Page last updated at 17:04 GMT, Tuesday, 17 February 2009

Your Savings Questions Answered

Graham Hooper
Low returns on savings mean it is worth re-assessing investments says Mr Hooper.
Hundreds of people visited the Money Matters Roadshow in Manchester - looking for financial guidance and information.

One of the experts on hand, Graham Hooper of the Bestinvest, answered some of your questions.

Click on a question to see the answer to that particular one, or scroll down the page to read them all.



I have money invested in Anglo Irish due to mature later this year at a very high rate of interest. I know it is guaranteed by the Irish government but I keep reading that Ireland is bankrupt. What would you do? George, London

I would leave it with AIB for the time being but seriously consider reinvesting elsewhere once it matures later in the year. Shop around for a secure organisation offering a competitive rate at that time. It's a matter of your peace of mind as much as the investment return.

In the current climate of instability and low interest rates, where offers a low risk investment opportunity and a reasonable return? Daniel Humphrey, Uckfield, East Sussex

Given the outlook for interest rates, you should consider Government gilt-edges securities (short-term conventional and index-linked - depending on your view of future inflation) or well-secured corporate bond funds. Whilst all low risk, you should be comfortable with the underlying security of these assets. Your own interpretation of 'low risk' is important.

I have an endowment policy which matures in 12 years time. Am I correct in my theory that I am buying into stocks/shares (Units) cheaply at the moment and when we do eventually recover from the downturn I should see greater return as my units bought should be worth a lot more? Tony Farish, Newcastle Upon Tyne

Depending of the actual type of policy you have, you are right to a degree. If you are paying regular monthly contributions, you should be accumulating more assets at a lower price now than you would if the stock market was higher. Importantly, you should keep monitoring the performance and assets within the policy so that you can switch to a lower-risk strategy nearer the time of maturity. You wouldn't want a stock market reversal to impact your returns right before your policy matures in 12 years' time.

With deposit rates as they are, are gilts a good alternative investment? Aren't gilts supposed to come good when interest rates are low? Mike Holliday, Colchester Essex

Gilts have had a good run recently. For example, the City Financial Gilt Fund has returned over 16% in the last two years. There may be more to come but you might like to consider index-linked gilts or corporate bonds as an alternative. Be careful with corporate bonds as all funds will carry a varying degree of risk and the return of your capital is not always guaranteed.

The stock market drop has had a major effect on most types of savings and investments. I have some Distribution Bonds which show a substantial "paper" loss. My independent financial adviser advises me to "sit tight" and ride out the credit crunch storm? Is he right? Albert Bogle, Bridge of Cally, Scotland

It depends on what you want from your investment. Generally, Distribution Bonds are conservatively managed and carry a fair degree of fixed interest investments such as gilts which have done well recently. If you don't need your money now, can afford to leave it invested and your original aims and objectives haven't changed, it might be the best thing for you. Before considering cashing it in, you should always check any penalties and tax that you might incur. You may be better off from a tax perspective in the underlying Distribution fund or Isa rather than the Bond, and this is worth raising with your adviser.

Low Risk Bonds, taken out with Prudential and Standard Life increased in value from £75,000 to £104,000 by 2007. But the cash-in value has plummeted over the last six months to £96,000 and is losing value at the rate of approximately £1,000 per month. Are such bonds worth persevering with or should one cash them in to safeguard against losing any more, particularly as such savings are intended to provide supplementary income for retirement in say, two years? Ian Stirling Baird, Portsmouth

Right now, you are still in profit (though I don't know how long you have been invested). As to the future, if you have rainy-day money catered for elsewhere and don't actually need the cash, you could leave them invested, see what the values are likely to be in two years' time and start deducting income from them then. We should be coming out of recession and into recovery by then. If you are concerned about the current rate of loss, you might like to consider altering the asset allocation within the bonds to make them more secure and less prone to market falls. Bonds will usually vary according the stock market and, as we know, this will rise and fall over time.

I have £6,000 to invest for about 12 months. Where, other than under the mattress, do you suggest I put it? Sandra, Chepstow

If you need the money in 12 months' time and don't want to be taking any risk with it [which sounds like you don't, you have no alternative but to look at a bank or building society accounts. Security being as important as returns in this current environment, I would look to someone like the Northern Rock or one of the other UK government-backed banks.

What are your views on investing £30,000 into Premium Bonds? Or should I put it into a savings account? Darren Campbell, Manchester

The good news about Premium Bonds is that the winnings are tax free and that your capital will be returned to you. The average rate of winnings has dropped as UK base rates have fallen. With average bank and building society returns around 0.5 % pa, you only need to win more than £150 a year to better the average. If you are a higher rate taxpayer with other investments, they are worthwhile considering.

How easy is it to transfer ISAs from one bank to another? I have £3,600 in a cash ISA with one bank, and in the next financial year I would like to transfer it to another bank's ISA and add another £3,600. Would I be able to do that and still get the tax-free advantage? Glyn, Swansea

It depends on the bank you are transferring to (and to an extent, the bank it's coming from) but, in general, the banks will be incentivised to make it easy for you to transfer to them. Done correctly, your tax benefits should be preserved.

I rely on interest from savings. I have secured reasonable rates for 2009. After that I will be in some difficulty - I have already transferred some money into Corporate Bonds - still paying 4-9%. I am thinking of transferring from Isas. How safe are Corporate Bonds? I understand them to be loans to business, which of course has its problems, although with alleged shortage of Bank facility it may be a growth market? Jack, West Yorkshire

The world and his wife seem to be recommending Corporate Bonds as the place to be at the moment, but it's important to recognise that not all corporate bonds are the same. Generally, the higher the yield, the higher the risk. The uncertainty around the economy means that some corporate bonds will default, and if you are invested in them, you may lose income or capital - or both. The government's 'Quantative Easing' plan means that they may be purchased by the government and prices may rise. The point is that they are not without their risks, are not guaranteed so you need to bear this in mind when making your decisions.

Where is the best place to invest £10,0000 so that the capital is secure? With the current low interest rates, monthly or annual income, capital can be tied up for up to five years if necessary? Peter Andrews, Manchester

You have a range of products available to you but the most important point you make is that of security. You can consider: National Savings, bank and building society accounts, gilts, corporate bonds and Guaranteed Income Bonds. Your biggest decision will be around the nature of the underlying security of these investments, coupled with the returns they offer.


The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.



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