At first glance, Susan Shehean's finances look in perfect shape. The 65-year-old widow, who lives in Nailsea, Somerset, owns her three-bedroom house outright, has more than £250,000 in savings and investments and can afford to spend thousands of pounds a year on worldwide travel. Her lifestyle is helped along by a widow's state pension of £177.82 a week.

Despite her apparently enviable position, the retired Post Office worker worries that her money is not best placed. “My main concern is putting money away in the right places without having a huge portfolio to keep my eye on,” she says. “Because my capital is not great, I feel that a financial adviser would not necessarily be advantageous.

“I am sure that there are lots of people like me who could do with a little help without paying enormous charges. I am quite a low-risk saver now and would like to safeguard what money I have and also be as tax-efficient as possible. As I understand it, I come in below the inheritance tax threshold.”

This is especially important to Susan, who would like to keep her capital intact for her two children. She is happy living within range of Bristol and close to the Bristol Channel and has no plans to move from her three-bedroom semi-detached house, which is in “good shape”.

She enjoys walking in the nearby Mendips and Somerset Levels and makes the most of village life, playing badminton six times a week from September to April for £120 a year.

Her active lifestyle takes her out of the country frequently. Last year, for example, she spent September in Central America and November exploring Vietnam, Cambodia and Laos. Most trips are packages with Explore Worldwide, but she arranges some independently with close friends. These international holidays, annual visits to her expatriate son in Hong Kong and youth hostel adventures in Britain are her single biggest expense, totalling several thousand pounds a year. “Travel is very important to me and not something I am willing to give up,” she says.

Susan's day-to-day outgoings are very modest. She “lives off” inexpensive vegetable stir fries and does all the housework and gardening herself. She is not a big shopper and keeps car journeys to a minimum, preferring to take advantage of her bus pass. She is a keen internet user and spends £25 a month on this and her home phone.

She has credit cards with Halifax, Saga, Nationwide and NatWest, which she uses occasionally and clears in full every month.

Currently, £100,000 of Susan's savings are in a Halifax Web Saver account, paying 5.2 per cent, and £50,000 is in an Alliance & Leicester current account “for ease of access”. She also has £90,000 in a Legal & General (L&G) Pep and £19,000 in L&G's stocks and shares mini-Isa.

She is especially concerned by the performance of her Pep and of an £8,000 Halifax cash Isa. She adds: “My husband and I banked with Halifax for years, but I don't like the idea of having all my eggs in one basket. I have spent a considerable amount of time over the past week checking various financial institutions and doing comparisons, but I now feel totally confused.”

Susan Shehean: what the experts say

FINANCIAL PLANNING 1
Meera Patel,
Hargreaves Lansdown

“Susan's state pension and her other savings provide her with sufficient income for her needs, which is good news. Susan should consider moving her £50,000 deposit, as the Alliance & Leicester Premier Current Account pays a poor 1.49 per cent on up to £2,500, plus 0.1 per cent on amounts over that. For an instant access savings account, she could consider the Anglo Irish Bank and its Easy Access Account, which pays 6.3 per cent. On a deposit of £50,000, this would mean an extra £2,300 a year in interest.

“Depending on which cash Isa she has with Halifax, she could be receiving a rate between 3.91 per cent and 5.5 per cent. She could transfer to the online Icesave Easy Access cash mini-Isa, at 6.1 per cent, which offers instant access. Alternatively, if she is prepared to tie up her money with a short notice period, Scarborough Building Society's Notice Cash Mini Isa currently offers 6.3 per cent, with a 30-day notice period.

“If Susan is looking to put away some additional money without taking risk, she could look at the Natonal Savings & Investments (NS&I) Index-Linked Savings Certificates. With these, the value of investments rise in line with inflation and she will earn a guaranteed rate of interest on top, with all the returns tax-free. This is important because she is paying tax on the interest from her bank accounts and could shelter some of this money. The certificates are secure and she can invest up to £15,000 in each issue of each term. There is a three and five-year issue, paying 1.35 percentage points above inflation.”

Action plan

Transfer savings from Alliance & Leicester Premier account.

Move cash Isa from Halifax to Icesave, or Scarborough.

Consider NS&I Index-Linked Savings Certificates.

FINANCIAL PLANNING 2
Adrian Lowcock,
Bestinvest

“As Susan says, her capital is not great. Although her expenditure does not exceed her income at the moment, this may well change.

“I suggest that she obtains advice on her Legal & General Pep and Isa to get them working harder. Some advisers offer a portfolio review without charge, providing detailed independent investment advice while ensuring that any costs of changing investments are kept to a minimum.

“Her cash savings could also work harder. The Halifax account pays a reasonable amount, but she may wish to consider a notice account, such as the Investec High 5 Account, and compare market rates to ensure that she obtains a competitive yield.

“Susan uses her credit cards responsibly, paying them off monthly. Therefore, I would suggest that she considers moving to a provider that has additional offers, such as a cashback. Capital One offers a card with 1 per cent cashback and is not an introductory offer.”

Action plan

Take advice on Legal & General Pep and Isa.

Review existing savings rates.

Switch to credit cards with extras, such as a cashback feature.

SAVINGS & INVESTMENT
Dennis Hall,
Yellowtail Financial Planning

“Susan has about 40 per cent of her portfolio in riskier growth investments, mainly through her Peps, and 60 per cent cash, placing the portfolio between cautious to moderate risk. It would be a mistake to withdraw from growth assets completely - the risk of inflation over the next 20 or so years is too great. Instead, I suggest that she reduced exposure to shares and introduces other asset classes for diversification.

“A distribution fund for the Isa stocks and shares portion would fit Susan's long-term needs very well. This is the kind of fund to tuck away and forget, while enjoying the regular income distributions. The Allchurches Higher Income Fund would be one to consider, as would the Midas Balanced Income fund.

“Northern Rock has focused people's minds on the level of protection afforded to depositors. With a maximum compensation payout of £35,000 per person per institution, Susan may wish to spread her risk away from Halifax and Alliance & Leicester (A&L). Does she need £50,000 in her A&L Premier Current Account, paying less than 1.5 per cent, when its eSaver account pays 6.31 per cent?

“Don't laugh, but Northern Rock is looking attractive right now, with market-leading rates. To spread the risk further, Susan could consider Anglo Irish Bank's 7 Day Notice Account, which pays 6.35 per cent.”

Action plan

Do not cash in Isas and Peps but consider a lower-risk distribution fund, with a mix of investments.

Spread the risk of a bank defaulting by opening accounts with several institutions.

Susan's response

“I was pleased with all the advice and have been busy looking up the various accounts and investments the experts recommend.

“I will consider seriously the Anglo Irish Bank easy-access account recommended by Meera Patel, as well as the Scarborough Building Society account.

“Her advice on moving my Isas is helpful, but the actual transfer is not something I would know how to do without help.

“I didn't realise that I could get free advice, as suggested by Adrian Lowcock, and I will look into pursuing that. I will also look at credit cards with cashback deals.”

“The distribution fund mentioned by Dennis Hall is another thing I was not aware of. I have been thinking about diversifying away from shares for some time and will do some research on the Allchurches Higher Income fund.”

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