Low interest rates on savings

[purenarcotic]

Edie on the how people know stuff, my aunt was an accountant and my dad was always into this. Unfortunately for me none of this has really rubbed off on or interested me. I know my grandpa got some premium bonds for me when I was born, and my dad got some more when my grandpa died, but I don’t know how much is even there tbh. I don’t even understand how you take them out. I have won the draw three or four times now; each time under £50. The money from my dad’s estate will go into getting a house without a mortgage and I intend to save what I would have paid my rent with. But I was just gonna stick into an ISA or something, I don’t really get shares. I’m half tempted to buy gold and stick it under my mattress.

 

[kabbes]

Morning, I'm just having a look at those vanguard life strategy funds that you were talking about. Their website is pretty good at talking to beginners but the only thing I cant see is anything about how long you're committed if you put money into one of them.
What did you mean by "they're set and forget for however long you want" - is it just entirely up to you how long you have these things no commitment and no punishment ?

Just to add to what strung out said — I’d note that if you invest via an ISA then once you take money out from it, you can’t then reuse that bit of the allowance. You’re allowed to invest £20k per year into an ISA, every year. But they only measure how much money you put in, there’s no netting this off against anything you take out. If you won’t use your full ISA allowance for the year anyway then this doesn’t really matter. If you will, however, then it’s a bit of a shame to use up the year’s allowance and then take back out from it again.

 

[strung out]

Just to add to what strung out said — I’d note that if you invest via an ISA then once you take money out from it, you can’t then reuse that bit of the allowance. You’re allowed to invest £20k per year into an ISA, every year. But they only measure how much money you put in, there’s no netting this off against anything you take out. If you won’t use your full ISA allowance for the year anyway then this doesn’t really matter. If you will, however, then it’s a bit of a shame to use up the year’s allowance and then take back out from it again.

Unless bimble has a spare £20k lying around this might be a bit of a redundant conversation, but you can get flexible ISAs, where you can take the money out and put it back in again without affecting your annual allowance. I think Vanguard do this.

Is the Vanguard ISA a flexible ISA?

 

[kabbes]

Unless bimble has a spare £20k lying around this might be a bit of a redundant conversation, but you can get flexible ISAs, where you can take the money out and put it back in again without affecting your annual allowance. I think Vanguard do this.

Is the Vanguard ISA a flexible ISA?

That's worth knowing -- I never knew that!

ETA -- ah, I see you can only do it for the allowance within the same tax year. That's a big advantage alright, but it still means you can't take out the sum (or partial sum) of your past investments in excess of the allwance and then put them back in again later.

We're talking around the edges here, of course. But presumably the point of investment is to have the money when you need it. So it's helpful to recognise that if you have 10 years' of ISA investments, you shouldn't expect to be able to temporarily take them out for some purpose and then put them back into the ISA wrapper again later. Nothing stopping you rebuying the same fund outside of an ISA wrapper, of course.

 

[20Bees]

Is it a good idea to plunge as much as possible into pension (SIPP or occupational) if already over 55 and able to access pension savings if needed, then an ISA or savings account when pension contributions are maxed out?

 

[kabbes]

Is it a good idea to plunge as much as possible into pension (SIPP or occupational) if already over 55 and able to access pension savings if needed, then an ISA or savings account when pension contributions are maxed out?

It largely depends on your tax status, to be honest, as to whether it is noticeably the best option. Although I don't think there's a likely scenario in which it is isn't at least as good as the alternatives, other than if you are already receiving a pension (largely because then there are extra rules I can't remember).

 

[Hollis]

My tuppence - if you've got money in company pensions check how well they're doing. When I reviewed mine from different employments there were several real dogs. One because in my ignorance/naivety when I was younger I'd gone for a 'cautious' fund - where could have made loads more in a growth fund, another simply because the pension provider was crap.

I'd also be wary of 'lifestyling' funds where they start switching loads into bonds 5+ years before you retire. Now that people aren't buying annuities and you can access pensions flexibly - there really is no need for the bulk of it to be in bonds when you're 60/65 or whatever, because chances are you're going to live to 80+

I stuck all mine in a SIPP, so I will now die by my own sword..

 

[20Bees]

It largely depends on your tax status, to be honest]
Reading the booklet on my work pension scheme. I earn peanuts in a part time job, it’s a stop gap between redundancy in 2018 and state pension next year. But whatever percentage of peanuts I pay into the pension scheme, the employer will match up to 8% now and a further 4% after my 3rd anniversary there (in July).

While I still have earnings, my contributions are limited up to the amount I earn, but after retirement the amount that can be paid into pensions is much more restricted.

All the peanuts add up... should’ve thought about this a while ago!

 

[kabbes]

Ah, I didn’t know that your employer would match your contributions. In that case, it seems like a no-brainer.

 

[20Bees]

My tuppence - if you've got money in company pensions check how well they're doing. When I reviewed mine from different employments there were several real dogs. One because in my ignorance/naivety when I was younger I'd gone for a 'cautious' fund - where could have made loads more in a growth fund, another simply because the pension provider was crap.

I'd also be wary of 'lifestyling' funds where they start switching loads into bonds 5+ years before you retire. Now that people aren't buying annuities and you can access pensions flexibly - there really is no need for the bulk of it to be in bonds when you're 60/65 or whatever, because chances are you're going to live to 80+

I stuck all mine in a SIPP, so I will now die by my own sword..

I moved the DC pension from my last job into a SIPP with some of the redundancy payment, but it wasn’t much and I left them holding it as cash. I’ve taken the 25% lump sum and need to instruct them to invest what’s left, and decide whether to take a drawdown income. None of it is intuitive. Dunno how people keep their nerve when they have megabucks to worry about.

 

[mauvais]

Big fan of lifetime mortgages. Any fixed term thing may benefit you short term, but then you are at the mercy of your credit rating when it comes to remortgage time - you may end up stuck on the bank's SVR
Also a big fan of offsets, even though the rates are a bit higher.
Was fortunate enough to get a lifetime offset tracker at base rate + 2% = 2.1% at the moment. (form what is now a zombie bank called Intelligent finance)

2.1% isn't bad but I query your logic a little. If you've got variable circumstances then so be it, but otherwise, if you're on say a 5 year fixed rate then at renewal your LTV should be improved and you should probably be able to unlock a better deal. I'm on 2% but hoping for about 1.4% when it expires because of this, and probably shorten the term too.

 

[Hollis]

Dunno how people keep their nerve when they have megabucks to worry about.

Tbh - I think most of them probably use a financial adviser and pay the fees..

 

[alex_]

My tuppence - if you've got money in company pensions check how well they're doing. When I reviewed mine from different employments there were several real dogs. One because in my ignorance/naivety when I was younger I'd gone for a 'cautious' fund - where could have made loads more in a growth fund, another simply because the pension provider was crap.

This is very sound advice - also compare all of your pensions, and consolidate into the ones with the lowest fees. They will do this all for you.

You could be paying upto 1% - which doesn’t sound much, but if growth is 5% ( and that’d be a good number ) the provider would be taking 20% of total growth.

 

[not-bono-ever]

Fundsmith has a good return if you are new to these things. They do look very long term and don’t chop and change much. Pretty sure they are not derivative hedged either. What do I know though, others seems to pleased with their back to basics model.

 

[William of Walworth]

Haven't got time to read the whole thread right now (I've only just come across it!). Just to ask though :

I keep getting advised to make voluntary additional contributions to my (current) Civil Service pension -- thanks to the famous McCloud Judgement, I will be able to get this when I'm 65 not 67 (I'm 58)
But most recent projections put my current CS pension at under £3K a year.

Sound advice?

Separately, my old Civil Serrvice pension (1988 to 2008) is worth significantly more -- I was full time then and on a better-paid grade, in London, and it's final salary.
But it's closed. Due when I'm 60 in 2022, though!

So it may well be (??) that I'm affected less by low interest rates than are a lot of people.

One thing I have done fairly recently -- with an inheritance from my late parents -- is invest £2,500 each in a local wind farm and in a local solar-panel farm here in South Wales.
Annual dividend for both has been about 5% most recently.

More money-aware people who I've chatted with (admittedly in pubs when such was possible ), have said that while that kind of investment is obviously a risk, renewables tend to be lower-risk than other unprotected punts.

Thought I'd put that renewables thing out on Urban as well, to see whether people like kabbes or other finance-savvy people agree or not. Cheers

 

[kabbes]

I can’t say that I’ve looked into tangible investments like renewable energy at all, but if it’s returning a reliable 5% then that sounds okay. What’s the lifetime of the investment and what happens at the end of it?

 

[William of Walworth]

I can’t say that I’ve looked into tangible investments like renewable energy at all, but if it’s returning a reliable 5% then that sounds okay. What’s the lifetime of the investment and what happens at the end of it?

I'm not really sure of those details I'm afraid!

I'll try and get back once I've re-read the relevant bits of the share documents, though.

 

[nick]

2.1% isn't bad but I query your logic a little. If you've got variable circumstances then so be it, but otherwise, if you're on say a 5 year fixed rate then at renewal your LTV should be improved and you should probably be able to unlock a better deal. I'm on 2% but hoping for about 1.4% when it expires because of this, and probably shorten the term too.

Fair enough
I think I've read too many horror stories about maxed out mortgagees being trapped on the SVR at the end of the fixed term - (plus arrangement fees all make a relatively big impact to cost for re-mortgaging )
Being old and having been reductant (count em) 3 times in life, plus now being in a short term contract position, I know that I may be ineligible for best rates if remortgaging. I set great store by having liquidity of several year's burn rate - but still earning an effective decent interest rate.

My only concern is on the FSCS - if you have a mortgage as well as account balances, is it the net position (including mortgage) used in calculating the 85k compensation limit, or the sum of your asset accounts only? I have never been able to work that out when reading the FCCS web site. I'm hoping that counterparty risk with Lloyds is low enough to make it academic but, you know, Lehmans

 

[mauvais]

My only concern is on the FSCS - if you have a mortgage as well as account balances, is it the net position (including mortgage) used in calculating the 85k compensation limit, or the sum of your asset accounts only? I have never been able to work that out when reading the FCCS web site. I'm hoping that counterparty risk with Lloyds is low enough to make it academic but, you know, Lehmans

Pretty sure it's assets only. Failure of a bank would mean your liabilities like a mortgage just transferred elsewhere.

 

[nick]

Pretty sure it's assets only. Failure of a bank would mean your liabilities like a mortgage just transferred elsewhere.

That is a concern. May investigate more and have to pay down some of the mortgage to get balances within the limit then

 

[nick]

Fundsmith has a good return if you are new to these things. They do look very long term and don’t chop and change much. Pretty sure they are not derivative hedged either. What do I know though, others seems to pleased with their back to basics model.

Past performance is no indicator etc......
But fundsmith has been very kind to me since I started paying regularly into that over last 7/8 years. Again - wondering whether to reduce exposure to it

 

[teuchter]

Haven't got time to read the whole thread right now (I've only just come across it!). Just to ask though :

I keep getting advised to make voluntary additional contributions to my (current) Civil Service pension -- thanks to the famous McCloud Judgement, I will be able to get this when I'm 65 not 67 (I'm 58)
But most recent projections put my current CS pension at under £3K a year.

Sound advice?

Separately, my old Civil Serrvice pension (1988 to 2008) is worth significantly more -- I was full time then and on a better-paid grade, in London, and it's final salary.
But it's closed. Due when I'm 60 in 2022, though!

So it may well be (??) that I'm affected less by low interest rates than are a lot of people.

One thing I have done fairly recently -- with an inheritance from my late parents -- is invest £2,500 each in a local wind farm and in a local solar-panel farm here in South Wales.
Annual dividend for both has been about 5% most recently.

More money-aware people who I've chatted with (admittedly in pubs when such was possible ), have said that while that kind of investment is obviously a risk, renewables tend to be lower-risk than other unprotected punts.

Thought I'd put that renewables thing out on Urban as well, to see whether people like kabbes or other finance-savvy people agree or not. Cheers

Most conversations on here about things like boycotting Amazon involve the point being made that people basically don't have the option of being trapped in the capitalist system; they didn't choose that and can't change that so why should they be expected to take on the responsibility of observing boycotts that are at a cost to them.

I've always thought that the other side of that should be that anyone who has reasonably significant amounts of capital to save, might be able to have some kind of moderate effect on what kind of capitalism we live under, by making a positive choice to invest ethically. Anyone lucky enough to have savings can choose to accept a slightly lower return in exchange for ruling out their money being used to support or encourage certain types of activities. I don't really know if it's still just fiddling around the edges though. Perhaps it wouldn't be fiddling round the edges if most people adopted it. The concept of ethical investment still seems to be a bit of niche only. There's also lots of problems with doing it in practice; no-one's going to agree exactly what is and isn't ethical so you either have to give people very fine-grained control, or accept that you sign up for "ethical" investment but end up supporting some things that you don't want to, or being barred from supporting things you think are fine but others have decided aren't.

I'm just rambling really; maybe this is something that should have its own thread.

 

[mauvais]

That is a concern. May investigate more and have to pay down some of the mortgage to get balances within the limit then

You could just open another account with another bank - nothing to stop you having multiple. Some have a requirement of paying in £x a month but you can either rotate cash or find one with no such requirement.

 

[kabbes]

"Ethical" investment has mostly been replaced in recent years by "ESG" investment, where this stands for "Environmental, Social, Governance". ESG funds invest in companies that meet trigger criteria for their environmental policies and impact, thier social policies and impact and can demonstrate strong and robust corporate governance. Far from accepting lower returns from ESG investment, these funds are becoming popular precisely because they tend to produce better returns. Poor ESG represents financial risk. Strong corporate governance protects a company from making poor decisions , strong environmental (and governance) policies prevent it from doing things that cause it to be fined and strong social and environmental policies protect it from reputational damage.

Because ESG funds are becoming so popular, companies now pay for to be rated for their ESG risk in the same way that they pay for a credit rating, for example and also this. The incentive of having a low ESG risk rating is that this allows ESG funds to invest in you. So this is having an impact, because companies are cleaning up their environmental, social and governance behaviour in the interests of being investable. Of course, your milage may vary regarding whether you agree that a company with low ESG risk actually reflects an ethical company.

 

[Winot]

Most conversations on here about things like boycotting Amazon involve the point being made that people basically don't have the option of being trapped in the capitalist system; they didn't choose that and can't change that so why should they be expected to take on the responsibility of observing boycotts that are at a cost to them.

I've always thought that the other side of that should be that anyone who has reasonably significant amounts of capital to save, might be able to have some kind of moderate effect on what kind of capitalism we live under, by making a positive choice to invest ethically. Anyone lucky enough to have savings can choose to accept a slightly lower return in exchange for ruling out their money being used to support or encourage certain types of activities. I don't really know if it's still just fiddling around the edges though. Perhaps it wouldn't be fiddling round the edges if most people adopted it. The concept of ethical investment still seems to be a bit of niche only. There's also lots of problems with doing it in practice; no-one's going to agree exactly what is and isn't ethical so you either have to give people very fine-grained control, or accept that you sign up for "ethical" investment but end up supporting some things that you don't want to, or being barred from supporting things you think are fine but others have decided aren't.

I'm just rambling really; maybe this is something that should have its own thread.

I have invested ethically since 1999. My take is that I do the best I can. A purist approach is the route to madness as it’s extremely difficult to eradicate all ‘non-ethical’ investment (even assuming you can define that).

As to the ‘drop in the ocean’ argument - that’s not really relevant imo. Almost any individual action on e.g climate change is irrelevant. May as well live your life as you’d hope others would.

Lastly, ethical investment (called ESG now) is becoming more common and the more people that do it the more chance it becomes mainstream. Look at what happened with the Deliveroo IPO.

 

[nick]

You could just open another account with another bank - nothing to stop you having multiple. Some have a requirement of paying in £x a month but you can either rotate cash or find one with no such requirement.

I have bank accounts coming out of my wazoo. But they aren't earning the equivalent of 2.1% post tax as they aren't offsetting a debt @ 2.1%. So the question is whether to reduce liquidity by paying down mortgage until offset accounts total no more than the FSCS limits. ie do I want to shrink my personal balance sheet ?

 

[teuchter]

"Ethical" investment has mostly been replaced in recent years by "ESG" investment, where this stands for "Environmental, Social, Governance". ESG funds invest in companies that meet trigger criteria for their environmental policies and impact, thier social policies and impact and can demonstrate strong and robust corporate governance. Far from accepting lower returns from ESG investment, these funds are becoming popular precisely because they tend to produce better returns. Poor ESG represents financial risk. Strong corporate governance protects a company from making poor decisions , strong environmental (and governance) policies prevent it from doing things that cause it to be fined and strong social and environmental policies protect it from reputational damage.

Because ESG funds are becoming so popular, companies now pay for to be rated for their ESG risk in the same way that they pay for a credit rating, for example and also this. The incentive of having a low ESG risk rating is that this allows ESG funds to invest in you. So this is having an impact, because companies are cleaning up their environmental, social and governance behaviour in the interests of being investable. Of course, your milage may vary regarding whether you agree that a company with low ESG risk actually reflects an ethical company.

I have invested ethically since 1999. My take is that I do the best I can. A purist approach is the route to madness as it’s extremely difficult to eradicate all ‘non-ethical’ investment (even assuming you can define that).

As to the ‘drop in the ocean’ argument - that’s not really relevant imo. Almost any individual action on e.g climate change is irrelevant. May as well live your life as you’d hope others would.

Lastly, ethical investment (called ESG now) is becoming more common and the more people that do it the more chance it becomes mainstream. Look at what happened with the Deliveroo IPO.

Maybe about 15-20 years ago I put a not particularly large amount into an "ethical investment" fund via an IFA. My experience at the time wasn't that great; I remember ticking or not ticking a lot of boxes on various forms without feeling that sure my choices would really do anything meaningful. I think I also felt the IFA was a bit of a waste of time because I assumed they would take an active interest in managing things but then found out that they didn't really do anything from year to year unless I specifically asked them. Are IFAs still a thing? Is it that the internet has made it easier for people to take control of things themselves?
That brief period of investment ended when I got the opportunity to buy the flat I now live in, and since then I've kind of forgotten about investment of this kind partly as a result of putting pretty much everything into getting a mortgage but also I think a lingering memory that it felt like it had been a bit of a waste of time. The current interest rate situation along with this thread has made me realise I should look at it again. Useful to know it has morphed into something slightly different now.

 

[kabbes]

Do you mean an Independent Financial Advisor? If so, they still exist and can be useful for people. They just advise on which funds to buy into, though, they don’t run the funds or take any further active interest in whether the fund continues to be appropriate for you (unless you keep playing them).

 

[teuchter]

Do you mean an Independent Financial Advisor?

Yes.

 

[kabbes]

Yes.

Then I’d say the value of an IFA depends on how much you’re happy to do your own research. That includes research into what products are available as well as what kind of investment is appropriate for you. IFAs are licensed as well — I am not professionally allowed to give individual advice, for example, because it is a specialist skill.