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You ask the savings expert

Christine Ross
Christine Ross tackles your investment questions

Christine Ross of SG Hambros came into the Working Lunch studio one last time to tackle your savings and investments questions.

As usual, click on one of the questions in blue below to skip straight to that answer, or scroll down the page to read them all.

VIEWERS' QUESTIONS

CHRISTINE'S ANSWERS

1. I want to invest a capital sum for a period of 3 years or more. I do not want any income from this investment, I am only interested in capital growth. I am willing to accept moderate risk. What would you suggest?

The first place to start is with investment funds rather than individual stocks. Funds allow you to spread your money across many different investments and therefore spread your risk. Whilst you do not require any income, you may wish to consider whether you want to invest in assets that provide capital growth only, or if you are willing to include investments that offer income. The income yield can be accumulated to provide a total return. Income producing assets can be less volatile than those that produce growth alone. You also need to decide whether you wish to invest in UK assets alone or if you would like to spread your money globally. Overseas investments offer further diversification, but add currency risk - that is, you could make a good profit on US investments, but if the dollar moves in the wrong direction against the pound this could wipe out some of your return.

Next you need to consider tax planning. You should use your annual ISA allowance of £10,200. If you invest in income producing assets (for growth) it is probably best - depending on your personal tax status - to hold these in an ISA. Depending on the size of your portfolio you can transfer assets into your ISA each year, sheltering more of your portfolio returns from tax. You have an annual capital gains tax allowance of £10,100 for the 2010/11 tax year. You can take profits in your portfolio each up to the level of your CGT allowance each year by selling some investments and buying different or similar ones. Alternatively, you can sell assets, wait 30 days and buy the same investments back again. If you buy them back sooner you will not have made a disposal for tax purposes. If you don't use your CGT allowance it cannot be carried forward to a future year - it is simply lost.

You may be comfortable building your portfolio yourself. You can compare fund performance statistics on many useful websites. Morningstar is particularly good: www.morningstar.co.uk. If you need advice look for an adviser or stockbroker who is independent. Independent advisers must offer you the option of paying a fee for advice - not just working on a commission basis.


2. I have a Cash ISA with Santander into which I have subscribed the full £5100 for this tax year and transferred all previous years. The Introductory Bonus on this account is about to expire and the interest rate drop to 0.5%. I have tried to transfer the ISA to other banks but they will not allow me to open a new ISA. Must I wait until next tax year or do I have any other options?

You can only make an ISA subscription to one institution per tax year. However, this should not prevent you transferring your earlier years' ISAs if there are receiving banks willing to accept the transfer.


3. I live in France with a 20 year bank loan. I still owe £165,000 and have savings in the UK of around £100,000. Given the low interest rates forecast over the next 2 to 3 years, would I be better reducing my French loan, or leaving the savings in the UK. I am 63 years old and receive an annual pension of £15,000 per year.

The answer really depends on the rate of interest payable on both the loan and your savings. I am assuming you have cash savings rather than investments in the stockmarket. Providing your savings are in cash then the capital value is preserved and the funds are available to pay back the loan when you wish to do so.

If you are earning a higher rate of interest (after tax) than you are paying on your loan, then I see no reason to repay the loan at present. If the position is reversed, then it would make economic sense to repay some or all of the loan. You also need to consider how much of your savings you may need for liquidity (emergencies for example). One issue to be careful over is currency risk. You do not say whether your savings and loan are both in the same currency but if your savings are in Sterling and your loan in Euro, currency movement could effectively increase your loan if the Euro were to strengthen further against the pound. You can really only make a decision once you have considered all these factors.


4. I have four grandchildren. I would like to open accounts in each of their names. Is there such a thing as a grandparents' savings account in which to invest at least £10,000 over time?

Generally there are no grandparents accounts. However, there are plenty of accounts into which grandparents can invest for children. Children's accounts tend to have more attractive interest rates as the banks know that the money is likely to stay for longer. You can compare rates on the best buys tables at www.moneyfacts.co.uk.

You can also use many accounts not especially designed for children if the rates are preferable. In investing for your grandchildren you will be operating the account as trustee. This means that you (and preferably one other person as it is better to have two trustees) will control the account until each grandchild reaches age 18. As they attain age 18 each grandchild will automatically become entitled to the money and will take over the control of the account. There is no option here unless you create a more complex form of trust.

One huge benefit of grandparents making gifts (as opposed to parents) is that any interest earned on the account is that of the child - even though they cannot access the money without your permission. Like adults, children have an annual personal income tax allowance. This allowance can be set against the allowance and unless they have substantial other income all their savings interest will be tax free. This is not the case if the account were created by the child's parent. In this case, if the interest exceeded £100 per year the whole of the interest would be taxed on the parent as if it were theirs.


5. Anglo Irish bank have a 1 year fixed rate bond where the interest is paid without the deduction of tax. I received my interest on that bond gross. But, last week a similar bond of fixed term and size matured with the Post Office ( Bank of Ireland) and the interest has been paid with the tax deducted. One of these institutions has it wrong, what is going on?

I think it is possible that your investment with Anglo Irish Bank is held offshore. If you are banking with an offshore branch then they will always pay interest gross, leaving you to account to HMRC for the tax on the interest earned. Whilst the Post Office is, as you say, operated by the Bank of Ireland, this is a UK institution and as such will deduct basic rate tax at source.


6. Is there any way I can check the interest my bank pays me every year? When I put in and take out various amounts during the year I cannot work out my interest. Is there an easy way to check the amount and rate of interest that I am paid.

Your bank can provide you with an annual certificate of interest paid and (if relevant) tax deducted. Some institutions send these certificates out automatically, but others only do so upon request.


7. Where is safe to keep money? We have ISAS and Bonds, and money tied up in the Post Office and Santander. Are they safe or is there anything else to invest in? My husband does not like term investments.

Generally they will all be safe. Deposits in the UK of up to £50,000 per institution per person are protected in full by the Financial Services Compensation Scheme. If you savings exceed this amount then it is sensible to divide them between a number of institutions.


8. Why do building societies and banks give better interest rates on bonds, on which we have to pay tax, and such low interest rates on Cash ISAs?

It really is a product of marketing. Not so long ago the position was reversed and cash ISAs appeared to have the higher rates. One reason may be that as tax is payable on investment bonds the banks and building societies are trying to boost the net return in times of such low interest rates. At the same time many banks are trying to boost their share of the deposit market and want to know they have money committed for a minimum period, i.e. 1 or 2 years in the case of most bonds. As always, it is necessary to shop around. The comparison websites will help you to find the best rates, and if you are prepared to use a phone or internet operated account you may be able to push the rate slightly higher.


9. I took out a long term saving endowment with the London & Manchester Assurance company in 1981, which has since changed hands to Friends Provident and finally Royal Liver Assurance. I was recently informed that they are going to charge me a 1% management fee. Are they allowed to do this as I have never been charged a fee before?

All policies will have management charges. I suspect that the new insurer is expressing them in a slightly different way that makes is more apparent what the charges are. Do check the information you were sent at the time the policy was transferred and if you are still unsure, ask the insurance company for a clear written explaination.


10. I have £50k in a bank owned by RBS and I also have a Cash ISA worth £30k with another bank owned by RBS. Are they both covered by the deposit protection scheme? Is Halifax owned by RBS?

Savings of up to £50,000 per person per institution are protected by the Financial Services Compensation Scheme (FSCS). However, I should add that this is per banking licence. If the two RBS-owned banks share the same licence then you will be protected up to a total of £50,000 - not per bank. RBS will be able to clarify the position for you immediately. Halifax is owned by Lloyds Banking Group - not RBS.


11. My 21-year-old daughter is starting a degree at Kingston Uni in October and I would like to get your advice on the best student account deals around? (She already has a current account with the Halifax as she has been working full time for two years prior to applying to Uni).

There will be numerous deals coming to market just now and the best one will really depend on whether your daughter has savings to deposit or whether she needs the best overdraft facility for her time at university. You can research the best deals at www.moneyfacts.co.uk


12. I inherited a lump sum of Euros which I have in a short term savings account in Ireland - but it's not getting a good rate of interest at the moment. I live in the UK and I would like to know is there any type of savings with a higher interest rate that still lets me withdraw money in either the UK or Ireland?

Almost any account will allow you to draw out funds as long as you have not entered into a fixed term deposit. If you want funds paid to either UK or Ireland it may be better to have an offshore account, for example in the Isle of Man or Jersey. However, ensure you know what deposit protection is available. You will also need to put aside some of your interest to pay tax as your interest will be paid gross by the offshore institution. One point to note is that of currency risk if the Euro moves against you in the future.


13. I inadvertently deposited £60k in a fixed term Cash ISA and rules prevent me from transferring out the excess £10k (which is over protection limit). What can I do?

Whilst you are over the current limit there is strict supervision of all UK banks and it is most unlikely that there will be a default of a major institution. However, the best advice is always, where possible, to keep your savings to £50,000 per institution if this is practical. The last Government did say, regardless of the £50,000 limit, that no indivdual UK depositor would lose their money in the event of a default of a UK bank. I cannot imagine that the present administration would act any differently. This is however, an implicit rather than an absolute guarantee.

The views expressed are those of Christine Ross, not the BBC.




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