From piggy banks to PEPs
Baffled about where to put your savings? Nic Cicutti offers some guidance
Wednesday 28 February 1996
Your starting point should be to define why you want to save money, the first stage in the process of deciding where it should go.
Roddy Kohn, an independent financial adviser at Bristol-based Kohn Cougar, says: "Many people who come to us already have a particular purpose in mind. For example, they may be keen on saving for a particular purpose, such as school fees for their children or university living expenses. Knowing where the money will go helps to focus their minds."
Key points to bear in mind include:
Most people need some funds in case of an emergency. It makes sense to stick a few hundred pounds in a bank or building society instant access account.
You should think about retirement planning. This becomes more important as you get older. The sooner you start, the less of your annual income you need to set aside towards your pension.
If you are buying a home or thinking about it, give some thought to whether you want a repayment mortgage or one where you pay interest and save money separately towards the loan. With mortgage interest rates mostly at 7.5 per cent, it may also make sense to divert a lump sum to help pay off a chunk of your home loan.
If you are setting money aside for a special reason, such as a car or a holiday, decide for how long you want to save. Some investments specify that you must leave your money alone for set periods of time.
Are you investing for some stage in the future, in which case you want your capital to grow, or do you need income? There are different investments to suit both needs.
The next question is: do you have a lump sum to invest? If not, are you prepared to save on a regular basis? Don't worry if the amount seems slight. Every little helps and, if invested long enough, can deliver surprisingly good returns.
You will then have to make a critical decision: how much risk are you prepared to accept with your investment?
Mr Kohn says: "Everyone's views are different. There are some people prepared to take a long-term view on Chinese economic performance, or emerging markets in Latin America. Others may not want to take any risks. Neither strategy is necessarily wrong.
"As a rough rule, my suggestion would be that the younger or wealthier you are, the easier it is to accept that some of your money should go into potentially riskier investments. Over the longer-term, say 10 or 15 years, it makes sense."
Generally, among higher-risk investments are unit or investment trusts, which can rise or fall depending on stockmarket performance. Some offer guarantees, blunting the potential upside.
Mid-risk investments include with-profit endowments from insurance companies. They try to "smooth" investment performance, guaranteeing small annual bonuses plus a terminal bonus at the end.
Low- and no-risk investments, albeit at the risk of lower returns, include most bank and building society savings accounts, plus certain index-linked government stocks. National Savings also guarantees its returns. Don't ignore any special insights you may have. Your specialist knowledge of a particular sector, such as the one you work in, can be highly useful.
Next, think of tax. Just as it makes no sense to base an investment decision on taxation alone, you shouldn't willingly hand over your money. Personal pensions enjoy highly favourable tax treatment. If you are in the 40 per cent tax band, for instance, for every pounds 100 you pay, the taxman gives you pounds 40 of that amount. The snag is that if you are young, you will have to wait a long time to benefit.
Personal equity plans (PEPs) and tax-exempt special savings schemes (Tessas) are both tax-effective, but generally at opposite ends of the risk spectrum, with PEPs riskier than Tessas.
One vital point to consider is fund performance. How does it compare with all the others in its sector? Who are the fund managers? Are they likely to stay? Don't imagine that excellent performance equates with top-five status. Consistent placings in the top quarter of funds every year in the past decade is an achievement.
Equally important is the financial well-being of the company you deal with. Will it be around for the remainder of your investing life?
Another factor to consider is flexibility. Can you suspend payments if you hit a rough spot? Is there access to your money in an emergency? Are there any penalties for taking your money out early? Also, what are the charges on the investment?
Finding the answer to these questions may take you time and trouble. Many savers prefer to entrust a professional with the job. Mr Kohn argues: "A good adviser can take a lot of the headache out of your decisions. I am responsible to my clients, though the final decision is theirs.
"If they tell me their needs, I do the work on their behalf. I'm not infallible, but it follows that someone experienced is likely to make less mistakes than a novice."
For details of an independent financial adviser near you, call 0117 971 1177.
Independent Partners: See how much you could save by switching credit cards. Compare now
- 1 Gurdwaras-turned-food banks: Sikh temples are catering for rise in Britain’s hungry
- 2 Council bans use of word ‘Commie’ – but ‘fascist’ and ‘Nazi’ are fine
- 3 The man who made Femen: New film outs Victor Svyatski as the mastermind behind the protest group and its breast-baring stunts
- 4 The poorest pay the price for austerity: Workers face biggest fall in living standards since Victorian era
- 5 Mass murder in the Middle East is funded by our friends the Saudis
- < Previous
- Next >
iJobs Money & Business
£55000 - £70000 per annum + Benefits + Bonus: Harrington Starr: Senior Java De...
£25000 - £35000 per annum: Harrington Starr: PHP Developer (Web Developer, MyS...
£55000 - £75000 per annum + 28 Days Holiday: Harrington Starr: Flex Developer ...
£50000 - £90000 per annum + Benefits + Bonus: Harrington Starr: Senior Core Ja...
Day In a Page
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.
John Lennon's childhood home in Liverpool to be sold at auction. Guide price: £150,000-£250,000.
A six-bedroom detached period property with secluded gardens, ample parking and a double garage in Rye, £675,000.
A large split-level property with three double-bedrooms and roof terrace, close to Crouch End Broadway, £625,000.
A charming barn conversion in the picturesque Cotswold village of Ilmington with three bedrooms, a detached garage, workshop and beautifully manicured gardens £675,000.
A three-bedroom new build, ground-floor flat with two bathrooms, close to Bermondsey tube, £445,000.
A three-bedroom house in an enviable new development moments from Oxshott High Street, with secluded garden and decked area, £385,000
A two-bedroom split-level flat with stunning south-west facing roof terrace in the popular Brondesbury Conservation Area, £549,950.