Your Money: Windfall Special - Make that windfall grow
Planning to put your building society bonanza away for a rainy day? Neil Baker tells you how
Wednesday 21 May 1997
That might not be good news for the travel agents, yacht chandlers and DIY store chiefs hoping for a bonanza - but it suggests that the majority of windfall collectors have half an eye to the long term in deciding what to do with the cash.
For many, the money offers an opportunity to kick-start a savings account or start setting aside some cash for the first time. While fund managers and stockbrokers are eager to promote the merits of their personal equity plans, many savers will undoubtedly prefer to stay with savings accounts.
You will get better rates if you are prepared to tie your money up for a while - although you should keep some cash available for instant access.
One of the best instant-access rates on offer is 6.4 per cent gross from Nationwide. The minimum deposit is pounds 500. Cheltenham & Gloucester is paying 6 per cent on deposits of at least pounds 1,000. If you can top your windfall up with other savings, Northern Rock is offering 6.35 per cent on deposits of at least pounds 5,000.
Among the notice accounts, Nottingham Building Society is offering 6.4 per cent on deposits of at least pounds 2,500 with its 30-day account. The Cheltenham & Gloucester 30-day account pays 5.5 per cent on deposits of just pounds 100.
For those who are able to lock away windfall cash for five years, consider a Tax-Exempt Special Savings Account, or Tessa. These pay interest tax- free - as long as you do not withdraw any of your capital and not more than 75 per cent of the interest until the end of the five-year term. You can still get your money if you really need it, but you lose the tax benefits. You can invest up to pounds 3,000 in a Tessa in the first year and up to pounds 1,800 in each of the subsequent four years, to a maximum of pounds 9,000.
Remember that the returns on Tessas are tax-free, whereas the rates on other accounts are normally quoted gross. So for a basic-rate taxpayer, 7.7 per cent from a Tessa would be equivalent to 10 per cent gross from a regular taxable savings account.
Some of the best deals require a high starting deposit - because they are aimed at attracting people who already have a Tessa with another bank or building society. But there are some good deals around for first-timers. The West Bromwich is offering 7 per cent on starting deposits of pounds 3,000. For smaller deposits, Monmouthshire society is offering 7 per cent on pounds 1,000 and Principality is offering 6.8 per cent on pounds 500.
Unfortunately, you are only allowed to have one tax-exempt account. So if you have one already, it might be worth considering other forms of risk-free savings, such as National Savings Certificates.
Index-linked National Savings Certificates currently pay 2.5 per cent tax-free above the rate of inflation when held for five years. The minimum investment is pounds 100. You need to give eight days' notice to get your money back, and lose your interest and index-linking if you want your money back in the first year.
Banks and building societies also offer fixed-rate bonds, which repay your capital plus a fixed amount of interest at the end of a set period or at the end of each year. The Nationwide one-year fixed-rate bond pays 7 per cent on deposits of at least pounds 500. It also offers a two-year bond paying 7.3 per cent. The Halifax is offering 7.4 per cent on its three- year bond with a minimum deposit of pounds 2,000.
Lightning is not supposed to strike twice, but if you fancy your luck you might decide to invest your windfall cash in another building society which could opt to convert from a mutual. That would bring another windfall your way.
A lot of the societies have said that they want to maintain their mutual status, but just for the record, the possibilities would include: Nationwide, Birmingham Midshires, Bradford & Bingley, Britannia, Coventry, Newcastle, Norwich & Peterborough, Skipton, West Bromwich and Yorkshire. Some of these pay good rates on their Tessas and may be worth considering for that reason alonen
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