The Amateur Investor isn’t just about investing in stock and shares, corporate bonds, PIBS and so on. My investments also include cash, fixed rate bonds, inflation linked bonds and more.
So this page is dedicated to the “savings” part of my overall portfolio.
Where do I hold my cash?
In a few places actually. A mixture of easy access accounts, fixed rate accounts, current accounts and ISAs (though I have reduced my cash ISA holding).
Everyone needs some emergency cash and depending on who you listen to you should really have at least an amount equivalent to 6 months salary in an easy access account. Some would say 9 months or even 12 months.
My emergency cash pot was my first priority. It’s no good having your emergency cash in a fixed rate account that cannot be withdrawn until the end of the fixed rate period. And it’s no good having your emergency cash invested in the stock market. Your emergency cash should be where you can access it easily… in an emergency!
Once my emergency cash was squirrelled away then it was time to hide some from the taxman. Not, not a dodgy offshore account, a tax free cash ISA. Cash ISA limits have been rising over recent years. The 2011/12 limited is £5340. Your actual ISA limit for 2011/12 is £10,680, but only half of this can go into a cash ISA.
Interest generated by your cash ISA it paid to you without the deduction of tax (as is the case with a standard savings account – assuming you are a taxpayer). So if your cash ISA generates £200 of interest in a year, you get all £200 of it. On the other hand, if your standard savings account generates £200 of interest in a year, and you are a basic rate tax payer, you would only get £160. The other £40 goes to the Government.
Current Accounts – Really!
Yes, really. If you are clever, and disciplined, then you can actually make a decent return from current accounts. I make a separate post on this subject at a later date.
I put some surplus cash into fixed rate bond with The Coventry Building Society and The Nationwide last year. It was money I didn’t need, and money I was prepared to lock up for 3 to 5 years. The think I like about these fixed rate bonds is that they pay me interest, month in, month out. The interest gets transferred to my current account. I can then move it to my share dealing account and buy shares with it. It’s like getting shares for free!
What about Premium Bonds?
Yes, I have a bit of money in Premium Bonds, but not a great deal. The average return is too low to consider putting too much money in. A lot of people would say that Premium Bonds simply aren’t good value. If I put my sensible head on then I would agree. But there’s always that remote hope that your number comes up. And if it doesn’t then, unlike buying a lottery ticket, you get another go next month.
Yes, I have some money in Zopa. It’s actually done very well for me over the last few years. Much higher return than a savings account. I’ll post about Zopa another time.
So as you can see, my cash is held all over the place, for various reasons. And as the returns on cash are generally very poor (at least they are in these days of record interest rate lows), I’m always on the look out for a better deal.