FINANCIAL MAKEOVER: Savings: it's time to play the field

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Liz and Keith Porteous are both 30 and have their home in Bristol. Keith is a software engineer, earning pounds 33,000 a year plus bonuses; she is a horticulture student, currently on a placement year as a landscape assistant earning pounds 161 a week - the minimum wage in agriculture.

They are seven years into a pounds 60,000 endowment mortgage with the Woolwich and Sun Life on a property worth pounds 63,000. This costs more than pounds 400 a month. They pay a further pounds 325 (before bills) a month on a flat near Worcester where Liz is working on her placement year.

The couple have pounds 5,500 of joint savings in a C&G Instant Transfer account (operated by telephone). Liz has pounds 9,000 in a Halifax tax-free Tessa account due to mature in November, and a further pounds 3,500 on instant access with the Woolwich.

Keith has two lots of windfall shares - from the Halifax and Woolwich - worth around pounds 5,000 in total. His father has also invested an unknown sum in Keith's name in a PEP and some other shares as a way of reducing the risk of inheritance tax. Keith also holds shares in his employer - Lucent Technology.

Pension-wise, Keith is a member of his company scheme to which he contributes 6 per cent of his salary. His employer contributes 3 per cent. Liz is currently not funding her pension, but has six years worth of previous benefits with Sun Life, the insurer.

Liz used to feel up-to-date with financial matters when she worked with Sun Life. Now she is a horticulture student, and with the couple having picked up a couple of windfalls and with money in a whole range of accounts, she feels they could benefit from organising their finances better. They also hope to move in a couple of years' time and want to make sure they save enough to do so.

What a financial adviser says:

The couple's situation will change a lot over the next year. They are struggling a bit at present, paying both a mortgage and rent on an additional flat. Liz will finish her HND next June, although she describes job prospects as "limited". In February she will move back home at the end of her placement, bringing to an end the need to pay for a second flat but also her modest income.

From February the couple should be able to make some additional savings, and their existing account with C&G - which pays 7 per cent on pounds 1,000 upwards - is an ideal place to put this extra money. It pays one of the very best rates around and is effectively instant access.

Liz's Tessa matures in November. Given that the couple may want to use this money in two years' time when they move house they should beware of how they reinvest it. Tessas only allow limited withdrawals without triggering their closure, and many accounts carry penalties for closure on top of the interest becoming taxable. If this money is to be earmarked for the move, in practice it may be better to keep it in the C&G account or possibly in a two-year bond offering the prospect of a little more interest.

Now the couple have their free shares, the pounds 3,500 on deposit with the Woolwich should be switched - into the C&G or one of the remaining societies which might yield further windfalls.

Pension-wise, Liz should do nothing until she enters employment next summer. Keith could increase his pension prospects by making additional voluntary contributions (AVCs), possibly using his bonus monies.

The couple could save up to pounds 100 a month on their mortgage - money which could be put towards their move - by switching onto a two year fixed-rate deal. By doing this through the Woolwich - rather than another lender - they would avoid additional survey and solicitor's fees; this would also allow them to switch the mortgage in two years time to a new property without incurring "redemption" penalties.

Finally, the couple might consider taking out critical illness insurance to cover the mortgage. "Critical illnesses" such as cancer are surpisingly prevalent but, being young, rates for the couple would be quite reasonable. For pounds 20 a month, they might be able to get pounds 70,000 of insurance, which would be paid out in a lump sum if one or other of them were unfortunate enough to contract a serious condition.

Liz and Keith Porteous were talking to Lynn Foster of Woodward Insurance and Mortgage Services, a Somerset-based independent financial adviser and a member of the Financial Options network of IFAs.

If you would like to be considered for a financial makeover for publication, write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL. Fax: 0171-293 2096 or 2098; e-mail: Please include details of your current financial situation, a daytime telephone number, and state why you think you need a makeover.

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