I live in the UK, where's the best place for me to save £10,000

August 29, 2008 5:18 AM

I have £10,000 which I made from the sale of my house. Eventually I want to use it as a deposit to buy a new house, but don't envisage this happening within less than a year. Where's the best place in the UK for me to save this money?
posted by mairuzu to work & money (13 comments total)

I'd recommend a fixed term savings account. I use the bank of Iceland (icesave) which offers 7.06% interest for a fixed term of 1 year. There may be others around, but it is a reasonable return (£700) with virtually no risk.

Investing it would possibly earn more, but you asked where to save it and there is little to no risk involved.
posted by sdevans at 5:31 AM on August 29, 2008

Fixed term savings account is a good idea, but be aware that there's some controversy regarding Icesave deals. I believe the controversy is regarding whether the Icelandic banking system could really guarantee the savings if one of the three or so banks fails. Deposits in savings account are usually insured up to certain sum.
posted by dhoe at 5:37 AM on August 29, 2008 [8 favorites has favorites]

Icesave. I have an account with them as well, and highly recommend them. Very decent interest, no fixed terms
posted by DreamerFi at 5:39 AM on August 29, 2008

ok, i've had a look at Icesave - they offer an ISA - can anyone give any advice on ISAs?

If i put £3,600 in an ISA and the rest in a savings account, is that a good idea?
posted by mairuzu at 5:44 AM on August 29, 2008

That's a uk-specific tax question, I think, and since I'm Dutch, I'll have to leave that for others to answer..
posted by DreamerFi at 5:54 AM on August 29, 2008

I don't know if putting £3,600 into an ISA with the intent of removing it again the next year is really worth it. The point of ISAs , I think, is tax-protected interest over the looooong term. If you get a 5% interest rate on an ISA, that's only £180 which probably won't make much of a difference to your tax burden.

Anyway, that's how the guy at the bank explained it to me.

Is your risk tolerance pretty low for this?

It might be worth sitting down with your local bank to ask this question, too. They make money if you make money, so they'll be able to talk you through their options.

FWIW in Canada, I had a great experience with ING direct. I haven't tried the UK version yet, but will within the next few months.
posted by generichuman at 6:01 AM on August 29, 2008

Echoing that an ISA is probably not great for one year. You can get a pretty high rate of interest by buying a one year savings bond. In the unlikely event that your bank happens to fail then your money should be safe within this price range (one of the issues with banks like Icesave is that they are not part of the same safety net as the UK banks are - if push came to shove other nordic banks and governments would step in to help. Probably.)

Something like moneysupermarket could give you an overview of what options are available.
posted by rongorongo at 6:19 AM on August 29, 2008

Last time I checked, Icesave do a 6.8% (it's 6.something) interest account, for 6 months. I figure that doing this, and then investing the original sum plus the extra interest will net you more than 7% over a year.

Keeping it in a UK bank isn't necessarily any better than keeping it abroad. Northern Rock seemed to get into a lot of trouble not so long ago. That said, I am not any kind of banker, and you probably should talk to some kind of financial adviser. :)
posted by Solomon at 6:28 AM on August 29, 2008

Unless you don't pay tax, it's always best to put your first £3600 into an ISA, especially if it's for a year or more that you want to keep it in there. True, the longer you leave it in the ISA the more money you'll save, but having the savings in an ISA means that the bank doesn't deduct tax (20% for basic rate taxpayers, 40% for higher rate taxpayers) from the interest that you earn, which equals more interest for you.

I would ignore those people that say that an ISA isn't worth it for a year, it most certainly is. Take this example:

£3600 for 1 year at 6.25% (top ISA) = £225 interest
£3600 for 1 year at 6.55% (top instant access savings account) = £188.64 interest (basic rate) or £141.48 interest (higher rate)
£3600 for 1 year at 7.2% (top 1 year fixed rate) = £207.36 interest (basic rate) or £155.52 interest (higher rate)

It's simple to see that an ISA will give you more money at the end of 1 year compared to any other savings account. After a year the gap will widen further, as you can then add another £3600 to another ISA and keep or transfer your old ISA across, so you will then have £7200+ earning interest tax free.

Barclays currently have the top paying ISA out there, but the rate drops after a year, so you'll need to transfer it to a new ISA after a year. Icesave have a slightly lesser rate ISA, but the rate will stay good for longer, which may be better for you.

The rest of the money should be put into a high interest savings account, either a fixed term account or a normal access one. By the sounds of it, a fixed term account will be best for you, but it all depends on how quickly you think you'll need the money. There are 6month fixed term accounts as a compromise too.

Have a look at the moneysavingexpert.com articles on ISAs and savings accounts, they explain everything far better than I do, and they're always kept up to date.
posted by drzoon at 6:43 AM on August 29, 2008 [1 favorite has favorites]

Ah, drzoon does much better math than I do!
posted by generichuman at 6:50 AM on August 29, 2008

Unless you don't pay tax, it's always best to put your first £3600 into an ISA

Not always although you are generally right. I want to point out something that might be a better bet in the next few years though.

If you think inflation is going to remain high (and with interest rate reductions on the cards, it's likely it will) and you can commit to three years, an Index-Linked Savings Certificate makes more sense. You can put in up to £15,000 and the returns are tax free. Currently they offer returns based on the CPI plus 1% (so 4.4 + 1 = 5.4% tax free).

A 5.4% tax free return isn't quite as good as 6.25%, of course, but if CPI goes up by just 1%, you're ahead. You also get the benefit over a larger sum from day one, not the measly £3600 they allow you to put in each year at present.
posted by wackybrit at 9:48 AM on August 29, 2008

I should point out, while ILSCs are 3 or 5 years issues, you can take the money back out after one year and still have the benefits of the interest.
posted by wackybrit at 9:49 AM on August 29, 2008

Fixed term savings account is a good idea, but be aware that there's some controversy regarding Icesave deals. I believe the controversy is regarding whether the Icelandic banking system could really guarantee the savings if one of the three or so banks fails.

If this concerns you, while Icesave have an AER of 7.06%, the Post Office have a one year bond at 7.05% AER - in other words, investing £10,000 for one year the post office bond will make £1 less pretax.
posted by Mike1024 at 12:39 PM on August 29, 2008