to do recently. 

With regards to what to do with the rest I would put it in one of the managed stock and shares ISAs, with these you don't need to spend any time or effort learning about stock and shares. Usually they just ask you a series of questions to determine your risk appetite to determine what sort of things to invest in. Obviously the higher the risk the more you could gain but also the more that you could potentially lose. The longer you want to invest generally the more risky you are able to be as the longer term will ride out any dips in the stock market. I use Nutmeg, as they have a good app based platform, but there are lots of options.

Conclusion: 3 months salary/expenses in a cash ISA accessible immediately just incase, the rest in a managed stocks and shares ISA.

 James Harker 19 Feb 2023
In reply to Blue Straggler:

Unless you want to employ a financial advisor I wouldn't bother trying to invest it yourself tbh. It gets seriously complex trying to understand how different types of instruments work. You're better using an online investment platform that has specific funds that you can invest into (they are usually based around risk appetite). You should also invest into an ISA to be tax efficient (Max up to 20k within a tax year). If it's not an ISA you'll likely pay more in management fees, but that only matters if you're saving over 20k in a year.

I use an Evestor stocks and shares ISA and it's gone up around 30 percent since 2017 so not bad at all. Although I put a tonne in over COVID when there was a big drop in value, which helped when came out the other side. But I don't have to do anything, just leave it there. Dead easy, do the whole thing from your phone. 

Whatever you do you need to be prepared to leave it for a very long time to start making serious gains from the compound interest. And also don't be tempted to pull out the money when there are drops in value. 

 PaulW 19 Feb 2023
In reply to Blue Straggler:

If you are a Nat West customer already then they do a drip feed digital saver account with a reasonable rate of interest.

Won't help with your lump sum but a good place to put some of your spare income going forward and a good savings habit to get into.

As a customer already super easy to set up.

 wercat 19 Feb 2023
In reply to Blue Straggler:

Without going into details of tactics the suggested strategy has always been to divide savings into three parts (Like Gaul).

You identify how much you want to save long term "for a rainy day" or even better "financial growth". 

Then how much you want to save for emergencies to get you over sudden crises.  call it a Crisis Buffer fund.

Then how much you want to put away for the medium term before you spend it, say for a new car, holiday or other expensive things you like in the normal course of the years passing.  

It is worth making a monthly budget list/spreadsheet showing what your commitments are each month through the year so you know how much you can save outside day to day living.  This can be used each month to ensure you are putting enough away to meet day to day running costs for the year.

There are lots of variations on dividing Gaul into parts!

Post edited at 15:49
 neilh 19 Feb 2023
In reply to Blue Straggler:

You say you are thinking of an ISA and yet you also say yiu do not want to invest inthe stock market.  That’s fair enough if you are not comfortable with that route. 

Just put it in a savings ISA for the moment .

But if you want  savings to keep pace with inflation and grow , you really need to put it in a stocks and shares ISA for 5 plus years.

You need to overcome your nervousness first.
So start reading up in it over the next year.  Aim to be better informed. Then put £10 k in something you feel comfortable with and build up from there.  

Post edited at 17:50
In reply to neilh:

Thanks, you have hit the nail on the head re: my ignorance (which I did try to imply in the OP, maybe not clearly) and nervousness. I grew up watching my father utterly failing at "investing" with shares in Barclays etc which has probably irrationally put me off from even informing myself. 

 ro8x 19 Feb 2023
In reply to Blue Straggler:

First direct have a cash ISA @ 7% interest, however, there is a max of £300 a month payment limit. Still, better than nothing. Beyond that as mentioned before get the cash ISA with best %.

 Lankyman 19 Feb 2023
In reply to ro8x:

> First direct have a cash ISA @ 7% interest, however, there is a max of £300 a month payment limit. Still, better than nothing. Beyond that as mentioned before get the cash ISA with best %.

Are you thinking of the First Direct Regular Ac? If so, it's not an ISA (not that that matters much). I opened one of these recently. You have to open a First Direct current account first, which is then used to feed £300 into the Regular account each month. A perk (which I haven't taken up) is that you can get a £175 sweetener if you switch another current account to it after setting it up. Apparently, the switching service is quite straightforward. All details are on moneysavingexpert (the Martin Lewis site).

Post edited at 18:49
 SDM 19 Feb 2023
In reply to Blue Straggler:

Investing in stocks and shares doesn't necessarily mean buying shares in individual companies.

A global all cap index fund gives you exposure to stock markets (and their higher average returns than cash savings) without exposing you to as high a risk as investing in individual companies.

They are still higher risk than savings in the short term (they could go down rather than up over say a 5 year period) but they have always outperformed cash savings over the long term.

Probably a good place to start your learning regarding investing. 

 Mlewis 19 Feb 2023

If you don't plan on using the money anytime soon (next 5-10 years) you should look at the investment option. It does seem scary at first but once you get your head around the jargon it's ok. 

If you invest in an index fund which follows thousands of companies you have a balanced and lower risk investment when compared to buying lots of stock in a few companies that you like the look of.

Have a look at 'Vanguard' they have lots of useful information on the website. 

 henwardian 19 Feb 2023
In reply to Blue Straggler:

Nevermind!

Apparently I managed to read paragraph 1, 2 and 4 but somehow my eyes slid over 3 without it ever reaching my brain. Doh.

 neilh 19 Feb 2023
In reply to Blue Straggler:

The important thing to remember is that you get £20 k a tax year to put into an ISA.That’s it. So put the £20 k into cash one before April. Then sit back and figure it out. You can easily switch some of that money into a fund later and not lose the benefit of this years ISA limit.

it’s  tough figuring it all out and you never stop learning..

In reply to henwardian:

Well, paragraph 3 is just fear and laziness on my part, which I have rightly been picked up on!
Time to start actually reading up. 
Although it sounds like cash ISA before the next deadline, is the simple short term place to go whilst I do my learning over the coming year. 

 JLS 19 Feb 2023
In reply to Blue Straggler:

Hardgreaves Lansdown do an active savings account where you can move your money around between a few different banks to keep it with however is giving decent interest rates. I found it very easy to setup.

Perviously, any time I ever put money into an account with an attractive rate within a year the rate had turned to shit. Hopefully this active savings thing will put an end to that. Recently with this account, I locked some money away for a year at 4.2% but there were also other offerings with instant access if required albeit at lesser rates.

https://www.hl.co.uk/investment-services/active-savings

 neilh 20 Feb 2023
In reply to Blue Straggler:

Some tips I found helpful

Try and  understand the difference between accumulating and income funds for example.Often fund managers offer you a choice of which one for the same thing.

Then actively managed  or passive funds.

Learn about  fees.

Then when you have got your mind round that you can have a bit more of a think.

Post edited at 09:10
 ro8x 20 Feb 2023
In reply to Lankyman:

Yes, I do mean that one. Quite right is not an ISA! I didn't get cash when I joined but a fancy pair of BOSE headphones instead  

Switching service was extremely straight forward and I had very little to do. They keep a redirect open on your old account for 18 months too I believe, so any erroneous payments still end up in your *new* account.

 StuPoo2 20 Feb 2023
In reply to Blue Straggler:

> What should I do with my chunk of money? Something simple and conservative. I am not given to playing with stocks/shares/investments - I haven't the knowledge and I haven't the time or inclination to gain the knowledge. ISA seems a fairly obvious choice but is that too easy?

Priority #1:  Emergency Fund.  3-6 months worth of expenses.

Priority #2:  High interest debt.  If you're rolling a balance on any credit card .. get that paid off next.

Priority #3:  Pension .. notably employer matched contributions.  If you're lucky enough to get matched contributions - max them out.  It's free money.

Priority #4:  If you have dependents - you need insurance.  Life insurance, disability insurance, home insurance etc.  

Priority #5:  Invest.  IMO - cash ISA is worthless.  Only real option is stocks and shares - but that doesn't mean you need to do it yourself.  Try robo-investing ... there is very little to it and you can access your money in a matter of days if you need it.  Try - https://www.nutmeg.com/  You give it your time horizon, your risk appetite, investment style .. and you fund it - they do the rest (for a fee). 

Goes without saying ... capital at risk if you invest in the stock market.  However (and this is the bit that is often missed) here is an example:  had you invested your 20k in, for example, an ETF that tracks the S&P500 starting in the year 2008 (the years of the financial crisis in which the S&P500 lost -37% of its value) through until now (which includes the market crash for Covid too) you would today have ~$75.5k in your ISA.  My advice to you is that you cannot afford NOT to be invested in the stock market.  

YEAR,ANNUAL RTN,STARTING BALANCE,END BALANCE
2023,6.5,70918.17578,75527.85721
2022,-18.11,86601.75331,70918.17578
2021,28.71,67284.40161,86601.75331
2020,18.4,56828.0419,67284.40161
2019,31.49,43218.52757,56828.0419
2018,-4.38,45198.20913,43218.52757
2017,21.83,37099.4083,45198.20913
2016,11.96,33136.30609,37099.4083
2015,1.38,32685.24964,33136.30609
2014,13.69,28749.44994,32685.24964
2013,32.39,21715.72622,28749.44994
2012,16,18720.45364,21715.72622
2011,2.11,18333.61438,18720.45364
2010,15.06,15933.96,18333.61438
2009,26.46,12600,15933.96
2008,-37,20000,12600
 

(I specifically choose that 15 year period to make it clear .. that even with 2x market crashes you can still make significant returns if you remain invested in the market for the long term.)

Post edited at 09:58
 George_Surf 20 Feb 2023
In reply to StuPoo2:

Good advice. Cash isa isn’t worthless at the moment with an improving interest rate and you can swap your money anytime in to a stock and shares isa (Vanguard do a good one). You could buy some of their investment plans or just invest in a worldwide fund (shares In many companies, across industries, across the world) etc like VWRL (that’s the name of the fund, very diversified, a slow steady safe bet. Drip feeding might be better than bashing it all in at once eg £2k / month) 

Post edited at 19:45
 GEd_83 20 Feb 2023
In reply to Blue Straggler:

Yeah neil is correct, you should learn to invest. It sounds scary but it’s actually a lot simpler to learn than many think. It of course can be risky but there are many ways to mitigate that risk. I always recommend reading Smarter Investing by Tim Hale, it’s an easy read in a weekend, and it will give you the knowledge and confidence you need. For example, passively investing in index funds is less risky than holding cash in many ways. If you are holding cash, unless you’re interest rate is above inflation, you are losing money. At least with investing, there is a chance to keep up with inflation. 

Saying that though, before you invest it’s always advised to keep circa 6 months expenses as cash for emergencies etc so that being the case that cash might as well be in a tax free wrapper that is a cash ISA earning some interest 
 

Post edited at 21:59
 neilh 21 Feb 2023
In reply to GEd_83:

Stocks and shares are cash as they are tradeable. This view that they are locked away and you cannot use them instantly as emergency cash is crazy.You can easily change your view and say that a stocks and shares ISA is part of your emergency savings and you just need to sell them in an emergency.

4% or so interest in a savings account is paltry when inflation is running at double this. Your money is still getting eaten away.

1
In reply to GEd_83:

Thanks, I have ordered the Tim Hale book and look forward to reading it. 

 StuPoo2 21 Feb 2023
In reply to George_Surf:

> Cash isa isn’t worthless at the moment

Reality of the moment is that retail investors are looking for investment opportunities to "limit their loss" not "maximize their return".  i.e. with real inflation at ~10% ... if you put your money into anything that doesn't return >10% ... you are loosing real wealth at the end of the day.  The OP's choice of investment in 2023 is really one about how he minimizes that loss of wealth (inflation is a bad thing!!). 

That being said .. even in a normal inflationary environment you're loosing real wealth too if you hold wealth in cash - that's by design (talking about cash - not cash ISA here).  The UK governments 2% inflation target inherently means that the government plans to depreciate its citizens wealth held in cash by 2% every year on average (shocker!).  The stock market however does not have that same "depreciation by design" penalty built into it - it is of course subject to period crashes though . In fact - the stock market has the opposite bias - it is biased upwards (in the long term).  Inflation, population growth & technology (efficiency) [1], amongst other things, all force stock prices upwards.  Japan being the notable exception .. this is true across all developed stock markets - they all trend upwards in the very long term.

If the OP is looking for a short term place to put their money that might grow a little but they have definite plans for for money in the next 2-5 years meaning short term capital loss is not a risk they are willing to take ... sure ... a cash ISA might be a good choice.  The OP should choose his cash ISA carefully.  Yes - some are up at 3.5-4%, but some instant access cash ISA are still very close to "worthless" i.e. RBS instant access cash ISA = 0.65% on balances <25k.  

On the other hand if the OP is looking for a long term place to put his money and he has no need for it in the next 10(?) years, and hence would be willing to accept a risk of capital loss in the short term if it meant a larger return in the long term, ... there is really only 1x option on the table - stock market.  

Maybe the length of time the OP is comfortable to put their money away for is the deciding factor here?

Cheers

[1] https://fifthperson.com/why-the-stock-market-keeps-rising/

 George_Surf 21 Feb 2023
In reply to StuPoo2:

Undoubtedly. Guaranteed returns (no one will need cash if aliens take over) but not in the short term (hence why drip feeding would probably be safer than a lump sum deposit, the economic outlook is uncertain at best). Many markets are 20% down the last 12 months. The U.K. might be making new highs but it’s interest over the last 15 years averages at something aweful like 1.5% 

Post edited at 19:11
 Pedro50 21 Feb 2023
In reply to Blue Straggler:

If you're going to take more than five weeks to decide then buy premium bonds immediately. They will be in the draw for 1st April and you can withdraw the money at three days notice.

 GEd_83 22 Feb 2023
In reply to neilh:

That’s factually incorrect, they’re assets, which of course you can sell if you want. Nobody has said they’re locked away. I’ve just re-read my post, and I definitely didn’t say this, and never would. Anyway, the point is that if your investing, you ideally don’t want to be dipping into your investments and selling because your short on cash, due to volatility, and due to fees etc. Investing is all about the medium to long term in terms of time horizon, and keeping fees and charges low by not chopping and changing your investments. Selling assets just to get hold of short term emergency cash is therefore not ideal. Also, it can take 3-4 days to get the cash once you decide to sell, it’s not usually instant, and that’s where an emergency pool of cash can come in handy. 

I personally don’t keep a small emergency cash fund, because I have a good income and low outgoings, but I think it’s generally very good standard advice for people new to investing to build a small cash emergency fund before they start 

Post edited at 08:10
 StuPoo2 22 Feb 2023
In reply to George_Surf:

> Many markets are 20% down the last 12 months.

 A 20% dip sounds like a buying in opportunity for me .  But take your point ... H1 2023 will undoubtedly be a season to be careful.

> The U.K. might be making new highs but it’s interest over the last 15 years averages at something awful like 1.5%.

I assume you're talking about FTSE 100?  If yes, then I disagree - the FTSE 100 has returned much more than 1.5% pa.  It is true - the FTSE index is basically where it was back in the year 2000, but no that doesn't mean that investors in, for example, vehicles that tracked the FTSE 100 have seen no return on their investment.  The FTSE is notably different that other large indexes in the fact that it has a large % of dividend paying companies that constitute it.  When dividend reinvestment is accounted for the FTSE has returned something more like 122% gross or 4% pa between 1999-2019. [1]

[1] How the FTSE 100 returned 122% in 20 years but barely moved - https://www.schroders.com/en-gb/uk/intermediary/insights/dividend-reinvestm...

> hence why drip feeding would probably be safer than a lump sum deposit

Agree to dollar cost averaging.

Cheers

 neilh 22 Feb 2023
In reply to GEd_83:

They are tradeable ....instantly in some cases.They can be viewed as liquid cash on that basis.Just the sames as premium bonds.

Whether its a good idea to do so is debateable, but in an emergency ( say losing a job) then they are equally useful....and that is the real point of an emergency fund.

You are making that cash work for you instead of it just sitting there waiting for a day that may/may not happen as an emergency.

Post edited at 08:50
1
 GEd_83 22 Feb 2023
In reply to neilh:

We’ll have to agree to disagree Neil. I agree that you can sell your assets, and in SOME cases instantly, but also if it’s in index funds very often it’s not instant, but anyway the main point for me is I still think it’s a crap thing to do, and really poor advise for someone new to investing. Mainly due to volatility, if you start putting money in a global index fund for example, then decide you need half of it for an emergency, there’s a real risk that you could be  out of pocket significantly if you happen to need to sell when the market is at a low. It goes against the very fundamental basics of long term investing really.
 

There’s a reason why keeping a small amount as cash for emergencies is generally recommended to beginners. It can be a good idea to not have a cash emergency fund (I don’t), but like I say, I think it’s good advise to have one if you’re new to investing.

My initial post was agreeing with your initial post, but you seem to want to pick an argument for arguments’ sake, and a nonsense argument at that. But then again, you seem to think you know it all, so that’s no surprise I guess. Over and out for me, I haven’t got any more time to argue with the resident forum know-it-all who spends their life on here.

Post edited at 10:25
 neilh 22 Feb 2023
In reply to GEd_83:

Enjoy. No offence taken. 

1
 HB1 24 Feb 2023
In reply to Blue Straggler:

Have you thought of Premium Bonds? I have around £20,000 of them. The return is around 1.5% at the moment, so not wonderful but wait until a letter comes from Sunderland around the first week of the month - OK it's often just £25 (the lowest amount paid out) but even then you'll feel good about it. . . .

       . . . this year (just the 2 months) I've received (been given!)  £250! OK I might not get anything else for some time, but it's good when it comes through the post - a harmless pleasure indeed!

2
 Pedro50 24 Feb 2023
In reply to HB1:

Go paperless, there's an app, the wasted postal costs could expand the prize pot. I've made 2.1% in the last 12 months.

In reply to HB1:

I have. I've seen a few mentions of them on here over the years. I need to learn about them

Ta

 bouldery bits 25 Feb 2023
In reply to Blue Straggler:

The premium bonds game is heavy. 

Get stuck in. 

 Lankyman 25 Feb 2023
In reply to bouldery bits:

> The premium bonds game is heavy.

> Get stuck in. 

I've just got out after netting a sum total of 0% of sweet FA over an 18 month period

 Offwidth 25 Feb 2023
In reply to Lankyman:

The Martin Lewis article on premium Bonds is very good.

https://www.moneysavingexpert.com/savings/premium-bonds/#:~:text=The%20priz....

 Lankyman 25 Feb 2023
In reply to Offwidth:

Yes. I read that and decided that without a very substantial increase in my 'investment' my chances of a prize were pretty paltry.


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