Question
I have just retired and would line to invest £30k in a no risk no fee account.
What are your thoughts on the best available account to accommodate all of these wishes?Answer
No risk means sticking to cash, so it’s a case of finding the best savings account deals.
If you’re a taxpayer it would make sense to use your cash Individual Savings Account (ISA) allowance. You can contribute up to £5,100 before 6 April and the same again afterwards. If relevant, your spouse could also use their allowance too, a potential £20,400 contribution during the current tax year and next.
The main advantage of holding savings within cash ISAs is tax-free interest. A further benefit is that the interest doesn’t have to be entered on a tax return, so it won’t affect your age-related personal income tax allowance.
Whether you use a cash ISA or conventional savings account, your key decision will be choosing between a variable or fixed rate of interest.
The ‘best buy’ accounts with 4-5 year fixed rates currently pay around 5% a year gross, which looks attractive versus variable rates which are nearer 3%. Variable rates will probably rise over the next few years, but I think the chances of a significant rise are slim. It looks like our economy is going to struggle for a while yet so there’s a lot of pressure on the Bank of England not to raise interest rates, despite rising inflation (which is largely due to higher oil prices rather than us all driving up prices by spending more).
On balance you might want to split your savings between fixed and variable rates, which has the added advantage of keeping some of your money on easy access in case you need it.
Current ‘best buys’ include (rates shown gross AER):
Easy Access/Notice Variable Rate
ISA – Standard Life Direct Cash ISA 2.65%
ISA – Manchester Building Society 60 day notice Cash ISA 3.01% (includes 1% bonus for 1st 12 months)
Coventry Building Society 1st Class Postal Account 3.30% (includes 1.30% bonus for 1st year, up to 4 withdrawals a year of a minimum £1,000)
Scottish Widows Bank Internet Saver Account 3.01% (includes 1% bonus for 1st 12 months)
Fixed Rate
ISA - Leeds Building Society 5 year Fixed Rate ISA 4.60%
ISA – Halifax 4 year Fixed Rate ISA Saver 4.25%
State Bank of India 5 year Fixed Rate Bond 5.25%
Birmingham Midshires 4 Year Fixed Rate Bond 5.00%
I think it’s nothing short of scandalous that banks and building societies are generally paying lower rates on their fixed rate cash ISAs than their non-ISA equivalents, but annoyingly that’s the way it is at present. If you’re a taxpayer you’ll still end up better off using an ISA in the above examples, but not by as much as I think would be fair.
Some of the highest variable rates include bonuses first the first year or so. It’s fine to take advantage of these but be prepared to move elsewhere when the bonus ends to ensure you continue receiving competitive rate.
If you don’t want the hassle of having to monitor your savings to ensure you’re getting a competitive rate then take a look at the Investec High 5 Account. It pays an average of the top 5 savings rates (as measured by Moneyfacts) with a current rate of 3.32% (I’d expect this to fall shortly as the average is calculated including an Ulster Bank rate of 3.6% which is no longer available). However, it requires a £25,000 minimum deposit and three months notice for withdrawals. It’s also not available as a cash ISA. You can read or full review here.
Good luck with whatever you decide and enjoy retirement!
I have just retired and would line to invest £30k in a no risk no fee account.
What are your thoughts on the best available account to accommodate all of these wishes?Answer
No risk means sticking to cash, so it’s a case of finding the best savings account deals.
If you’re a taxpayer it would make sense to use your cash Individual Savings Account (ISA) allowance. You can contribute up to £5,100 before 6 April and the same again afterwards. If relevant, your spouse could also use their allowance too, a potential £20,400 contribution during the current tax year and next.
The main advantage of holding savings within cash ISAs is tax-free interest. A further benefit is that the interest doesn’t have to be entered on a tax return, so it won’t affect your age-related personal income tax allowance.
Whether you use a cash ISA or conventional savings account, your key decision will be choosing between a variable or fixed rate of interest.
The ‘best buy’ accounts with 4-5 year fixed rates currently pay around 5% a year gross, which looks attractive versus variable rates which are nearer 3%. Variable rates will probably rise over the next few years, but I think the chances of a significant rise are slim. It looks like our economy is going to struggle for a while yet so there’s a lot of pressure on the Bank of England not to raise interest rates, despite rising inflation (which is largely due to higher oil prices rather than us all driving up prices by spending more).
On balance you might want to split your savings between fixed and variable rates, which has the added advantage of keeping some of your money on easy access in case you need it.
Current ‘best buys’ include (rates shown gross AER):
Easy Access/Notice Variable Rate
ISA – Standard Life Direct Cash ISA 2.65%
ISA – Manchester Building Society 60 day notice Cash ISA 3.01% (includes 1% bonus for 1st 12 months)
Coventry Building Society 1st Class Postal Account 3.30% (includes 1.30% bonus for 1st year, up to 4 withdrawals a year of a minimum £1,000)
Scottish Widows Bank Internet Saver Account 3.01% (includes 1% bonus for 1st 12 months)
Fixed Rate
ISA - Leeds Building Society 5 year Fixed Rate ISA 4.60%
ISA – Halifax 4 year Fixed Rate ISA Saver 4.25%
State Bank of India 5 year Fixed Rate Bond 5.25%
Birmingham Midshires 4 Year Fixed Rate Bond 5.00%
I think it’s nothing short of scandalous that banks and building societies are generally paying lower rates on their fixed rate cash ISAs than their non-ISA equivalents, but annoyingly that’s the way it is at present. If you’re a taxpayer you’ll still end up better off using an ISA in the above examples, but not by as much as I think would be fair.
Some of the highest variable rates include bonuses first the first year or so. It’s fine to take advantage of these but be prepared to move elsewhere when the bonus ends to ensure you continue receiving competitive rate.
If you don’t want the hassle of having to monitor your savings to ensure you’re getting a competitive rate then take a look at the Investec High 5 Account. It pays an average of the top 5 savings rates (as measured by Moneyfacts) with a current rate of 3.32% (I’d expect this to fall shortly as the average is calculated including an Ulster Bank rate of 3.6% which is no longer available). However, it requires a £25,000 minimum deposit and three months notice for withdrawals. It’s also not available as a cash ISA. You can read or full review here.
Good luck with whatever you decide and enjoy retirement!
Read this Q and A at http://www.candidmoney.com/questions/question118.aspx
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