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Ologhai Jones

Should I Tie My Money Up?

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[i was originally going to add this post to Objective Developer's 'Str And What To Do With The Cash' thread, but thought it might be better not to use someone else's thread for my question...]

On the scale of 1 to 10 (bull to bear), I would say I'm a 6 or 7, which could be described as 'technically agnostic, but leaning towards the belief that there is likely to be a correction in house prices'.

I would like to invest a lump sum I have while I'm waiting for events to unfold, but because I'm not a 100% bear, I do have some worries about tying money up for years (i.e. I believe there's a chance that events might unfold in such a way as to make me want to get my money back right now and buy a house). This means I find myself favouring instant-access savings (such as ICICI HiSave) rather than fixed-term products (like NS&I Savings Certificates).

I was just wondering if anyone had any views that might change my mind, or perhaps even suggest other alternatives. I'm sure it would be possible to convince me that tying money up for a while is the right thing to do. If it helps, the lump sum in question would certainly be more than the £35k FSA compensation limit, and I'd need to consider two or three places to put money I would think.

Thanks for any thoughts and suggestions!

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Guest The_Oldie
[i was originally going to add this post to Objective Developer's 'Str And What To Do With The Cash' thread, but thought it might be better not to use someone else's thread for my question...]

On the scale of 1 to 10 (bull to bear), I would say I'm a 6 or 7, which could be described as 'technically agnostic, but leaning towards the belief that there is likely to be a correction in house prices'.

I would like to invest a lump sum I have while I'm waiting for events to unfold, but because I'm not a 100% bear, I do have some worries about tying money up for years (i.e. I believe there's a chance that events might unfold in such a way as to make me want to get my money back right now and buy a house). This means I find myself favouring instant-access savings (such as ICICI HiSave) rather than fixed-term products (like NS&I Savings Certificates).

I was just wondering if anyone had any views that might change my mind, or perhaps even suggest other alternatives. I'm sure it would be possible to convince me that tying money up for a while is the right thing to do. If it helps, the lump sum in question would certainly be more than the £35k FSA compensation limit, and I'd need to consider two or three places to put money I would think.

Thanks for any thoughts and suggestions!

At the moment, instant access "E" savings accounts generally pay as good as, or sometimes better rates of interest than longer term accounts.

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At the moment, instant access "E" savings accounts generally pay as good as, or sometimes better rates of interest than longer term accounts.

Got it in one. Although you can beat the rates further by taking a penalty of no interest paid on any month where you make a withdrawal. A+L Direct Saver is a good example. The other option is to drip feed into a series of regular savers, but that ca be tedious.

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I'd definitely go for the NS&I index-linked savings certificates. They're safe, inflation-linked and tax-free. There's no way a high interest account can beat the savings on a tax-free investment.

Although they have a fixed-term (three or five years), you can withdraw your money at any time. There's no penalty unless you withdraw your money in the first year (in which case you forfeit your interest - no other loss).

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Guest The_Oldie
I'd definitely go for the NS&I index-linked savings certificates. They're safe, inflation-linked and tax-free. There's no way a high interest account can beat the savings on a tax-free investment.

Although they have a fixed-term (three or five years), you can withdraw your money at any time. There's no penalty unless you withdraw your money in the first year (in which case you forfeit your interest - no other loss).

The only problem I have with those is that they pay a very small amount of interest, plus the RPI rate. However, NS&I is controlled by The Government, as are (ultimately) the RPI figures.

Edit: Also, you are tying up your money for a year, unless you forfeit all interest, which I would prefer not to do.

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I have been looking into this myself.

The problem with the A + L Direct Saver account is that the account has a limit of £100K and there is no rate guarantee. Only 1 account per customer.

The Sainsbury's Internet Saver account has a much higer savings limit and an intrest rate guarantee.

As for the NS&I certificates; what does max £15K per issue mean?

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The only problem I have with those is that they pay a very small amount of interest, plus the RPI rate. However, NS&I is controlled by The Government, as are (ultimately) the RPI figures.

Yes but... RPI 4.5% + interest of 1.15% (currently) = TAX FREE return of 5.65%, and you can invest up to 30k. To me as a higher rate taxpayer this is an unbeatable investment.

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Guest The_Oldie
Yes but... RPI 4.5% + interest of 1.15% (currently) = TAX FREE return of 5.65%, and you can invest up to 30k. To me as a higher rate taxpayer this is an unbeatable investment.

Absolutely, couldn't agree more, and they haye new issues every few months so you can invest a lot more than £30k. But if the RPI figures were to mysteriously drop?

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Absolutely, couldn't agree more, and they haye new issues every few months so you can invest a lot more than £30k. But if the RPI figures were to mysteriously drop?

Ah, the penny drops! I see your point!

:lol:

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The easier question is what not to buy: BTL or anything too closely tied to property.

I am about 80% in cash (80% US$ 20% UKP) and 20% in the world SMs and short term bonds. I think a defensive position is necessary as Great Crash 2 begins to tear down a lot of what has been built on the back of cheap credit during the miracle years. IMO, the US will come out of this better than we will and I cannot see sterling riding high much longer as it is rising on a single negative now: inflation.

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Been reading any Dawkins? ;)

I have, he's gone on over to the "other side" and is now an IDer:

http://www.timesonline.co.uk/tol/comment/f...icle1767506.ece

“Well, I’m convinced that future physicists will discover something at least as wonderful as any god you could ever imagine.”
Why not call it God?
“I don’t think it’s helpful to call it God.”
OK, but what would “it” be like?
“I think it’ll be something wonderful and amazing and something difficult to understand. I think that all theological conceptions will be seen as parochial and petty by comparison.”
He can even see how “design” by some gigantic intelligence might come into it.
“But that gigantic intelligence itself would need an explanation. It’s not enough to call it God, it would need some sort of explanation such as evolution. Maybe it evolved in another universe and created some computer simulation that we are all a part of. These are all science-fiction suggestions but I am trying to overcome the limitations of the 21st-century mind.
It’s going to be grander and bigger and more beautiful and more wonderful and it’s going to put theology to shame.”

I think Dickie Dawkins has been reading Paul's theory of the dark glass through which we only catch a glimpse of the supreme being.

Edited by Realistbear

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Thanks for the responses so far, but... it might be best to assume I know nothing! :lol:

The only problem I have with those is that they pay a very small amount of interest, plus the RPI rate. However, NS&I is controlled by The Government, as are (ultimately) the RPI figures.

I don't think I understand this comment fully. Maybe you could explain a little more?

The problem with the A + L Direct Saver account is that the account has a limit of £100K and there is no rate guarantee. Only 1 account per customer.

Presumably, because of the FSA compensation limit, you wouldn't want to invest more than £35k with any single institution anyway, would you? (Or do you feel okay about investing more, and I'm concerned over nothing?)

Absolutely, couldn't agree more, and they haye new issues every few months so you can invest a lot more than £30k. But if the RPI figures were to mysteriously drop?

I don't think I understand this comment at all! :blink:

Ah, the penny drops! I see your point!

My penny's still firmly in stuck in the slot, sorry!

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Been reading any Dawkins? ;)

Yes! I made some reference to Dawkins when I was typing out my original post, then removed it as I thought it would just confuse the issue if no one had read any recent Dawkins rants! ;)

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Are you a higher rate tax payer? If so, the NS&I one is definately worth a go, due to it being tax free. Even if the RPI figures do somehow drop (cant see it with food prices rising, chinese goods becoming more expensive etc) then you shouldnt lose out much. If you are not a HR tax payer, then i'd say no to bother with it.

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The only problem I have with those is that they pay a very small amount of interest, plus the RPI rate. However, NS&I is controlled by The Government, as are (ultimately) the RPI figures.

Edit: Also, you are tying up your money for a year, unless you forfeit all interest, which I would prefer not to do.

They pay the interest (including RPI) as net of tax so if you gross up the current rate (1.35% plus RPI @ 4.3%) you get 5.65% net of tax. If you pay 40% tax that is the equivalent of 9.4% gross (@20% its gross). Try to find a bank/building society offering that high a rate gross.

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They pay the interest (including RPI) as net of tax so if you gross up the current rate (1.35% plus RPI @ 4.3%) you get 5.65% net of tax. If you pay 40% tax that is the equivalent of 9.4% gross (@20% its gross). Try to find a bank/building society offering that high a rate gross.

Agreed - these are just great for higher-rate taxpayers. I recently invested in them myself as I don't see inflation going anywhere but up over the next few years.

However, the OP's question was about tying his money up for an extended period, and these investments are much less flexible than many savings vehicles. Personally, I see them as a good very-low-risk place to store some "rainy day" money that will only be drawn on in an emergency.

I have a fair bit in cash ISAs, but of course you can't retro-actively open those and stuff the last six years' allowances into them!

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My penny's still firmly in stuck in the slot, sorry!

The NS&I certificates give an interest rate based on RPI + a small bonus.

What The Oldie is implying is that if the government manipulates RPI figures to understate inflation (as many say that this government does), then your investment may not really keep pace with the true rate of inflation.

True but I still think the investment compares well to most others.

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The easier question is what not to buy: BTL or anything too closely tied to property.

I am about 80% in cash (80% US$ 20% UKP) and 20% in the world SMs and short term bonds. I think a defensive position is necessary as Great Crash 2 begins to tear down a lot of what has been built on the back of cheap credit during the miracle years. IMO, the US will come out of this better than we will and I cannot see sterling riding high much longer as it is rising on a single negative now: inflation.

RB, you seem pretty savvy. Why 80% cash when there is still the possibility that inflation could rocket and erode it?

*feel free to shoot me down on this onesince I'm hoping there's no chance of this too*

Edit to recommend Icesave to Ologhai Jones... and add that I think some people are restricting their savings to a maximum of just over £30,000 per bank. I think this is for safety in the event of a bank run but I could be wrong.

Edited by Disillusioned

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RB, you seem pretty savvy. Why 80% cash when there is still the possibility that inflation could rocket and erode it?

I wouldn't presume to speak for RB, but in general terms, inflation erodes returns from all assets that are denominated in some inflationary currency. So if cash returns 10% and the stock market is returning 5%, then cash is better regardless of what inflation does. Cash is safer than almost any other investment because it can't actually lose its nominal value - the only way it is devalued over time is through inflation. And the chances of inflation overtaking interest rates are fairly slim, I think.

Gold is another "inflation-proof" possibility, but I don't think it's for the faint-hearted.

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the chances of inflation overtaking interest rates are fairly slim, I think.

Official statistics may present this as correct, but I see the debate raging on here frequently regarding the validity of the current CPI and RPI models?

If we add many material and even immaterial items to the basket, I'm sure we could measure UK Inflation over 5.5% very easily.

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There really isn't much of a tie-up with the NS&I certificates:

1. You can remove your money at any time

2. If you remove your money at any point after the first year you get all your interest up to the last month

3. The only way you might lose out is if you pull your money out within the first year, in which case you get no interest, but there's still no charge on your capital

Sounds like a reasonable offer to me. After all, if there is a house price correction it'll take 3-5 years before the market bottoms out. Now what are the lengths of those NS&I certificates again? Oh: 3 and 5 years!

http://www.nsandi.com/products/ilsc/index.jsp

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I have, he's gone on over to the "other side" and is now an IDer:

http://www.timesonline.co.uk/tol/comment/f...icle1767506.ece

“Well, I’m convinced that future physicists will discover something at least as wonderful as any god you could ever imagine.”
Why not call it God?
“I don’t think it’s helpful to call it God.”
OK, but what would “it” be like?
“I think it’ll be something wonderful and amazing and something difficult to understand. I think that all theological conceptions will be seen as parochial and petty by comparison.”
He can even see how “design” by some gigantic intelligence might come into it.
“But that gigantic intelligence itself would need an explanation. It’s not enough to call it God, it would need some sort of explanation such as evolution. Maybe it evolved in another universe and created some computer simulation that we are all a part of. These are all science-fiction suggestions but I am trying to overcome the limitations of the 21st-century mind.
It’s going to be grander and bigger and more beautiful and more wonderful and it’s going to put theology to shame.”

I think Dickie Dawkins has been reading Paul's theory of the dark glass through which we only catch a glimpse of the supreme being.

Sorry RB, but that's just another example of your ability to spin the unspinnable. Richard Dawkins is not "IDer" as you call it, never has been and, unless some evidence of God's existence comes to light, never will be. You repeatingly posting selective, out-of-conext quotes from an article that was bordering on its desperation to see the slightest chink in Dawkins's atheism does not make it so. Intelligent design is simply gibberish.

Read The God Delusion and cast off your chains.

In the meantime have some fun:

"Evangelical Scientists Refute Gravity With New 'Intelligent Falling' Theory"

http://www.theonion.com/content/node/39512

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Some Bonds give you an opt out like Northern Rock( 6.1% )with instant access subject to 60 day loss of interest.Though this is shy of the 6.45% from the current leader Anglo Irish ,which is a lock in(Derbyshire withdrew their 6.45% yesterday).As the summer progresses rates should lift to the 6.75%-7.0%range so you could opt for say a Sainsbury's Instant access at 6% and wait for those market swaps rates to rise still further .

Edited by crashmonitor

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