The problem: Travel bug turns to investment bug
After two years teaching English in Japan, Claire Phillips and Edo Weightman want to lay the financial foundations for a future back on home soil.
While abroad they built up savings and now have £5,000 in an Egg account (at a rate of 4.5 per cent) and £9,000 in three mini cash individual savings accounts (ISAs). Two of these are with Abbey, paying 4.6 per cent, and one with First Direct at 4.89 per cent.
"We want to invest the money more wisely to benefit from greater returns," says Claire. "But we would like to have access to a few thousand pounds of our savings now, so we can afford to travel while Edo is still studying [for his law 'conversion' degree]."
The married couple, both 27, live in Gloucestershire with Claire's parents and pay £250 a month in rent.
Claire commutes to Oxford, where she works as a local government officer earning £23,000, while Edo goes to university in Bristol and receives a £4,000 maintenance grant from his future employer. From September 2007 his salary will be £20,000, though this will rise considerably when he qualifies in 2009.
The immediate plan is to move to Oxford, where the couple expect to pay £750 a month in rent. In three years' time, when they are in a position to have a home of their own, they hope to build rather than buy one.
Aside from student loans - both owe £5,500 - they have no debts.
Claire has contributed 6 per cent of her salary to the local government pension scheme (LGPS) for three and a half years but worries if this is enough when Edo has no pension.
The cure: Stay in cash if you want to own a home
Claire and Edo must think carefully before switching their cash savings elsewhere, says Nick Lincoln of independent financial adviser (IFA) Wilson Dean. "Ideally they should consider the stock market as the returns are likely to beat deposits, but these investments are for at least five or 10 years." Given their property ambitions, he adds, they may need the money much sooner.
With home ownership on the horizon, Mr Lincoln says they should accept the security and access offered by cash accounts. "They should continue to build up their savings using their mini cash ISA allowances. This can reduce the sum needed for a mortgage."
Alex Pegley at IFA Calculis agrees with the cash ISA strategy as the interest is tax free, but he adds that Claire and Edo should keep an eye on the rates paid.
Egg's account is also competitive but other providers can beat it. Anglo Irish Bank, for example, is offering 4.8 per cent.
Philippa Gee from IFA Torquil Clark warns that while self-build can save money in the long run, it is costly at the start. "Lenders look for larger deposits - typically at least 20 per cent of the land price."
Interest on student loans is relatively low - linked to inflation, it's currently 3.2 per cent - and so should simply be paid off over time rather than through an early repayment.
The LGPS is an "excellent" scheme, says Mr Pegley; and if she wants, Claire should be able to make additional contributions. Edo's current income is low, but he can still contribute up to £300 per month - including basic-rate tax relief - into a cheap personal pension.
But Mr Pegley adds: "At present, I recommend they direct any excess income towards the home purchase. Once Edo is qualified, they will be in a better position to do something about their pension saving."
If you would like a makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email firstname.lastname@example.org