Suggestions on save investments with income

[leedm]

Hi

My 73 year old mother has recently inherited 100k and I’m helping her with identifying the best places for her to put it.

She already gets a state pension and a couple of extra 100 per month from my dads pension but currently her total is less than the personal income allowance

She obviously can’t risk losing the money but it would be nice to invest it in something safe that also pays her a little each year to top up her income.

So far I’ve been looking at cash ISAs, money market funds, Gilts, so would like to get opinions/ suggestions on those as well as any other things to consider that meet the stated above criteria
Thanks for any help provided.

[NotSure]

I believe it would take 5 years to safely "ISA" it all (I'm not sure of the cost/benefit of that approach - reduced rates vs tax). There are plenty of fixed rate savings deals (risk-free) so maybe ISA £20K and split the rest between 4 fixed term accounts, 1, 2,3 and 4 years, ISA on maturity?

e.g.: https://oaknorth.co.uk/personal-savings/fixed-term/ is over 5% for all the terms above.

[swill453]

At her level of income she can earn £6000 of interest before it'd be taxed.

Compare with the dividend tax-free allowance which is only £1000, going down to £500 next year.

Scott.

[Itsallaguess]

She already gets a state pension and a couple of extra 100 per month from my dads pension but currently her total is less than the personal income allowance

She obviously can’t risk losing the money but it would be nice to invest it in something safe that also pays her a little each year to top up her income.

Has she got any Premium Bonds?

If not, then I'd consider throwing £50K at a full allocation of Premium Bonds, even if it's just a relatively short-term position whilst you consider other options.

The current 'average' prize rate is 3.30%, which is completely tax-free, and given the Government-backed security of the National Savings & Investment provider, I think it might be a good option for at least part of the funds you're looking to find a home for.

I've got a chunky allocation myself, and whilst I could probably make the cash work a little harder if I put some more effort in, I think the returns are pretty good and I actually quite enjoy waiting for the new month's prize-check to see if I've won anything, and I've been very happy with the long-term returns on my holding.

Cheers,

Itsallaguess

[leedm]

I believe it would take 5 years to safely "ISA" it all (I'm not sure of the cost/benefit of that approach - reduced rates vs tax). There are plenty of fixed rate savings deals (risk-free) so maybe ISA £20K and split the rest between 4 fixed term accounts, 1, 2,3 and 4 years, ISA on maturity?

Thanks, the Oaknorth account looks interesting. Would you know if she could have multiple Oaknorth accounts so she could for example have 20k in a 1 year, 20k in a 2 year etc?

[leedm]

She already gets a state pension and a couple of extra 100 per month from my dads pension but currently her total is less than the personal income allowance

She obviously can’t risk losing the money but it would be nice to invest it in something safe that also pays her a little each year to top up her income.

Has she got any Premium Bonds?

If not, then I'd consider throwing £50K at a full allocation of Premium Bonds, even if it's just a relatively short-term position whilst you consider other options.

The current 'average' prize rate is 3.30%, which is completely tax-free, and given the Government-backed security of the National Savings & Investment provider, I think it might be a good option for at least part of the funds you're looking to find a home for.

I've got a chunky allocation myself, and whilst I could probably make the cash work a little harder if I put some more effort in, I think the returns are pretty good and I actually quite enjoy waiting for the new month's prize-check to see if I've won anything, and I've been very happy with the long-term returns on my holding.

Cheers,

Itsallaguess

Thanks, she doesn’t have any premium bonds but we are aware for those. She hasn’t received the money yet so we’re just looking at our options in readiness for when it arrives

[NotSure]

I believe it would take 5 years to safely "ISA" it all (I'm not sure of the cost/benefit of that approach - reduced rates vs tax). There are plenty of fixed rate savings deals (risk-free) so maybe ISA £20K and split the rest between 4 fixed term accounts, 1, 2,3 and 4 years, ISA on maturity?

Thanks, the Oaknorth account looks interesting. Would you know if she could have multiple Oaknorth accounts so she could for example have 20k in a 1 year, 20k in a 2 year etc?

Yes, multiple accounts are possible, as are other suppliers of fixed rate accounts. From my own experience, I can say that Oaknorth (and Shawbrook) are very straight forward to open and operate (as compared to setting up a gilt ladder for example). They are both online only though if that is an issue, but do not require an app. Access via web page and TFA via phone code.

[leedm]

Thanks, the Oaknorth account looks interesting. Would you know if she could have multiple Oaknorth accounts so she could for example have 20k in a 1 year, 20k in a 2 year etc?

Yes, multiple accounts are possible, as are other suppliers of fixed rate accounts. From my own experience, I can say that Oaknorth (and Shawbrook) are very straight forward to open and operate (as compared to setting up a gilt ladder for example). They are both online only though if that is an issue, but do not require an app. Access via web page and TFA via phone code.

Thanks again. Just one other thing on this, if she invests in the 5 year account, does the interest get paid annually and therefore she’d benefit from annual compounding or does it all get paid at the end would therefore work out as 5 x annual interest rate on the original amount deposited ?

[kempiejon]

Hi

My 73 year old mother has recently inherited 100k and I’m helping her with identifying the best places for her to put it.

She already gets a state pension and a couple of extra 100 per month from my dads pension but currently her total is less than the personal income allowance

She obviously can’t risk losing the money but it would be nice to invest it in something safe that also pays her a little each year to top up her income.

So far I’ve been looking at cash ISAs, money market funds, Gilts, so would like to get opinions/ suggestions on those as well as any other things to consider that meet the stated above criteria
Thanks for any help provided.

Premium bonds will take half of that. Cash ISA another £20k. 1 year fixed interest at 5% is out there as is around 3.5% easy access to mop up the rest.
eg https://www.mycommunityfinance.co.uk/savings
She will keep her principal throughout and most months could expect a PB win.

[monabri]

£100k...safety paramount.

1. I'd suggest splitting the money up such that you do not exceed the £85k Financial Services Compensation Scheme ( FSCS) limit with any one company, having verified that the company has this backing.

( company = bank/building society)

This is for 2 reasons, the first being covering yourself for financial loss and the second reason is to minimise ( or at least reduce) the effect if a company runs into difficulties.

There is still the risk that any company goes belly up...you should get your money back but there will be delays, so that would be another reason to spread the cash around . Your fund " stream " would be on hold whilst the administration was sorted out.

2. Fixed rate bonds are offering ~5% interest rates. The money would be tied up until maturity. If you do decide to go down this route, even in part, invest the money in chunks of, say, £5k or £10k+£5k+£5k etc. IF a chunk of money is needed ( and the terms allow it) you can cash in what is required, losing interest on only a part of the investment.

3. Not sure what your plans/ideas are for Gilts...how would your mum plan to buy them?

4. Premium bonds...not a guaranteed win every month even with the full £50k. There's a thread on TLF which might be worth perusing.

5. Stocks & shares - but not safe, so ruled out.

6. Preferential shares...Nice 'rates' on offer but ..not safe, so ruled out.

[NotSure]

Yes, multiple accounts are possible, as are other suppliers of fixed rate accounts. From my own experience, I can say that Oaknorth (and Shawbrook) are very straight forward to open and operate (as compared to setting up a gilt ladder for example). They are both online only though if that is an issue, but do not require an app. Access via web page and TFA via phone code.

Thanks again. Just one other thing on this, if she invests in the 5 year account, does the interest get paid annually and therefore she’d benefit from annual compounding or does it all get paid at the end would therefore work out as 5 x annual interest rate on the original amount deposited ?

Good point. The interest appears in "real time" but is all paid on maturity. Oaknorth quote AER which I believe will compound but I am not sure .

[leedm]

£100k...safety paramount.

1. I'd suggest splitting the money up such that you do not exceed the £85k Financial Services Compensation Scheme ( FSCS) limit with any one company, having verified that the company has this backing.

( company = bank/building society)

This is for 2 reasons, the first being covering yourself for financial loss and the second reason is to minimise ( or at least reduce) the effect if a company runs into difficulties.

There is still the risk that any company goes belly up...you should get your money back but there will be delays, so that would be another reason to spread the cash around . Your fund " stream " would be on hold whilst the administration was sorted out.

2. Fixed rate bonds are offering ~5% interest rates. The money would be tied up until maturity. If you do decide to go down this route, even in part, invest the money in chunks of, say, £5k or £10k+£5k+£5k etc. IF a chunk of money is needed ( and the terms allow it) you can cash in what is required, losing interest on only a part of the investment.

3. Not sure what your plans/ideas are for Gilts...how would your mum plan to buy them?

Thank yoy for the detailed response, thats very helpful

In regards to Gilts, I use II.co.uk and so we'd buy them through them. Plus if I invite her to open an account with them she'll get a free subscription for a year. The appeal with these versus the multi-year fixed term accounts is the bi-annual income that she'd get. Although I think it's a lot more hassle and right now the fixed term accounts seem a simpler option.

[tjh290633]

Many years ago my mother had to invest the money that she got from the sale of her house. Guided by her solicitor she went for a loan to our local council, three fixed interest securities issued by the LCC, Salford City Council and the Commonwealth of Australia. Then she bought small amounts of three shares, ICI because they were biggest, Marks and Spencer because she bought her clothes from them and Brooke Bond Liebig because she drank their tea.

Interest rates were about 5% at the time (1960s). MKS were growing rapidly at the time, ICI made steady progress while BBL were doing nicely and got swallowed by ULVR not long after she passed away.

Assuming that income is her main objective, gilts and preference shares are probably her best mainstream investments. Premium Bonds make sense, and I would suggest a small side bet in equities of her choice. Mine would be BP. or SHEL, BA. and either ULVR or RKT. Maybe TSCO or SBRY, depending where she shops. I'm only suggesting £1000 or so in each.

Regarding gilts, I would suggest that she only buys stock standing at a discount to par value. We did that for my mother-in-law when she sold her house in the 1980s and interest rates were well over 10%. It worked well as rates fell.

TJH

[pyad]

I don't think Premium Bonds are desirable for someone needing a reliable and regular income, for obvious reasons. You tend to hear from people who win the average or higher, but there must be a lot of holders, inc £50,000 maxers, who win below it.

So imo, in contrast to some here, they are fine for those not needing a regular income and are therefore happy to take a chance on the amount received.

[EthicsGradient]

As already pointed out, the member's mother should be able to get about another £6,000 of interest before she would have to pay any tax - which is more than she could get from £100,000, now. Therefore, the effective rate of Premium Bonds should be directly compared with interest from instant access accounts - and it's worse. She should only put any money in PBs if she wants a flutter.

Accounts that don't pay out until maturity after 2 or more years don't seem a great idea - the income would be useful to her now, not in the future. And HMRC says that interest is taxable in the year you can actually access it - which, without careful planning, could actually push a lot of interest into one tax year and actually make her a taxpayer. It might be better still to look for accounts that pay monthly interest, since she may well prefer to get some during the year rather than wait.

https://moneyfactscompare.co.uk/savings ... irst=false is a good place to look for the current good deals, and tells you how often they pay interest out to you. Note that SmartSave only allows you to have one account with them, so that if you open their 1 year bond, you can't also open a 2 year bond. As far as I know they are the only provider with this restriction.

[TUK020]

She could use part of this for an annuity, to take her income up to the income tax threshold, put £20k into a cash ISA each year. The remainder can be put in interest bearing as suggested above, with some kept in cash to provide a monthly income top up.

[SoBo65]

I have been buying General Accident Irredeemable Cumulative Preference share, yield about 7.8% ,dividends payable twice a year. GA is now owned by Aviva plc. Tickers are GACA and GACB.

[swill453]

I have been buying General Accident Irredeemable Cumulative Preference share, yield about 7.8% ,dividends payable twice a year. GA is now owned by Aviva plc. Tickers are GACA and GACB.

But outside an ISA the tax free dividend allowance is going down to £500 p.a. next year. At the income level of the OP's mother her tax free interest allowance is £6000 p.a.

Scott.

[Hariseldon58]

A ladder of Index linked Gilts, real interest rate about 1% plus inflation, keep the duration to a max of say 10 years, keep back some to spend now and then let the Gilt ladder run and mature for spending as needed.

Very low cost once they are purchased, need not be an ISA as only the small interest component is taxed, the inflation linking and any capital gains is free of CGT. Guaranteed return of capital on maturity. Could be sold earlier if required, will be subject to market prices prevailing at the time.

[1nvest]

A ladder of Index linked Gilts, real interest rate about 1% plus inflation, keep the duration to a max of say 10 years, keep back some to spend now and then let the Gilt ladder run and mature for spending as needed.

Very low cost once they are purchased, need not be an ISA as only the small interest component is taxed, the inflation linking and any capital gains is free of CGT. Guaranteed return of capital on maturity. Could be sold earlier if required, will be subject to market prices prevailing at the time.

A factor with inflation bonds/index linked gilts is that you're lending to someone who has no need to borrow, they have a money printing press, and they're the primary cause of money devaluation (inflation). They also set the terms and conditions of that loan - can direct inflation/taxation, withdraw from borrowing ...etc

Gold and silver used to be money, worth their weight, a gold Sovereign = legal tender face value of One Pound. In 1931 however a law was passed to end banks paying back/out in Sovereigns (gold) to instead only pay out in paper currency (Pound Notes). The gold standard ended and unlike when gold was the standard where new gold (money) couldn't just be created out of thin air, in contrast Pound notes could be, and have been ever since. The US followed that lead in 1933 where it nationalised gold, compulsory purchased all investment gold within the US and locked it up in Fort Knox, forcing money over to being paper based only (dollar bills), and boy have they printed new money at a pace since, such as printing to buy a unrivalled military might. The recent 'debt ceiling' issues in the US is simply the securing of the permission to print money.

To put that all into context, someone who put a thirds each of US dollar bills (hard currency), silver and gold under their mattress at the start of 1932, would have seen around 0.25% annualised inflation to the end of 2022. Seen the total loss of around 20% purchase power across 90 odd years (25% higher prices), not too bad given that 'money' was just stuffed under a mattress for 90+ years. If held in legal tender form of silver and gold (coins), then there's no capital gains tax liabilities against those coins, same as how you're not expected to pay capital gains tax on penny coins if the price of copper rises (yes a bad example, as nowadays penny coins are just copper plated inexpensive metals). Any gains in US$ FX would however be taxable, so as a alternative investing those dollars into stocks, or depositing them for interest helps to not only negate such tax, but also tends to yield overall positive real total returns. A third in stocks alone, two thirds in hard Pound notes, generally tended to be enough to broadly offset inflation, accordingly a combination of stocks and precious metals can serve well.

Note that there is a caveat in that in 1979 both gold and silver spiked significantly, for silver the gain was near +400%, whilst interest rates spiked into double digits, so a assumption that you might have swapped out silver and gold across the 1980's for double digit cash deposit interest rates that were commonly available.

A third in stocks (for a broad stock index fund the trading currency that's based to doesn't really matter), a third in each of CGT exempt silver and gold and you might reasonably draw a 3.33% SWR from that i.e. 3.33% of the initial value, where that value/amount is increased by inflation as the amount drawn in subsequent years, so a nice inflation adjusted income. Rather than rebalancing all three back to equal weightings each year generally you can just get away with drawing that income from whichever is the highest value at the time tending to be enough portfolio rebalancing in itself. £100K with a third in a stock fund = £33K, which takes just a year or two to have that fully invested in a ISA.

SWR measures tend to be measured across 30 year periods, for thirds in FT All Share stock index (historically the FT All Share was a general/broad stock index with global exposure, but as the UK has deflated itself away so the more recent tendency is to instead hold a broader world stock index fund, or as a alternative just go with a US stock index fund as that is the heart of capitalism), silver and gold, drawing a 3.33% SWR (return of your inflation adjusted money via 30 yearly instalments) the historic tendency was to end the 30 years with the same or more inflation adjusted wealth still being available. You could both have had your cake and eaten it. In contrast a Index Linked Ladder is inclined to just eat the cake, leaving perhaps just crumbs at the end, if any.