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Be a regular and it could be better for your savings
Investing on a regular basis – rather than by lump sums – can bring distinct advantages, particularly for timing and for better interest rates. This may come as a welcome surprise to those who have never looked at monthly accounts.
For those seeking straightforward deposit accounts, providers entice with higher rates to help their cash flow and because they know that such savers are consistent.
Investors looking for equity holdings would also be wise to examine the regular option, particularly with the current volatility in the world's stock markets.
Almost half the population – 47 per cent – saved regularly last year. According to research by the National Savings & Investments, monthly savers had never before put away such a high sum, reaching 201.55 – up from 193.34 on average.
Drip-feeding money into the stock market on a monthly basis makes particular sense when markets are not moving in a consistent direction. "In the recent choppy market conditions, regular saving has outperformed lump sum investments," says Annabel Brodie-Smith, communications director of the Association of Investment Companies.
Even in a market downturn, regular payments can be advantageous. If 50 had been invested monthly in the average investment company over the year to May 31, it would be down just 0.2 per cent to 599 by comparison with a 28 per cent loss to 434 for those who made a 600 lump sum investment, according to AIC Using Fundamental Data.
Many providers offer share plans and OEIC/unit trust regular schemes. For investment trusts, which provide a broad range of investments under an independent board of directors, monthly rates start at just 20, such as with Henderson Global Investors through Halifax Share Dealing and RIT Capital Partners with their global growth trust. Both have no initial or annual charges.
Access to such long-established investment trusts as BlackRock Smaller Companies (founded 1906), Dunedin Income Growth (established 1873) and F&C Global Smaller Companies (started 1889) can be secured from 50-100 a month. This is an excellent way to obtain such a wide range of assets which are researched and picked professionally with low management costs.
Another regular savings approach is through a friendly society's tax-exempt savings plan. The money is usually invested either in a with-profits fund or one based on property, normally commercial. The commitment is for at least 10 years and such plans often come with complimentary life cover.
Save As You Earn (SAVE) is a great way to back your firm and invest regularly. Save 5-250 monthly over three or five years. Employers grant staff two options at the end of the period: either to use the money saved plus bonus and interest to purchase shares in the company or have the contributions returned.
Neither the bonus nor any gains on the shares are subject to income tax or NI but CGT may be liable on the sale. The share price is fixed at the time you are given the option and must not be less than 80 per cent of the market value.
Cash deposits on a regular basis can have three catches:
n sudden closure or a derisory rate of interest if payments are not maintained, often though permitting one missed month a year;
n loss of bonus if not held for a minimum period, usually 12 months;
n far lower interest rate applied upon maturity, requiring a new account to then be opened to gain the higher rate.
For those who like the certainty of fixed rates, interest up to 10 per cent can be obtained. This is with HSBC for the Preferential Regular Saver (25-250 monthly) for one year. Applicants must be Premier, Plus or Passport customers with their monthly salary or retirement income paid into their HSBC current account.
Two providers offer a fixed 8 per cent for one year: Alliance & Leicester, part of Santander, have the Save & Protect account which accepts 10-250 monthly whilst HSBC's Regular Saver is for current account 'Advance' customers (25-250 monthly).
Six per cent is available on 20-250 with Abbey on Super Monthly Saver and Norwich & Peterborough with Gold Savings but both require other accounts to be held.
Three providers offer fixed rate regular savings without requiring linked accounts:
n Barclays paying 5.84 per cent with Monthly Savings on 20-250;
n Leek United paying 2.25 per cent on a one year bond on 25-250;
n Principality paying four per cent on Regular Saver Bond 8 on 20-500.
For those seeking a regular variable deposit account, the research group Moneyfacts gives top marks to Abbey for First Home Saver Special (100-300) which requires a mortgage interview. It is for those aged under 35 years who are saving for their first home.
Loughborough has a regular saver paying four per cent (10-500) but – like many providers – watch for the penalty if more than one withdrawal is made. In place of a variable three per cent plus one per cent bonus, the bonus is lost.
Scottish Building Society pays the same four per cent on its Regular Bonus Saver (25-500) whilst Dunfermline – now owned by Nationwide – pays 3.75 per cent (1-400) of which 3.65 per cent is bonus.
The best way to shelter interest on cash from tax is to hold it in an Individual Savings Account (ISA). From October 6, the annual limit rises to 10,200 for those 50 years and older.
It's a myth to think only lump sums are acceptable for cash ISAs. Five providers in our region accept regular saving ISAs: Britannia, Dudley, First Direct, Monmouthshire and Principality.
Leeds based First Direct, part of HSBC, pays a fixed seven per cent on a monthly subscription of at least 25. Operated by internet or telephone, it is offered to those who open another account.
A fixed five per cent can be obtained with Principality on a minimum regular 20. The best variable rate is 3.10 per cent with Britannia, which accepts from 20 monthly.
Children's regular savings accounts are also available, which is an ideal way to encourage the next generation of young investors.
Halifax has a generous six per cent one year bond on 10-100 monthly (Children's Regular Saver), which is not to be confused with the 'Under 21s Monthly Saver', which pays only 1.05 per cent on 5-500.
Shepshed pays 2.50 per cent on 10-100 but only 0.25 per cent if less than 11 payments or a withdrawal made. Newcastle pays 2.10 on 10-1,000 monthly but just 0.10 per cent if 11 payments are not maintained.
An account that's proving a bonus
Sandra Wood, a 61-year-old retired learning support assistant at a West Yorkshire secondary school, opened a regular saver account in November 2006 "as you never know what's round the corner".
Sandra chose Yorkshire Building Society and contributes 20 a month by standing order from her bank account. She adds additional sums from time to time.
Sandra, who lives at Wrenthorpe near Wakefield, has made no withdrawals although one is permitted annually without loss of bonus interest. She is saving both for holidays and retirement.
The account currently pays a variable 3.75 per cent including a 2.5 per cent bonus.
Yorkshire Building Society now offers its second issue of the regular saver account which accepts 10-250 monthly and pays a variable 3.00 per cent including two per cent bonus.
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Wednesday 23 May 2012
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