I’ve got a bit of a reputation as an amateur money expert amongst those close to me. This often means I’m asked advice on money matters (I hasten to add that I always make it clear that I don’t mind pointing them in the right direction, but the final decision has to be theirs).
So when a relative asked where they should put a few hundred Pounds a month, I got out the Best Buy tables and got stuck in.
Before I continue, a bit of background.
- This particular family member has already maxed out their cash ISA allowance for 2011/12 (thanks to me of course!). They are a non taxpayer approaching retirement age so they want to be ultra cautious. No stock market investing for them!
- They already have money tucked away in a previous issue of the NS&I inflation-linked certificates (the 5 year version).
- They have some easy access money available should they need it.
- They don’t need access to the new money they will be putting away (for a good few years we think).
Given they will have a regular amount to save per month, my first bit of investigation surrounded Regular Saving accounts as I thought they may be rewarded with higher rates of interest in return for a commitment of saving regularly.
I was wrong.
Their own bank (one of the big High Street banks, is currently offering 3.25% AER / 3.20% gross per annum in months when no withdrawals are made. And they could save up to £250 per month in this account.
This family member actually has £500 per month to save, so I discounted this option. 3.25% is OK, but it’s not exactly great when the rate of inflation is higher.
The HSBC Regular Saver account seems much better though. It pays 8% AER/gross (to HSBC Premier, HSBC Advance, HSBC Advance (Graduate) and HSBC Passport customers) or 4% AER/gross (to Bank Account, Bank Account Pay Monthly and Graduate Bank Account customers).
Problem is, this family member doesn’t bank with HSBC and they don’t want to have to open a Current Account with them to get access to a Regular Saver account.
So I think the Regular Saver option is out of the picture.
I don’t want to put them into a fixed rate account for two reasons.
- I don’t want to lock them into a rate which could become uncompetitive when interest rates start to rise (whenever that may be!)
- I don’t want the money tied up completely if, in an emergency, they need access to it which it either not allowed, or allowed but with a loss of interest penalty.
So it’s looking like a boring old cash savings account might me the only option.
The rates of interest in the banks and building societies in with branches in their town are exactly mouth-watering, so I have decided to go online instead.
My decision is to open a Coventry Building Society “Poppy Saver” account paying 3.15% – and as the family member is a non-taxpayer they can fill out an R85 form to get the interest tax free.
We will set up a monthly standing order to the account. And then next April, when the new ISA season opens, we can move the accumulated money into a 2012/13 cash ISA for them. OK, so they aren’t currently a taxpayer, so the benefits of an ISA are less then for a taxpayer. But with the money sheltered from the taxman, if they do become a taxpayer in the future then the protection of an ISA wrapper will be very welcome.