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Jay-Producer May 3rd 2009 5:27 am

Anyone a Financial Guru/Expert - Savings V IsA?

Firstly sorry this is really long, I felt it had to be to explain everything. Hopefully this will also be useful for other people.

I was hoping someone on here is some kind of financial adviser or very savvy and experienced with this subject. :fingerscrossed:

Me and my partner have been looking at putting aside money for our pension/future retirement. We have spent 3-weeks looking at literally hundreds of websites and reading books to get our head around ISAs, Savings Accounts, Shares etc. Now 3-weeks might not sound like much but it is enough to get all the info we need, well most, to make our minds up, but we would like to know if our plans are savvy enough.

We are 28 & 27 so we really need to start acting fast. The thing I wish my school had taught me was how to invest. We have looked at every possible avenue to invest money in. We aren't loaded to loose money in shares so we decided to take the safe route. But we would like to know if our plan is a good one and we were scratching our heads thinking why would anyone risk their money in shares when we found a better and safer route to take? We will be speaking to financial advisers at banks when we go back to the UK but just to get a rough idea we'd try our luck here first.

This is our plan

- We are going to save money into a stakeholder pension (10% of our income) and save money into a high interest savings account every year for however long they are available (10% of our income - making sure the rates are 6%+). We are also going to invest in real estate further down the line.

So short-term (1-3 years):

Invest 10% of our income into savings accounts for 3-years. Try to stick with 6%+ interest fixed rates.

Open a stakeholder pension and stick away 10% of our income every year.

Make sure our contributions are up to date for our state pension.

Medium-term (4-8 years):

- Get our first mortgage (25-30 year) and use our savings (which we earn by saving 10% of our income into savings accounts) to pay for a down-payment deposit of 10% and to cover costs.

- Keep on saving money into high interest savings accounts.

Long-term (8 years +):

- Get a buy-let mortgage (use our savings to cover costs and a down payment). This may take 10 to 15 years to save the money for the down-payment but at least we will have no debt.

- Keep on saving money in high interest savings accounts.

- Open up a child savings account.

The reasons for our plan:

We aren't going to go for Investment ISAs. The reason is this, Investment ISAs seem to offer a maximum of 6% interest fixed for 1-year. When you take out an Investment ISA you need to go through someone and there are charges involved. for a stocks and shares ISA you generally have to pay a one-off set-up fee, which is between 4% and 5%, and there will be an annual charge, of between 1% and 1.5%. Lets use these figures as examples.

Some will waiver the set-up fee but you still have to pay around 1.5% a year in fees. So 6% interest annually (I don't think they offer monthly) - 1.5% for costs = 4.5% tax-free. We can put up to 10k in an ISA as from 2010. With a savings account we can get one for 6%, we even seen one for 10% through a bank (which makes me suspicious). So we get the same with a savings account as we do with our Investment ISA. But we have to pay 20% tax, so that's around 4.5% we get after tax deductions - the same result as our ISA. However the draw-back is that some banks only let you put in a maximum of 3k into your savings account (I may be wrong here but I did my research), so you may be less off than with an ISA because you can't save as much money, thus less of a total dividend. However you can open as many savings accounts as you like with different institutions so at least we can make up some ground. Another draw-back is this, opening up even 2 savings accounts and having to keep changing to ensure maximum interest rates can be tiring and annoying. But the good thing is its saver and we won't have enough money in the first 10-years to save more than 50K so its unlikely we will need more than 2 savings account before this.

So we established that an Investment ISA doesn't have any real major benefits and here is why. We can get the same net percentage rate as an ISA with a savings account. Our money is protected for up to 50k in each institution with a savings account. Our money in our Investment ISA is not protected although some banks do offer re-assurance. Recently banks have been fooled into the biggest scam relating to stocks & shares meaning most will loose their money (a total of around 117billion dollars was lost). HSBC for example lost 100m of peoples investments. Banks can make mistakes with your shares, regardless of how excellent the financial adviser or even the stockbroker may be, even using the Index doesn't offer reassurance of a profit. No ones perfect. For those high risk reasons a savings account is the better option. We can equal what people get from an Investment ISA, but some may be lucky and do well with an ISA and outperform us (but that's luck), we want to avoid luck and rely on safety and assurance - we haven't got money to play with.

Investing in real estate is safer than an Investment ISA or shares. Here is why. This option is not greatly safer but if you look at how house prices were 15 years a go to now, you can begin to see the benefits. So our first mortgage will be our own home to live in for life (until we move). Its a sound investment because we will actually have something physically worth something (should prices steadily rise and should me not buy a house on top of a mining field). Getting a 2nd mortgage for buy-let can also pay dividends because if house prices rise we may be lucky and make a 100-200k profit over 15-20 years, maybe more profit. Our mortgage payments will be finished by 30 years time and we will have made a healthy profit margin. That's assuming everything works out. And even if it doesn't its still safer than relying on shares.

Our pension plan. This is tax free on contributions and some companies even allow you to withdraw the first batch for free. This is protected by government (depending on what pension). Very safe and steady continued profit - because you pay no tax for contributions.

Child fund. We open up a child fund as its tax free. Our children (when we have them) will have a nice lump some of money to get started in life and be able to have money for a deposit on a house. Its safe and secured.

Thanks for taking the time in reading this. :thumbup:

cindyabs May 3rd 2009 11:32 am

Re: Anyone a Financial Guru/Expert - Savings V IsA?
Good luck.

Some of us (old enough to be your parents) wish we had extra money to do something with. :(

Erik C May 3rd 2009 1:16 pm

Re: Anyone a Financial Guru/Expert - Savings V IsA?
I would look at getting a mortgage before 4 years from now.

Ray May 3rd 2009 1:45 pm

Re: Anyone a Financial Guru/Expert - Savings V IsA?

Originally Posted by isaco (Post 7537171)

They said the same about Bernard L. Madoff....

Jay-Producer May 3rd 2009 7:47 pm

Re: Anyone a Financial Guru/Expert - Savings V IsA?

Originally Posted by Erik C (Post 7537494)
I would look at getting a mortgage before 4 years from now.


We will try but we need to be proving what we earn for a few years. Because we have bee out of the UK for 1 year. If we can we will try and get one in 2 years. My partner is going back to Uni for 2 years so that has a factor on things.

Jay-Producer May 3rd 2009 7:48 pm

Re: Anyone a Financial Guru/Expert - Savings V IsA?

Originally Posted by Ray (Post 7537532)
They said the same about Bernard L. Madoff....

I read about him. That was nasty what he did.

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