Phils Savings / Investment Guide
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Got a few quid mounting up? Here's a few ideas about savings you might
want to consider.. First some info on TAX.
TAX - Net & Gross
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Unless specifically stated, all interest payments from savings accounts
are taxable. If you dont pay tax because your earnings (including any
interest) are below your personal allowance (currently around £4000 for=
a single person) then you are entitled to have interest paid "GROSS" to
your account IE: untaxed (you just fill out a special form when you
open an account). Everyone else who pays tax on their earnings at the
lower rates (ie: under 40%), receives their interest "NET" IE: Less
20% tax.
Bank Accounts
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Banks tend to pay the worst interest rates on savings. I find its best
to use banks to your advantage by getting a instant access cheque
account and then keep the bare minimum of cash in there - put your
serious money elsewhere! The TBS's interest-cheque account for example
gives you cheque book, cash card, direct debit facilities and also pays
token interest (about 1%!). Also you'll soon be sent credit card and
phone banking applications.
The very good account at the moment is run by Sainsbury's. It can be
opened with as little as £1 and offers telephone banking, Link cash card
etc whilst still paying around 5% net on your savings.
Building Societies
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Something of a dying breed what with all the take-overs and windfalls of
late! Still, building societies do tend to have a more relaxed,
personal approach to their clients. They also tend to offer better
rates and a wide range of accounts, such as TESSAs, bonds, etc. Having
said that, if you do have a building society account its best to keep an
eye on the interest rate paid on your account - building societies have
a habit of dropping interest rates dramatically on old accounts,
sometimes so badly that its hardly worth being in there.
Postal accounts can be quite convenient - offering slightly better
rates, a cash card for withdrawals from any Link cash machine, and
freepost envelopes etc. Investments are limited to cheques however,
sending cash is a no-no.
Types of account:
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TESSA
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Tax exempt savings account. Original Tessas have now matured and
"second generation tessas" are now available. The rules are quite
simple, you can invest up to £9000 over 5 years, and the interest
generated in paid tax free. You can withdraw but there are penalties
such as losing your tax exemption bonus. Currently paying around 7% per
year.
Bonds
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Many types but normally you invest "x" amount of cash and it is then
tied-up for "y" years & generally for investments over £1000. You
cannot add to it and you cannot withdraw until it matures. The interest
offered varies from day to day, but is usually then fixed for the life
of your bond. Interest may be paid monthly or yearly and is subject to
Tax if you are a tax payer. "Escalator bonds" are sometimes quite
attractive: the interest rate increases each year.
National Savings
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Various schemes run by the government, (operated by mail) sometimes
offering quite decent rates. "Income bonds" pay monthly interest on
your savings and only require 30 days notice for withdrawal. Rates are
constanlty varying and tax is payable.
Premium Bonds
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Just like the national lottery really, except the draw is once a month
and you never lose the money you put in! Obviously unless you win you
never get any "interest" on your money either! But with savings
accounts offering rates lower than inflation for savings less than
£1000, theres not much to lose! Minimum "investment" is £100, maximum
is £20,000. There are loads of prizes other than the £1,000,000
jackpot. £50,000s, £25,000s £10,000s £5,000s etc. Winners are notified
by mail (and winning numbers are published on teletext). You can ask
for some / all of your investment back at any time. Application forms
at the post office.
PEPs
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Personal Equity Plan. Recently, with the low interest rates offered by
traditional bank / building society accounts these TAX FREE accounts
have been a real winner - Doubling original investments over 5 years has
not been uncommon. These are offered by insurance companies as well as
some banks / building societies. The money you invest (up to £6000 in
any one tax year) is put into a fund with everyone elses and invested
across a wide range of stocks and shares, managed by the company running
the PEP. This way, any losses should be countered by growth in other
sectors - PEPs are not guarenteed however, there is some risk involved
and should be viewed a middle to long term investment (5 years at
least.) PEPs are available several guises, EG: "Growth" concentrates on
increasing your capital, "Income" pays a monthly income on your
investment. It should be said that the future is somewhat uncertain for
PEPs as the government is considering proposals for a new personal
investment plan which will probably replace them.
Current Info
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Apart from trawling the high street / internet some info on the latest
offers etc can be found on page 540 on channel 4 teletext and page 250
on BBC2.
[It would be interesting to see some reviews on Banks and Building
Society's as I for one am looking into a bank account with a different
bank. How about some readers telling us about their bank and the
service it offers it's customers? Kei]
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