Money Insider: A balanced way to earn money from a £5,000 savings portfolio
Saturday 29 May 2010
A balanced savings portfolio ticks all the boxes. With interest rates offering miserable returns, it's understandable that some people may have all but given up saving in the current climate.
However, building a savings nest egg remains a sensible strategy even when interest rates are low. So if you've got £5,000 to save, where should you put it?
First, it's important to keep some of your cash in an easy access account for emergencies – somewhere that you can get your hands on it quickly if needed.
At the same time you should look to take advantage of your annual taxfree savings allowance, so it may be that you initially keep your emergency fund in an instant access Isa and kill two birds with one stone. The Golden Isa 2 from Barclays paying 3.10 per cent (ends 1 June) or Nationwide Building Society e-Isa at 2.75 per cent free of tax are worth considering as a home for the first £1,000 of your savings, giving you instant penaltyfree access when you need it.
The next step for the remainder of your savings is to look longer-term with fixed rate accounts – more often referred to as bonds. Because you don't have access to your cash for the term of the bond (anything from six months to five years) the trade-off is that you receive a higher rate of interest than you'd get with an easy access savings account. However,while you don't have access to your capital, many bonds will give you an option to receive the interest on a monthly basis if that's what you prefer.
Once again you're faced with more choices and decisions to make. Interest rates on fixed-rate bonds have fallen slightly in the last few months. However, the biggest dilemma is how long to invest your money for. The temptation is to opt for the highest rate, although this would result in you having no access to your money for a full five years. With base rate still at a record low of 0.50 per cent, rates will start to rise again at some point, but what we don't know is quite how soon and how quickly this will happen.
The rates on offer for two- or threeyear bonds look quite attractive, and although you can currently bag an extra 0.75 per cent for a five-year fix, that decision may come back to haunt you if rates were to rise by say 1 or 2 percentage points in a couple of years from now.
So with the remaining £4,000 of your savings, if you're positive that won't need to use it for some time, you could divide it as follows:
* £1,000 with Kent Reliance BS for a one-year term at 3 per cent;
* £1,500 with State Bank of India for two years at 4 per cent;
* £1,500 with Coventry BS for three years at 4.2 per cent.
By spreading your fixed-term savings, you will get a better overall return than by just putting it all in a bond for just one year. This strategy also means that every year for the next three years you will have a savings bond maturing and the option to fix again, perhaps in a new fixed rate Isa, for a term that suits your circumstances at that time.
In the meantime, if you want to continue building your savings, take a look at the new branch-based regular savings account from Northern Rock. The account allows you to save up to £250 per month, gives you penaltyfree access to your cash and pays a table-topping 5 per cent gross fixed for 12 months.
This suggested savings portfolio may not be the right scenario for all savers as it will depend on your own tax status, the amount you have to save and access you require to your cash, but it's a pretty good base from which to start.
Premature end for Child Trust Fund
While there was undoubtedly an urgent need to reduce the budget deficit, the seemingly hurried decision to scrap the Child Trust Fund this week has to be questioned.
The £520m annual cost saving may earn the Government a few brownie points with some supporters. However, it was a shortsighted move to axe a savings scheme that could have given such a vital financial boost to the next generation.
If the CTF had been introduced in 1992, those with a CTF maturing this year would be able to use their lump sum to offset the rising cost of higher education or even put it towards that now seemingly impossible deposit required for their first home.
Had the scheme been allowed to continue, come September 2020 when the first accounts would have matured, there would have been a stream of 18-year-olds entering adult life on a much sounder financial footing than previous generations – did it really make economic sense to wipe that out in one fell swoop?
Andrew Hagger is a money analyst at Moneynet.co.uk.
And why are 'southern' ways of speaking spreading north?
life + styleClarissa Baldwin is the brains behind the slogan 'A Dog is for Life not just for Christmas'
- 1 Is this the scariest advert ever? Japanese tyre commercial comes with its own disclaimer and health warning
- 2 How black gold was hijacked: North sea oil and the betrayal of Scotland
- 3 A forgotten episode in Russian history leaves links with the Philippines
- 4 Scientists sequence oldest human DNA from fossilised leg bone found in Spain
- 5 ‘Put it in my mouth’: Viewers outraged by apparent reference to oral sex in VIP e-cig advert
iJobs Money & Business
£90000 - £120000 per annum: Harrington Starr: Global Director of Infrastructur...
£50000 - £70000 per annum + Bonus + Benefits: Harrington Starr: Associate Dire...
£Negotiable: Citifocus: High calibre individual with a strong understanding o...
£50000 per annum: Morgan Hunt: Whilst the Real Estate sector was suffering thi...
Day In a Page
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.
A charming 16th century, three-bedroom detached house in Bidborough with picturesque garden
A top-floor one-bedroom flat in the heart of Pimlico with a terrace providing spectacular views over London, £495,000.