Question
My bank have suggested that I top up my various accounts to £50,000 to avoid a £12.95 per month fee. To do this I need to move £30,000 from other savings accounts and new funds. However the Banks interest rates are ... awful!
I do have £15,000 in shares in a bank trading account which counts towards the £50k limit and I would be prepared to move other directly held equities held in my name t o the trading account to qualify circa £10/15,000. To obtain a realistic return on the £30k and stoop the monthly charge I am considering investing £5,000 x 2 into Fixed Rate Gilts, £5000 x 2 into Index Linked Gilts and £5000 x 2 Pibs. OR 3 x £10k if secure and lower charges. I would welcome your imput re: the selection of suitable funds.
For my research I have looked at RBS Inflation Linked 3.9% min 2022 and RBS Royal 5.1%, + Nationwide 6.875% . Fot the time being I would probably invest the income into shares in my wifes name over the next 5 years or spend if required.
Since I will shortly be 65 and my assessable income will by design be close to the Age Allowance Clawback threshold the Fixed Interset securities should probably be in my wife's name and she is aged 61 and basic rate tax payer. I will be 65 in August with a State Pension Disability Living Allowance (Higher rate) plus Mobility. Other assets are £475K SIPPS/PPPS, £75k ISAS, Shares//ITs/Units £ 35k Deposits, £40k and 3 interests in Properites £550k totalling circa £1.2m allocated roughly 66.67% self and 33.3% spouse.Answer
If my bank wanted to charge me £12.95 per month I'd tell them where to go and take my business elsewhere!
However, assuming you have reason to stay with them then check that their dealing charges aren't excessive (above £15 to trade online is very dear these days), else a few trades could start offsetting the monthly charge for some while.
Depending on redemption date, gilts are currently yielding around 2-4% gross until redemption (i.e. taking into account any capital gain/loss you make if buying now and holding until redeemed). This isn't very exciting. There might be scope for shorter term gains if inflation subsides (gilts don't like inflation), but then rising interest rates could push prices down. Over 5 years I think a fixed rate savings account paying about 5% p.a. arguably looks better value.
Index-linked gilts are currently yielding about 0.5% to redemption (i.e. the return ignoring inflation). The breakeven rate of inflation required for 2016 index-linked gilts to match returns from similar conventional gilts is about 2.9% - put simply if you think average annual inflation (RPI) will be higher than this then buy index-linked gilts, else conventional will give a higher overall return.
PIBs are yielding rather more (to redemption, or 'call') at around 7-10%, but there's a simple reason for this - they're viewed as being more risky. Plus, they can sometimes be difficult to trade which might be a pain when you come to sell. I think current prices are fair given the risks, but I wouldn't take too big a bet as we may not have seen the last of the financial turmoil that can push down PIB prices. To read more about PIBs see my answer to this earlier question.
The RBS Inflation Linked traded bonds aren't very generous - they pay the greater of inflation (RPI) and 3.9% each year and you run the risk that RBS might go bust (remember, this is a bond, hence bit covered by the FSCS). One of the 'less risky' PIBs yielding about 7% seems a better deal to me - after all, will inflation average over 7% a year (required for the RBS product to provide a higher return)? I doubt it.
Well done on splitting investments with your wife to optimise your tax position, you'd be surprised how many couples don't. As your income will be close to the age allowance limit, keep making use of ISAs as ISA income doesn't count towards this.
In summary, I would give serious thought to a fixed rate 5 year account with another bank/building society as rates of around 5% look attractive, especially if held via a cash ISA. Corporate bonds and PIBs generally look more fairly priced than gilts right now, but there's a reason gilts appear expensive - investors are nervous and buying gilts for safety. If companies and building societies do struggle over the next few years bond/PIB prices could suffer. If you can stomach stock market ups and downs then one of the more cautious equity income funds (e.g. Invesco Perpetual, Newton or Schroders) might prove worthwhile as their dividends remain quite attractive with yields (net of basic rate tax) of around 4-6%. You could also consider strategic bond style funds for fixed interest exposure (where managers move money between safer and riskier bonds based on their view of markets to try and deliver a decent return), but there's no guarantee of success and annual management charges can especially take their toll during flat/negative markets.
Good luck whatever you end up deciding.
My bank have suggested that I top up my various accounts to £50,000 to avoid a £12.95 per month fee. To do this I need to move £30,000 from other savings accounts and new funds. However the Banks interest rates are ... awful!
I do have £15,000 in shares in a bank trading account which counts towards the £50k limit and I would be prepared to move other directly held equities held in my name t o the trading account to qualify circa £10/15,000. To obtain a realistic return on the £30k and stoop the monthly charge I am considering investing £5,000 x 2 into Fixed Rate Gilts, £5000 x 2 into Index Linked Gilts and £5000 x 2 Pibs. OR 3 x £10k if secure and lower charges. I would welcome your imput re: the selection of suitable funds.
For my research I have looked at RBS Inflation Linked 3.9% min 2022 and RBS Royal 5.1%, + Nationwide 6.875% . Fot the time being I would probably invest the income into shares in my wifes name over the next 5 years or spend if required.
Since I will shortly be 65 and my assessable income will by design be close to the Age Allowance Clawback threshold the Fixed Interset securities should probably be in my wife's name and she is aged 61 and basic rate tax payer. I will be 65 in August with a State Pension Disability Living Allowance (Higher rate) plus Mobility. Other assets are £475K SIPPS/PPPS, £75k ISAS, Shares//ITs/Units £ 35k Deposits, £40k and 3 interests in Properites £550k totalling circa £1.2m allocated roughly 66.67% self and 33.3% spouse.Answer
If my bank wanted to charge me £12.95 per month I'd tell them where to go and take my business elsewhere!
However, assuming you have reason to stay with them then check that their dealing charges aren't excessive (above £15 to trade online is very dear these days), else a few trades could start offsetting the monthly charge for some while.
Depending on redemption date, gilts are currently yielding around 2-4% gross until redemption (i.e. taking into account any capital gain/loss you make if buying now and holding until redeemed). This isn't very exciting. There might be scope for shorter term gains if inflation subsides (gilts don't like inflation), but then rising interest rates could push prices down. Over 5 years I think a fixed rate savings account paying about 5% p.a. arguably looks better value.
Index-linked gilts are currently yielding about 0.5% to redemption (i.e. the return ignoring inflation). The breakeven rate of inflation required for 2016 index-linked gilts to match returns from similar conventional gilts is about 2.9% - put simply if you think average annual inflation (RPI) will be higher than this then buy index-linked gilts, else conventional will give a higher overall return.
PIBs are yielding rather more (to redemption, or 'call') at around 7-10%, but there's a simple reason for this - they're viewed as being more risky. Plus, they can sometimes be difficult to trade which might be a pain when you come to sell. I think current prices are fair given the risks, but I wouldn't take too big a bet as we may not have seen the last of the financial turmoil that can push down PIB prices. To read more about PIBs see my answer to this earlier question.
The RBS Inflation Linked traded bonds aren't very generous - they pay the greater of inflation (RPI) and 3.9% each year and you run the risk that RBS might go bust (remember, this is a bond, hence bit covered by the FSCS). One of the 'less risky' PIBs yielding about 7% seems a better deal to me - after all, will inflation average over 7% a year (required for the RBS product to provide a higher return)? I doubt it.
Well done on splitting investments with your wife to optimise your tax position, you'd be surprised how many couples don't. As your income will be close to the age allowance limit, keep making use of ISAs as ISA income doesn't count towards this.
In summary, I would give serious thought to a fixed rate 5 year account with another bank/building society as rates of around 5% look attractive, especially if held via a cash ISA. Corporate bonds and PIBs generally look more fairly priced than gilts right now, but there's a reason gilts appear expensive - investors are nervous and buying gilts for safety. If companies and building societies do struggle over the next few years bond/PIB prices could suffer. If you can stomach stock market ups and downs then one of the more cautious equity income funds (e.g. Invesco Perpetual, Newton or Schroders) might prove worthwhile as their dividends remain quite attractive with yields (net of basic rate tax) of around 4-6%. You could also consider strategic bond style funds for fixed interest exposure (where managers move money between safer and riskier bonds based on their view of markets to try and deliver a decent return), but there's no guarantee of success and annual management charges can especially take their toll during flat/negative markets.
Good luck whatever you end up deciding.
Read this Q and A at http://www.candidmoney.com/questions/question484.aspx
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