What to do with £700 a month?

[Robin198]

I’m early 40s
£180k in equity in my house
£90k left to pay over 10years (currently 4%)
£11k in long term savings (5%)
£4K in day to day (4%)
Just started an S& S JISA for my son through Nutmeg
Professional pension.

No debt, no car loans or finance of any kind.

Im a single parent and have worked really hard to be financially stable for me and my son. For the next 4 years I should have an extra £650-700 to save. Any suggestions as to the best way to invest? Or should I dump it in my mortgage at the end of every year? I’m not likely to be in this position of excess savings again so I’d like to make it count.

Yes. I'd overpay mortgage and maybe put a small amount into savings, £500 mortgage / £200 savings for rainy day money.

Definitely overpay your mortgage as much as possible (your lender is likely to have a cap on what you can overpay).

Santander Edge pays 7% on balances up to £4,000. I’d max that first.
Lloyds has a £400/month regular saver at 6.25%.
First Direct has a £300/month regular saver at 7%.

I would do half and half. £350 into savings over four years plus interest will give you a nice nest egg (look at one of the linked regular savers with someone like First Direct who offer 7% interest on up to £300 per month) and maybe some premium bonds by standing order as you can easily access those with a chance of a win too. Then increase your monthly payment on your mortgage by £350 and over four years you will save a fortune in interest and bring your LTV down and your term. Congratulations on your hard work 💪🏼

Thank you for the practical ideas and direction to specific account providers.

An ISA for yourself to shield your savings from tax.

A private pension or increased contributions to your work pension.

Are you in higher rate tax? If so I’d put enough in a pension to bring income down to basic rate

Give it to me?

You probably won’t get as decent ISA rate as you would a regular saver. Depends on your tax band though. You can earn the following in interest without paying tax:-
Basic rate £1,000
Higher rate £500
Additional rate £0
So unless you’re a very higher earner I wouldn’t focus on an ISA. Max out the regular savers. If you are, then you need to chuck some into your pension to save tax and boost your pot!

I'd definitely look at your pension. If you're a higher rate tax payer and use salary sacrifice the £700 will be £1200 a month into your pension and should be growing at a higher rate than your savings.

Make sure you have enough accessible savings for a rainy day fund too (6 months income or so).

The mortgage would be low on my list to clear but I do understand the appeal of having it paid off.

But with an ISA and premium bonds you don’t pay income tax on interest.

On an ordinary account you have to hand over 20% to HMRC, and this is done automatically as the banks now tell The tax office. Check it out on gov.gateway .

so a slightly lower rate on an ISA is actually better as you get to keep it all

This is not done automatically since the tax free interest allowance was introduced. You now need to self monitor and report if you go over the allowance.

HMRC will know if you do because the banks share info but the tax isn’t automatically taken off any more.

I’m clearly irresponsible but I’d use it to book a couple of brilliant holidays 🫣

Unfortunately not a higher rate tax payer.

This has crossed my mind!
Ive got a little pot for holidays and it’s almost there so we will have that to enjoy soon 😎

I’m reading this to mean I have to pay 20% on my savings, is this correct? I don’t think I’ve ever done that and now I’m worried I’m hunted down!

I would too 😆

Definitely throw some at the mortgage user a compound interest/mortgage over payment calculator there is one on MSE I was astounded at the difference even small over payments make

Even as a basic rate tax payer with NI and salary sacrifice your £700 will become £1k a month in pension and £875 if no sal sac.
With compound interest this should grow nicely and you can use 25% tax free to pay off your mortgage if you still have it at retirement.

Don’t worry, this information is wrong. HMRC know how much interest you receive and will change your tax code to claim it back. This is only the case once you have gone above the £1000 limit

NW/RBS have a regular saver with a max monthly of £250. I'd put some into a high interest paying account like this and then the rest in the mortgage. If you can make additional pension contributions then that's also something to look at due to tax savings. But a mix sounds best anyway

No, only if you earn over the figures I mentioned earlier. You can actually earn a lot in interest (£1000 as a basic rate tax payer) without paying any tax. Once you’ve used that up then you’d look at an ISA.

https://www.gov.uk/apply-tax-free-interest-on-savings

This explains it better than I can!

I would ask:

1. how many months would your savings last if you lost your job? You might want to up them to give a bigger emergency fund (but that might also affect entitlement to benefits if things did go wrong)
2. How healthy is your pension?
3. how old is your son? Do you need to look for specific savings for him e.g uni?

1. I’ve got 6 months of mortgage and living expenses in my long term savings.

2. I’ve got a local Govt pension (SSPA). I currently contribute £300 a month. I have been considering a private pension for the tax benefit and as I could access it early. Although I don’t want to put everything into a private pension as I’m aware I can’t assume I’ll live to see it!

3. He’s 4. I have put £100 a month n a S&S JISA for him since he was born. I’m hoping that by the age of 18ish I’ll be able to give him that for uni/deposit if needed.