Wealth Check: This charity worker wants to give herself a home

Sarah Wallace, 33, is trying to save enough to get back on the property ladder. But it's not easy when you're living and working in London
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The Patient

After selling a property bought with a former partner five years ago, Sarah Wallace, from south London, had returned to renting.

However, at 33 she is keen to build up a lump sum to buy again. "I sold my flat in Newcastle with my then partner and made about £13,000," she says. "I used a bit of the money to go travelling, saved about £10,000 – but I'm keen to increase this."

Yet with the cost of living in London eating up her salary, she has struggled to achieve her goal. "I want to find out the best way to invest my savings to benefit from a decent rate of return," she says.

Sarah earns £32,000 as events manager for The Sick Children's Trust, a charity providing free accommodation for families with children seriously ill in hospital, so they have somewhere to stay near the hospital while their children are there.

She has managed to slot away £10,000 in a NatWest one-year, fixed-rate bond paying 2.2 per cent until November this year. "I am happy to shift this money and tie it up elsewhere if it will increase my return," she says. "And I'd like to know if there are ways to save and benefit a charity at the same time. Is it worth using a scheme that gives a percentage of the interest to a worthy cause?"

Sarah also has £1,370 in a NatWest Individual Savings Account (ISA) paying 2.5 per cent. "Ideally, I would like to find a similar account to save into that will allow me access should I need to get to the money, as I know this isn't the best rate on the market," she says. She pays £100 a month into the ISA. "I want to keep this going but may have to use this money for something such as a big holiday or unexpected bill," she says.

She pays £670 a month for a room in a two-bedroom flat in Clapham, and hopes to buy in the area in the next five years.

Sarah is not contributing to a pension, but reckons that cash savings are more appropriate for her situation and goals. "I was on a temporary contract and now I've been moved to a permanent one I feel safer, but I have chosen to stick to contributing to my ISA every month rather than join a pension plan," she says. She has no protection policies in place.

The Cure

With a permanent job, some savings and no debt, Sarah is in a healthy financial position, agree our panel of independent financial advisers (IFAs).

After rent, she has around £1,300 left to fund day-to-day expenses and set aside for future financial goals. However, given that she wants to buy a property, she should increase her savings as the bigger the deposit, the better the rate she will be offered on the mortgage, they say.

Saving for a deposit

Sarah is wise to be saving in cash for a short-term goal such as a deposit on a home – stock-market investments are for savers willing to take a risk over a longer period of time.

However, she should make use of her annual £5,240 cash ISA allowance, which generates tax-free interest, before considering other savings accounts. Also, drawing up a budget to work out how she can set aside each month would be sensible, says Aj Somal, from IFA Aurora Financial Planning. The more she can save, the better.

With interest rates low at the moment, she will need to keep an eye out for the most attractive rates. Sites such as moneynet.co.uk will help keep her up-to-date on the best deals.

For example, AA Savings has an instant-access ISA paying 3.35 per cent. If Sarah wishes to set further money aside on a monthly basis after paying into an ISA – say, for an emergency fund – Norwich & Peterborough Building Society offers an instant-access account paying 4 per cent for the first 12 months, with a maximum monthly deposit of £250.

Once her fixed-term bond deal comes to an end, she could shift the cash into a two-year fixed-rate. For example, Sainsbury's Finance is offering a two-year fixed-rate bond with a minimum deposit of £5,000 paying 3.95 per cent, says Andrew Hagger from Moneynet.co.uk.

If she doesn't want to commit for two years, there is also a range of one-year fixed rates on the market. Rates are expected to rise over the next year, and she may wish to switch again if they do – with inflation running high it is important to chase the best cash rates.

Charitable giving

Sarah likes the idea of using her savings habit to benefit a charity, and there are various ways she can achieve this aim. However, by far the easiest and most effective route, says Tom Beckett from IFA Salisbury Financial Services, is to make small, regular contributes to a charity through Gift Aid. This way, the charity can reclaim tax paid on the donation.

There were positive changes for the charity sector in this year's Budget. The simplification of the Gift Aid application process, as well as the ability to claim it on small donations without forms will help charities – with benefit limits increased from £500 to £2,500.

Andrew Reeves, from IFA The Investment Coach, recommends Charity Bank as an option for those wanting to save while giving to a good cause. However, Mr Hagger says: "The rates are quite poor, with instant access and one-year bonds both paying just 0.5 per cent. Sarah would be better opting for a better paying account elsewhere and then making her own separate donation to her chosen charity."

Pension saving

While focusing on cash accounts makes sense for Sarah at present, this will not provide for a comfortable retirement.

"The biggest risk for cash savings is inflation, and whether she chooses a stocks and shares ISA, company or personal pension – or a mixture of these – investing in the stock-market will be essential for retirement planning," says Mr Reeves.

Sarah should consider joining her employer's scheme if there is one – particularly if contributions will be made on her behalf. "From 2012 she is likely to be enrolled in the government National Employment Savings Trust (Nest) pension scheme. Her employer will have to enrol most workers into a workplace pension scheme," says Mr Beckett.

Mr Somal says: "Sarah can nominate a charity to receive the proceeds of her pension scheme if she were to die before she withdraws benefits."

Protection

Mr Somal recommends that Sarah find out what cover is available from her employer if she were unable to work due to illness. She could consider products such as income protection – which pays out a regular income when the policyholder is unable to work for medical reasons.

Do you need a financial makeover?

Write to Julian Knight at The Independent on Sunday, 2 Derry Street, London W8 5HF

j.knight@independent.co.uk

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