Case Study (james + Megan)

Question 1

Background info

Answer 1

• both 24
• been in relationship since they were at school
• worked since leaving college - James is a maintenance engineer, Megan is a dental hygienist

Question 2

Financial position

Answer 2

• James has a current account with Lloyds bank
• Megan has a current account with Barclays
• live together in a rented flat near dartboard for the last 3 years
• they have no debts, no current savings
• looking to save money for a deposit to buy a house
• have no children

Question 3

Their plans

Answer 3

• created a strict budget in which they have allocated to each section of their spending, the exact money to pay their bills
• they are able to save £1,000 per month towards a deposit for a house
• looking to save at least £30,000 which would amount to a 10% deposit for a house near dartford in Kent

Question 4

Lifetime ISA

Answer 4

• allows them to save for their first home up to a cost of £450,000
• ideal for them savings £30,000 deposit for a home costing £300,000 in dartboard
• can take out individual lifetime ISAs + save £500 each as we are told they are able to save £1,000 per month
• after 8 months they would have reached the £4,000 limit for each ISA - would then receive £1,000 bonus each for each account
• interest is paid on the bonus once it arrives into the account after 4 to 9 weeks
• interest is paid on the bonus as well as contributions - makes sense for James + Megan both to reach £4,000 limit as soon as possible
• very good deal, they should have no hesitation

Question 5

Example of Lifetime ISA interest

Answer 5

Moneybox provide 3.5% interest including a 0.75% 12 month bonus

Question 6

Cash ISA

Answer 6

• for the remaining 4 months of the year, they could save £500 each per month in a cash ISA
• 4% fixed interest rate and it doesn’t include tax because it’s an ISA
• James + Megan are allowed to save up to £20,000 per annum in different types of ISA, although they are only allowed one of each type of ISA

Question 7

Why they shouldn’t bother with a regular savings account

Answer 7

• given they are saving in a lifetime isa it makes sense for them to commit to saving in that account for 8 months so they receive the bonus as quick as possible
• therefore doesn’t seem necessary to open a regular savings account - although rate of interest is higher at 5.25% it is only payed on money that is in the account + only a maximum of £400 per month
• therefore the amount gained won’t be high
• £400 x 12 = £4,800 - average amount held in the account over 12 months = £2,400 x 5.25% brings them an additional £126, way below the return of the lifetime ISA and the cash ISA

Question 8

Conclusion

Answer 8

• lifetime ISA is the obvious option - purpose is to help young people get onto property ladder
• with the assumption that James and Megan commit to saving in this account, it would make sense to save any remains money in a cash ISA

Question 9

Benefits of savings in a non ISA account

Answer 9

• offer better rates of interest than ISA accounts
• ## personal allowance is £1,000 for basic rate taxpayers (such as Megan and James) - so savers who will not save enough to earn £1,000 for interest, non-ISA accounts are the better option

Question 10

Benefits of an ISA account?

Answer 10

• variety of ISAs - for people saving towards retirement or buying a new home = lifetime ISA
• lifetime ISA has a bonus of 25% - a lot higher than other savings accounts
• interest earth in an ISA does not count towards personal savings allowance- good for savers with lots of savings + are over the PSA (most likely high rate taxpayers as they’re threshold is £500)

Question 11

Influences that could impact James and Megan plan to save £1,000 per month

Answer 11

• they currently have no savings - target to save £1,000 is high, usually people who save that much have savings behind them as they have proven their discipline
• they’ve accepted there are some issues with their budget - as young they may be tempted to spend more socialising, clothes, holidays etc.
• they may be planning on getting married soon (been together since school) - will bring additional costs + affect budget
• they aim to save £30,000 which means to save £1,000 for 2 and a half years - makes challenge a lot harder

Question 12

What they can do to protect themselves for unexpected events?

Answer 12

• unexpected events will require extra costs or mean they can’t work - income falls - can’t meet saving target
• take out insurance policies to protect themselves from unexpected events
• may be able to earn additional income by sometimes working overtime, this is no guaranteed but their ability to work overtime may be a factor in whether they can save £1,000 a month
• howeverthey are at the age at which they may soon be promoted - receive rising income + ease saving situation