The problem:
My problem is quite simple. I'm a freelance temping accountant, which means that I have money coming in but always coming on an irregular basis. Nor is my future particularly certain: I have started doing some of my own web design, but I am also thinking about going back to being a full-time student and taking an MSc in programming. I know that I need to be saving money as my income could dwindle to nothing within the next few months. I took out an Isa last year, but now want to know whether I should be topping that up, or whether I should go for a high-interest instant access account. I am in the fortunate position that I own my flat - albeit with a mortgage.
The solution:
Our three experts agree that the money should not be invested in the stock market, but either put into a building society deposit account or into a cash Isa.
1 The bottom line is that as he's not going to be earning any money he will need to draw on his savings, so he'll need an instant access account with no penalty. I recommend a building society high interest instant access account. Which one depends on when he does it - he should hunt the field for the best rates at any time -and he should be prepared to change societies as new rates are introduced.
If he's earning a lot of money each month at the moment, and can afford to put, say, £500 away, then he should decide how much he needs to be able to access with no notice, and then put the balance into a monthly unit trust savings account with an Isa wrapper. I am very pro technology funds because the market's on the floor. However, he should leave the money invested for five years.
Colin Jackson, Baronworth
2 This man's situation is fairly uncertain. He is going to require access to his capital at short notice, so that rules out all share-based investments in the stock market, which should be left for five years at least. He can put £3,000 into a cash Isa each year, which is tax free and would allow him instant access. He could also look at putting the money on deposit - the best rates are offered over the internet and at the moment he could get 6% gross.
However, it might be interesting to investigate the possibility of what is known as an offset mortgage. For example if he had a mortgage of £50,000 and savings of £10,000, and the two were with the same provider, although he would not receive interest on the £10,000, he would effectively be paying off more of the mortgage each month. If he were a 40% tax payer, and his mortgage was at, say 7%, then he would effectively be getting 11.66% on his money.
Mark Arrington, Woolwich Independent Financial Advisory Services
3 As your income is set to dwindle, I would not recommend 'topping up' your equity-based Isa as this should be viewed as a longer term investment. However, I would suggest that the first £3,000 of savings be held within a mini Isa (Smile.co.uk offers a 6% rate) with any balance held in a high interest account (bristol-west.co.uk easy access account offers 6.1% variable). Both accounts would be available for instant access when required. Should you not pursue full-time study you could consider reducing your mortgage as a lower risk option or invest into an equity-based Isa for longer term capital growth.
Lisa McDougall, Advisory & Brokerage Services
