In the near future the Duncan’s are planning to buy a new car, costing £12,000 and make some home improvements, costing £30,000. This is a total of £42,000. The Duncan’s have no borrowing/lending commitments at the moment and this is best left this way. As the interest they would pay on a loan would be greater than the interest gained from keeping money in a savings account. So I think it is best to take this £42,000 from their savings. The Duncan’s also have a £2,135 spare each month, with which they can rebuild savings. However I have included some loan quotes later on, just incase the Duncan’s have to make a big financial purchase in the near future, as I would not recommend they make another large withdrawal from their savings.
This means they will have £23,000 left in savings. As everybody wants the greatest return on savings it would be better for them to change suppler so they can gain more interest. As the Duncan’s may need access to there savings (for emergencies, new purchases etc.) it is best left somewhere where they can get money out if need be and their money is at little risk. I purpose that the remaining savings is split into either 5 savings accounts. Some invested into a high interest account or bond. Some into an account with quick access, which they can easily transfer money to and from. And they could each open an ISA to give them tax-free savings.
The Duncan’s also have insurance needs. Such as: car insurance, home insurance, life assurance, possibly health assurance etc. with the current state pension at £123.80 per week for a married couple it may wise for George to look at a private pension also. There is savings to be made if this is done through the same suppler for example.
SECTION 2: FINANCIAL PRODUCTS CURRNTLY USED BY THE DUNCAN’S.
The Duncan’s make all their money transactions by cash or cheque.
They have a current account with the Royal Bank Of Scotland, into which Mr Duncan’s £3,500 per month salary is paid. This has a ‘Whilst in credit’ interest rate of 0.20%, it can be accessed via branch, bank and phone some details are below:
The Duncan’s saving accounts is a Joint Premium Share Account with the Dunfermline Building Society. Details of which are below. They are currently earning a 3.55%gross/Aer per annum. After the withdrawal for the car and home improvements this would fall to 2.92%.
They also have the following share portfolio:
SECTION 3: RECONMENDED FINANCIAL PRODUCTS AND SERVICES
Firstly I recommend the Duncan’s change their current account, below is a table of 4 different accounts.
I recommend that the Duncan’s change to a ‘Bank Of Scotland Current Account.’
As you can see this may not be the best interest paid, however, there are a number of reasons I have recommend this account. Firstly I will explain why I have ruled out the others:
CAHHOT is an Internet based account. The Duncan’s would not be able to go into a high street branch and speak to someone face to face and going by their current banking style I believe this would not suit them.
Clearly the Lloyds TSB account is paying a good gross and AER rate. However, I believe this is artificially inflated to get customers. When reading the conditions of the account this rate is only for a limited time period. The Duncan’s would also have to log on to the Internet and access the account through it twice a month as part of the conditions, which may not be possible for them. There are a number of conditions like this and there have been articles quoting bad customer care from Lloyds TSB. So I have not recommended this account for them.
So, the reasons I have picked the Bank of Scotland account is that they have a better interest/AER than the Clydesdale account. The account offers the Duncan’s a chequebook and use of a switch card. The Bank Of Scotland account has good access, with telephone, Internet and branch banking. With the Internet and telephone banking the Duncan’s can access their account and make money transactions whenever they like, quickly and conveniently. Bank of Scotland is a good choice for this as they have 24hour, 365 days a year telephone banking and an award winning Internet access site. They also have a fairly good customer service review. With Bank of Scotland merging with the Halifax there are now a lot more branches available and more products available through the same retailer. This makes transfer of money etc a lot easier if they have accounts with the same bank. As you will see later I have also recommend other accounts with the Bank of Scotland/Halifax.
The Duncan’s have £65,000 in savings. I recommend that they take the £42,000 needed for home improvements and new car from this. I believe this would be better than taking out a loan and paying interest on it. As the interest on the loan would be greater then the interest gained in a savings account they would be effectively losing money.
This leaves the Duncan’s £23,000 left in savings. I purpose that they split this money into 4 accounts. Firstly £5000 into a ‘CAPITAL ONE 4 year fixed rate Bond.’ Details of which are below along with some other savings accounts.
If they invest £5000 into the ‘CAPITAL ONE bond’ they will gain £1,014.39 over a 5-year period, compared to keeping £5000 in the Dunfermline account. During this time they can make up to 3 withdrawals a year if necessary. This could be done easily over the telephone. I have not recommended the 5-year bond, as they would only gain £31 extra for keeping it one more year.
This leaves the Duncan’s £18,000. I would recommend the Duncan’s open an ISA account each. If Mr Duncan opens a ‘Maxi ISA’ with the Halifax, He can invest his share portfolio of £1,679.80 and £3,000 cash. Making a total of £4,679.80. I think he should go for a ‘capital protected option’. This will protect his investment and aims to provide at least the original investment plus a percentage of any FTSE 100 index growth. This gain will be tax-free.
Mrs Duncan should open a ‘mini cash ISA’ with the Halifax. If she invests £3,000 and chooses the fixed rate option she will get a fixed rate of 4.70% AER/pa over one year or 4.80% AER over 5 years. Again this saving will be tax-free.
This leaves the Duncan’s £12,000.
With the remaining £12,000 I recommend that the Duncan’s invest £6000 into a ‘Halifax regular saver account.’
I also recommend that they set up a standing order of £250 (max allowed.) per month into this account. This would give them a fixed rate of 6.05% for a one-year period. I believe this would be better as it would guarantee a good interest rate, rather than opting for a variable rate. After this one-year period the money can be transferred into the Halifax web saver which would give them 4.80% AER. However, I would recommend reviewing there savings at this point to see what other rates are available.
As the Halifax regular saver account doesn’t allow withdrawals and they would loose a little interest if they withdrawal from the Capital One bond. It would be wise for the Duncan’s to invest the remaining £6000 into an account that they can get instant access to incase of an emergency etc. I would recommend that they open a ‘Halifax web saver’. This gives them unlimited transfers to their other bank of Scotland/Halifax accounts. They can access/make transfers via Internet, branch, telephone and keycard. Which again is very convenient. This would give them 4.80% AER/gross pa. This would be a good account for them to switch money to and from their current account when fairly big purchases had to be made etc. I would recommend that the Duncan’s set up a standing order of £500 each month into this account.