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Spend & Save

Wealth Check: 'How can I build up a fund before university?'

Toni Jokinen, 18, originally from Finland, is keen to put his savings to work. He also wonders if he might be able to limit his student debt. "I'm earning well and have virtually no outgoings," says Toni. "I've asked my parents to look after £2,000, and have £2,000 in my own current account. But with such low interest on offer, could my money be working harder somewhere else?

"Could this be the ideal time to lay the groundwork for a pension?" Toni is keen to start university next year with £10,000 in the bank.

Case notes

Salary: £920 per month (gross) from restaurant work.
Monthly outgoings: car £75, travel £60, leisure £10, tax £250, horse £120.
Savings: Toni is using a NatWest Adapt current account paying 1.5% AER interest and has £2,000 saved in total.
Pension: Toni is not yet part of his employer's pension scheme though he isn't clear on the terms or how to opt in.
He has no formal debt yet, but he is keen to offset the student debt he will incur when he goes to university in the autumn of next year.

Three independent financial advisers offer Toni their help this week: Mel Kenny of Radcliffe and Newlands, Alex Pegley of Calculis, and Mike Pendergast of Zen Financial Services...


Alex Pegley recommends Halifax for a recession-busting interest rate. He says: "Interest rates are likely to stay low for the foreseeable future. The recession is at, or near, its end, but it will be some time before higher interest rates return. Having said that, Toni can improve on the interest he's getting. His regular savings (of a fixed monthly amount between £25 and £500 per month) could get 5 per cent over the next year with Halifax.

"Toni could look at Finish deposit accounts, but the overriding issue here is exchange rates. If sterling strengthens against the euro, he could lose a substantial amount when converting the money back – this is too great a risk in my opinion."

Mel Kenny agrees that it would unnecessarily introduce currency risk as well as observing that interest rates are no better in Finland.

Kenny adds : "While low interest rates are of a concern to Toni, he may be surprised to hear that attractive, one-year fixed rates of between 3.5 per cent and 3.8 per cent gross per annum, and regular savings rates of 5 per cent gross per annum are available. This ties in well with his plan to go to university in October 2010 and the rates are suitable for existing savings and any savings he can make out of his income. In order to meet Toni's goal of £10,000, he needs to save around £500 per month into the high-interest account.

"Even though he may not need it initially, Toni could maximise income by taking out a student loan immediately and invest it in a high-interest account, as the cost of the loan will be 0 per cent until September 2010."

Mike Pendergast recommends that Toni should investigate a cash ISA.


Toni is keen to put some of his spare cash aside for his retirement, but is unsure about the pension plan offered by his employer.

Alex Pegley encourages Toni to get into the habit of contributing to his employer's scheme, saying that: "Conventional wisdom suggests someone should generally join an employer's pension scheme if offered. I initially thought that Toni joining would be of little benefit, as over the next year or so he's unlikely to accrue much in the way of a pension fund. However, if he joins the scheme now and gets into the habit of having pension contributions deducted from his salary, it will be second nature when he graduates and starts his career.

"Plus, over the 50 or so years until his retirement compound growth could lead to phenomenal growth. An annual growth rate of 6 per cent would lead to a 20-fold increase in the fund value after 52 years!"

Mike Pendergast agrees that Toni should at least make himself aware of what his employer offers.

Mel Kenny suggests that Toni considers a pension plan tailored to suit his goals. He says: "As Toni plans to go to university and therefore cease contributions, he should look at a flexible pension arrangement for small contributions, such as a stakeholder pension."


While Toni believes that he is too young for a will he does acknowledge the importance of having his affairs in order should something happen to him. The experts are in agreement that Toni should consider a professional will to guarantee its accuracy.

Mike Pendergast says: "It's best to take advice rather than trying to do-it-yourself. While free kits are available, a local will writer will charge between £50-£100 to make a will and your family could lose far more than the cost of making a will if one is drafted incorrectly."

Mel Kenny agrees that Toni should consider a professional will rather than relying on a kit. "As his affairs are very simple, a will writer could do one for as little as £50 to ensure validity."

For a free financial check-up, write to Wealth Check, The Independent, 2 Derry Street, London W8 5HF; or email wealthcheck@independent.co.uk To find an independent financial adviser in your area, visit www.unbiased.co.uk