Author Topic: UK Student, Odd Situation. What do I do with the spare money?  (Read 11105 times)

WorkingOnStubble

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Hi, I'm a university student in England. Due to having a low family income, and going to a rather prestigious university, I'm getting a fair amount of non-repayable money in the form of grants and bursaries and whatnot. I'm still getting the standard student loans, and the maintenance loan from the government. These I have to repay, but they only need repaying when I have a job above ~16,000/year.

I do my best to subscribe to the Mustachian methods, so overall I'm left with a lot of money that I'm just not spending. So far I've tucked this into Cash ISAs.

I have an ISA with Halifax, which is on a 3 year fixed rate from now on at 4%. Due to some silliness when I first got that, I have ~4,900 in there and can't put any more in (I took some money out to lend to my brother, not realising I couldn't put that back in after reaching the limit).

I also have a variable rate ISA with Santander that will be 3.3% for the year with 3,500 in it at the moment. I'm putting money into this as fast as I can, while making sure I'll not run out of money at any point (I have a 1,000 overdraft in my student account, which I put a fair bit into my variable savings, since it's just free money, and at the end of my degree I will just cut back on the money I put into savings to make sure I'm not in the overdraft when the student overdraft expires).

When my 2nd year at university begins again, I'll start to have more bursaries and grants, along with my loans, coming in. I'll quite quickly fill up my variable ISA. At this point I'll have money left over, that will just be doing nothing at all in my student account.


I'd like to figure out what to do with this money that will have it work for me, rather than lying on the sofa doing nothing.

A question I'm not sure of: At the end of the tax year, can I transfer my variable rate ISA into my existing halifax fixed ISA, at the 4%? So if I fill it up, add the 5,640 to the existing 4,900, and then keep that in for the remaining years?

I'd like to have all of this money available to me for use upon leaving university, which will be in June 2015. I looked at one point into a stocks and shares ISA at Santander, but they told me that if I couldn't leave the money with them for 4 years or more, it wasn't worth it for me to get one.

I'd appreciate any advice! Thankyou!

sol

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Re: UK Student, Odd Situation. What do I do with the spare money?
« Reply #1 on: July 21, 2012, 12:53:30 PM »
Some people will tell you that your surplush cash will never have as much value as it does right now, so you should spend it on hookers and blow.  This mindset was common in about 2008 when stocks briefly had a neg negative return over a ten year period, but it has persisted since then in some crowds.

I suspect most of this crowd will suggest you deposit into a no-load mutual fund with a conservative asset allocation, something like 20% global market stocks, 60% large cap bonds, and 20% TIPS or equivalent.  With a time horizon of only four years you don't want to go too far out the risk/return curve, but then again you don't seem too worried about principal protection, either.  If it happens to be down a few percent in four years, can you leave it alone until it recovers?

Perhaps someone with more UK specific knowledge will chime in with suggestions for retirement savings vehicles.  Now is the time to develop the habit of saving your surplus.

Shandi76

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Re: UK Student, Odd Situation. What do I do with the spare money?
« Reply #2 on: July 22, 2012, 03:55:19 AM »
It's great that you can save money as a student. But bear in mind that the Student Loan terms are changing for the worse and the interest you will have to pay on them might end up higher than the interest you earn on the loaned money. You might be best taking out less in loans rather than investing it? Though I appreciate that it is probably cheaper money than you will be able to get commercially, so if you have a plan for what you need to money for then it might make sense to keep borrowing the full amount available.

For investment vehicles, it depends on how much risk you are willing to take. For your timeframe (3 years) you could consider becoming a moneylender using ZOPA. I do this, and you can get a 6% or greater return per year after fees if you are lucky and have a very low number of bad loans. It beats the rates on cash ISAs, and at the moment is also much better than the return on my stocks and shares ISA (currently negative).

WorkingOnStubble

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Re: UK Student, Odd Situation. What do I do with the spare money?
« Reply #3 on: July 22, 2012, 06:04:01 AM »
Thanks for the replies! Sol, I mostly managed to figure out what you said in your post. Could you define principal protection for me though, that was a bit I was confused about.

My idea for having the money for the end of my degree is that it'll allow me to have the money available so I can do what I need with it, be it having the money to move somewhere for a job, or anything else. If this is silly or naive of me, please say. I'm basically figuring out what I want to do from my own opinions and limited knowledge, as people around me don't seem as happy to save as I am.


Shandi, thanks for the reply. The student loans are changing, but my course started before September 2012, so I have the old student loans, detailed here.
Basically, I have to be making 15,795+/yr, and "The interest the SLC charge on your student loan is linked to the rate of inflation and adjusted in line with the Retail Price Index.", it is currently at 1.5%.

I don't think taking out less in loans is an option. To qualify for a lot of the bursaries through my uni, and the non-repayable maintenance grant from the government, I have to apply for the full loan, otherwise they figure I don't need the extra money and don't give me it.

I'll have a look into ZOPA, thankyou.

Taffy

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Re: UK Student, Odd Situation. What do I do with the spare money?
« Reply #4 on: July 22, 2012, 08:56:27 AM »
It sounds like you want the money to be available when you graduate, so the long-term strategies suggested elsewhere here might not be the best idea for you, especially if you want very low-risk gains.

As a student you are presumably not paying income tax, unless you have a decent side job. If that's the case, non-ISA savings accounts become a little more attractive. If you want easy access on graduation, you're not talking about huge sums of money, and you're prepared to be on the ball with making regular deposits, then take a look at a Regular Savings account.

The deal with Regular Savings accounts is that they have a very attractive rate of interest (8% is the current best), but they are time-limited and deposit-per-month-limited. So the account only functions for 12 months, and you can pay in a maximum of x (usually a few hundred quid) per month.

The superb site moneysavingexpert.com has a page on Regular Savings accounts, and if you scroll down near the bottom there's an orange box with a calculator to help you work out the return. Say you have a lump sum of 3,600 to invest after getting your loans and bursaries, you can drip feed from the top savings account (Santander for easy access; 3.2%) into a First Direct current account, and from there into First Direct's 8% Regular Saver at 300 per month (the maximum you can put in). With those numbers, and assuming no tax, you can get a rate of 5.75% on your 3,600 (interest of 207), which is not only better than a bog-standard savings account, it's better than your ISAs, most likely (though you should still max out your ISA allowance first, because it's tax free forever). It's a little bit of extra faff, but you can set it all up with direct debits, and it's the best deal going. When the 12 months is up, head back to the same website to work out what the new best deal is.

Just a note on cash ISAs - the 5,640 limit per year is not per account, it's the total amount you can deposit across any number of ISAs in one year. Just sounds a little bit from your intro that you might go over that if you're not careful.

sol

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Re: UK Student, Odd Situation. What do I do with the spare money?
« Reply #5 on: July 22, 2012, 09:24:25 AM »
Could you define principal protection for me though, that was a bit I was confused about.

Principal protection just means that the money you put in (the principal) doesn't decrease in value.  Most investments with a possible high rate of return also bear some risk of losing money.  Insured savings accounts protect your principal, but they offer lower growth rates.

WorkingOnStubble

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Re: UK Student, Odd Situation. What do I do with the spare money?
« Reply #6 on: July 23, 2012, 03:35:07 PM »
Thanks for the definition sol, seems quite obvious now, but I just wanted to ensure that I had it all right :).

Taffy, I've looked into the Regular Savings Accounts, and they seem a great choice, I may as well make use of them while I can without the income tax! My only problem with the 8% saver is the need for the current account, which I need to put in 1,500/month. I won't have that amount of money to spare through the month, but I read that it's possible to just move money sort of in and out of it to satisfy that condition. Could this be explained a little please, just so I'm sure I can achieve it?

Thanks a lot :)

Taffy

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Re: UK Student, Odd Situation. What do I do with the spare money?
« Reply #7 on: July 23, 2012, 09:24:29 PM »
I think you can do it this way (providing they let you, as a student, open a 1st Account, and assuming you have 3,600 to invest):

Month 1
Open a Santander savings account (SA), deposit 2,100
Open a 1st Account (CA), deposit 1,500
Open a First Direct Regular Savings account (RS), transfer 300 from CA
Transfer the remaining 1,200 into SA.

Then for months 2 and 3:
Transfer 1,500 from SA to CA
Transfer 300 from CA to RS
Transfer 1,200 from CA to SA

That will qualify you for the 100 bonus on the 1st Account. It is free of charges for the first six months, so from months 46 you can leave the 1st Account empty, and just drip-feed in your 300 per month from Santander to the Regular Savings account. The in months 7 and 8 go back to cycling the 1,500 in and out of the 1st Account to save the 10 monthly fees. Assuming you have a total of 3,600 saved and no more, you won't have enough spare to cycle in the 1,500 in month 912, therefore incurring the 10 per month fee, but that's not a big deal because you're already 100 up from the 1st Account bonus. Total potential gain over 12 months on your 3,600 principal: 267 (207 from interest, 60 from the bonus), or an equivalent of 7.42%. Beat that!

As mentioned earlier it's a bit of a hassle, but you can probably set most of it up with direct debits, so it's just a couple of hours work at the beginning. Of course this is all moot if they won't let you open the 1st Account in the first place, so give them a call first and check.

Also, I should add my congratulations for being financially aware at this point in your life. I was horribly profligate at your age, and it's only ten years later that I've wised up.

Doubleh

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Re: UK Student, Odd Situation. What do I do with the spare money?
« Reply #8 on: July 25, 2012, 01:50:01 AM »
Hi, it's good to see other Brits on here, and congratulations on starting to groom your mo so early! I'm sure you don't need telling this, but you may not want to shout too loudly about your saving plans in the real world as you may find some people who think it is unreasonable of you to collect support you are able to save as you therefore "don't need it". Funny that some people think its wrong to save money but fine to blow it all on beer and cigarettes!

I'll second Taffy's suggestion about moving money back and forth to get the Regular Saver account. I use the same approach with other banks and have had no problems. I prefer to do it by hand online, and spend about 5 minutes once per month over a number of accounts but as mentioned you can also set up standing orders to do this for you. If you do take the standing order route I'd suggest staggering them by a day or two so you don't find yourself hit by charges because money is transferred out of one account before it has been transferred in.

If you're going to go down this route you could also look at a Halifax Reward Current account. As long as you transfer in 1,000 each month it pays you 5 that month instead of interest. The kicker is that funds don't even have to stay in the account overnight, I move mine back out as soon as they hit so that by close of business they're tucked safely back up in bed earning 3% in another account. Even better, the 60 they pay over the year already has 20% tax deducted from it, so as a non taxpayer you can claim this extra back from the government. 

Regarding transferring funds from one ISA to another you can do this at any time, but as you can only contribute to one ISA each tax year you should wait until you have maxed out this years ISA before moving it. The only restriction to moving it is whether the other bank will accept it - some of the best rates only take new money - so you will need to check with Halifax. If they don't accept the transfer to he fixed rate account someone else almost certainly will, check moneysavingexpert.com for the latest best buys. Do bear in mind though that you have to ask your bank to transfer the money - I you just close the old account and take the cash out it's counted as a withdrawal and you can't reinvest it in an ISA without using more of your allowance. 

Lastly you may not want to rule out the stock market completely.  The advice not to put money in stocks and shares that you will need in four years is sound, but it also sounds like you are in this for the long haul so you could consider putting a small amount into a stocks and shares ISA such as a low cost index tracker, making sure that if you can't get it out in 4 years it won't cause you a problem. As you can only put half of your total ISA allowance in cash you could invest up to 5,640 in stocks and shares even after you have maxed out your cash ISA. 

For the really long haul you could even start investing I a personal pension - did you know that you can invest up to 2,880 per year in a pension and the government will top this up with tax relief to 3,600, even if you have no income and dont pay any income tax? Of course the downside is that you wouldn't be able to access this for a really long time - until you're 55 at the earliest and then there are restrictions. 

WorkingOnStubble

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Re: UK Student, Odd Situation. What do I do with the spare money?
« Reply #9 on: April 03, 2013, 03:38:53 AM »
Bringing this thread back from the dead to ask for advice given the new tax year being so close. From what I've seen of ISA rates this year, it's pointless to even put my money in the because it's just gonna lose me money overall. My thoughts have been with opening a Stocks and Shares ISA, and putting all my savings money into some index funds.

From what I read, Hargreaves Lansdown gives good options for investing in Vanguard in an ISA. Could anyone give me advice as to whether to go with them, any problems I may have or things I should look out for, or even a reasonable way to invest my money for this year?

Thanks!

martynthewolf

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Re: UK Student, Odd Situation. What do I do with the spare money?
« Reply #10 on: April 03, 2013, 06:32:51 AM »
Bringing this thread back from the dead to ask for advice given the new tax year being so close. From what I've seen of ISA rates this year, it's pointless to even put my money in the because it's just gonna lose me money overall. My thoughts have been with opening a Stocks and Shares ISA, and putting all my savings money into some index funds.

From what I read, Hargreaves Lansdown gives good options for investing in Vanguard in an ISA. Could anyone give me advice as to whether to go with them, any problems I may have or things I should look out for, or even a reasonable way to invest my money for this year?

Thanks!

I'm only just starting out and I chose TD Direct Investing. I can only say that they've got an awesome customer service helpline, decent fund tools for research and from what I could work out minimal charges for the amount I currently have invested. I've not looked into any other platforms though. TD also has Vanguard funds available for ISAs, the minimum initial investment is 500.

Someone might be along shortly to give advice of HL. How much would you be investing?

WorkingOnStubble

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Re: UK Student, Odd Situation. What do I do with the spare money?
« Reply #11 on: April 03, 2013, 06:54:26 AM »
Thanks martyn, I'll have a look into TD as you say. I've at the moment got nearly 2000 to put in, and over the year that'll become just about the 5760 for the new ISA limits.

martynthewolf

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Re: UK Student, Odd Situation. What do I do with the spare money?
« Reply #12 on: April 03, 2013, 07:25:34 AM »
Just for a little more information so you can compare with HL charges TD Direct Investing Account Rates and Charges

I do know that all the charges will be changing soon due to RDR review making investing costs clearer to the consumer. TD Direct already have their future costs up on the rates and charges page (Platform Fee).