Wealth Check: 'What can I do with my 'rainy day' savings?'

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The Independent Online

Former teacher Beryl Bennett is retired and lives in Burnley close to her daughters and four grandchildren.

Beryl receives a teacher's pension of about £5,000 a year and state pension benefits worth £101 a week. Her outgoings, which consist mainly of running a car and general household bills, amount to around £230 each month.

She has £2,000 invested in an ISA and £9,000 in a TOISA - the accounts which were offered to Tessa savers when this tax shelter was abolished in 2001. Both are held with Abbey.

Beryl has savings totalling £50,000, which she's keeping aside for a "rainy day", possibly to be used later in life should she need to pay for a care home.

We asked three independent financial advisers for their assistance in helping Beryl to make the best of her finances: Lisanne Mealing of MD Associates, Vivienne Starkey of Equal Partners and Ben Gibbs of Re-Financial Planning.

Case notes

Beryl Bennett, retired, Burnley

Pension: Beryl is retired and receives a teacher's pension of £432 a month, plus a state pension of £101 a week.

Monthly outgoings: These include phone, utility bills and running a car, and total £230.

Savings: £2,000 invested in a cash ISA and £9,000 in a Tessa-only ISA - both with Abbey - plus savings of approximately £50,000

Insurance: None

Debts: None

Will: Yes


With an annual income of around £10,000 and outgoings of about £3,000 a year, Beryl is able to maintain a reasonable standard of living, says Mealing. She may even be able to save money by searching for a better deal on her gas and electricity. The website uswitch.com will provide her with some help on the best deal available to her, depending on her consumption levels.

Starkey agrees that Beryl should shop around to make sure that she is getting the best deal on her telephone and utility bills. Keeping a record of her spending over a month, including household bills, car running costs, entertainment, and so on, may be tedious, but would give her peace of mind in the long run.


With no financial dependents, Beryl has no need for life insurance, and critical illness cover is unlikely to be a key concern, says Gibbs. She receives a pension income, so a policy to protect this isn't relevant.

Beryl should keep her will updated so that it continues to reflect her wishes, advises Gibbs. She should also consider establishing an enduring power of attorney, if she does not already have one.

This would enable her family to administer her affairs if she were to become incapacitated. On a practical note, she should make sure that all her important financial documents are kept in a safe place and that someone else knows where these are.


Beryl needs to make sure that her savings and ISAs are working as hard as they can, stresses Gibbs. Cash ISAs can pay up to 5.3 per cent interest so she must get the best deal. Portman Building Society and Alliance & Leicester are among the top-rate payers at the moment.

In addition, she can use stocks and shares ISAs to produce tax-free income, by investing in gilts or gilt and fixed interest funds (which make investments that pay out income) or shares that pay out income.

If she is looking to maximise income, she can expect an income of up to 5.5 per cent from a UK fixed interest fund. She may also find National Savings Index-linked savings certificates useful. They are tax-free, pay a return of 1.05 per cent above inflation - 2.3 per cent for February 2006.

However, these certificates are more useful to higher-rate taxpayers, because while the return is not as high as can be achieved in a high-interest account, it is paid tax-free.

Mealing also suggests Beryl consider reinvesting her cash ISA. She should make sure that she uses her ISA allowances every year to reduce the tax she is paying on her savings.

For her longer term money, Beryl may wish to consider investing £7,000 in a stocks and shares ISA, reducing risk by investing in a fund of funds portfolio, such as Jupiter Merlin Income or Growth, or perhaps the Skandia Cautious fund of funds range.

Beryl's "rainy day" money should be split up. She should put cash aside that she would need for a more immediate emergency, say £10,000, which could be invested in an immediate access savings account, such as Northern Rock's deal which pays 5.01 per cent a year.

The balance could then be invested in something longer term, such as a bond with the 5 per cent income payments either being deferred or taken, depending on her requirements for income.

Axa Distribution Bond is a good example of a lower-risk investment, although if Beryl was not too concerned about risk and was willing to tuck this away for longer periods, say in excess of 10 years, the range of options is wider.


Depending on the value of her home, savings and investments, there may an inheritance tax liability payable on her estate when she dies, says Gibbs. The first £275,000 - £285,000 from 6 April for the next tax year - makes up the nil-rate band. No inheritance tax is payable on this.

Over the nil-rate band, tax is payable at 40 per cent. At this stage, she should identify any potential liability, though her options in addressing or reducing this are likely to be fairly limited based on her financial position.

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