My wife and I will soon (2-3 weeks) receive a gift of £25k from her parents. I am 28, she is 29, we are both basic rate tax payers, although I am hopefully heading into the top band in 6-12 months time.
We have a credit card debt of £4.5k @ 3.9% until 2011, and no other debts (apart from mortgage, which is fixed at 4.84% for another 4 1/2 years - changed the deal just in time for the rate rises!).
My wife needs a car, so we are putting aside ~£6k for that. We have a
10month old daughter, she currently gets £70 a month into her Stakeholder CTF with the Childrens Mutual (ie Insight Growth Fund). £50 from us, and £20 fro her grandparents. £25k minus the £6k for the car leave £19k to 'play with'. I will likely keep £2k in an instant access savings account (we have one with Cahoot, who also provide our current account. Rates are quite high, and transfers in and out are instant - that can be VERY useful!)We dont want to invest more for our daughter at this stage - £~25k from her CTF when she is 18 seems plenty, and we need to consider having enough spare to invest the same for a second child. Although if I get the promotion I am aiming for this year, I may start a pension for her of about £25 a month (scary thought when she's just 10 months old!!).
I currently invest ~£100/month into work share schemes (I work for a major telco), and we put about £100 each a month into our work pension schemes.
If I become a higher rate tax payer, all savings outside of ISAs will go into my wife's name.
A couple of questions:
- I am looking long term, but is it a 'bad' time to be investing in Maxi ISAs / investment funds ? With the rising interest rates, rising inflation, questions over the UK economy, potential questions over the world economy (ie will the US kick off against Iran ?!) etc, should we stick with cash for the next few years and see what happens ? I dont want to buy into a fund at the top of the market... and rising interest rates are making cash look attractive (although inflation may soon erode 'real' interest).
- Should I pay off the credit card ? Doing so will free up about £100 a month, but the low rate tempts me to keep the cash in savings instead. We would need about 5% gross to bring in more than we pay out in interest on the debt. We could use the lump to pay off the monthly payment each month, and so still 'free up' the monthly £100.
- Depending on the answer to 1., we will put as much into the various flavours of ISAs as we can. We currently have about £900 in an Abbey ISA that is paying about 5.5%. We will move this if we open a new cash mini ISA. Where is the best place to compare ISA rates, with a view to which ones are fixed, and which will likely have their rates reduced once they have snared their investors ?
- What is the tax situation with fixed term bonds ? Is there such a thing as a 1 or 2 year fixed return bond that is paid tax free ? With the current trend in the rise in rates, I am nervous about locking money into a bond unless I can get the return tax free (rates are unlikely to rise by another 20%), or a high rate. We could put some money into this in the short term, see what happens to the markets over the next couple of years and invest the maturing balance into an investment fund if appropriate. If we cannot get a tax free return, I could lock £6k in for the next 12 months and then put the maturing balance into a couple of ISAs next FY.
Any thoughts ? Sorry for the long post - trying to answer the basic questions before they are asked !