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How can I gain the best interest on my money while still accessing it?
December 6, 2010 10:30 AM   Subscribe

I have been fortunate enough to unexpectedly inherit £35,000 from a relative who died prematurely. What should I do with it? Caveats inside.

So this money is now sitting in my current account (with NatWest). I know I need to put it into something like an ISA, but I'm no expert. Also, as someone who has been overdrawn for what feels like forever, I'm finding this hard to comprehend.

The biggest problem is that I can't just lock it away, I have expenses I can't get rid of that mean I will need access to this money over the next three years.

What kind of account(s) should I therefore put it into that will (a) allow me to access it if necessary, but (b) get the best interest rate? (I'm aware this is not the best time for interest rates)

I can be contacted at mefiwindfall@gmail.com if necessary.

Also, in case it isn't clear, I am in the United Kingdom.
posted by anonymous to Work & Money (7 answers total) 2 users marked this as a favorite
 
If you have near term expenses that will eat up the money over the next couple of years, then just put it in a savings account. It's less than the UK government limit on how much they will cover if your bank goes under, so just pick one with a decent rate, there's no need to divide it between multiple institutions.

Do move it out of your current account ASAP though, even if only to an RBS savings account. Otherwise if someone clones your card & PIN they could empty the lot out & you'll have a lot of hassle getting the bank to return it.
posted by pharm at 10:51 AM on December 6, 2010


Find the current best rate savings account on moneysavingexpert.com.

You didn't ask this, but seriously consider using 1% of the money (so £350) to treat yourself. Apparently, it helps people stop spending the rest willy-nilly. You could perhaps buy something that you've wanted for a long time, and then you'll have something to remind you of your relative (assuming you want to do so).
posted by plonkee at 11:00 AM on December 6, 2010 [1 favorite]


Oh, just FYI: RBS won't move more than 10k at a time without you having to pay for the transfer, but you can always open a suitable savings account & transfer it 10k at a time on successive days.

If it's going to take you a while to get a savings account sorted, then open a NatWest e-savings account in the meantime (which takes a day at most IIRC) and transfer the lot out of your current account asap. Then you can plan what to do with it at your leisure.
posted by pharm at 11:05 AM on December 6, 2010


The limit on a cash ISA is £5,100, but you can still get at the money very easily, and the interest isn't taxed. Have a look on moneysavingexpert or Guardian Money for some good rates on cash ISAs. Then stick the rest in a savings account with a decent rate. You might also consider investing in some premium bonds - instead of interest you have a chance of winning extra money through a prize draw each month.
posted by greycap at 11:07 AM on December 6, 2010


I would have a checklist like this:

1. Agree with plonkee on spending a small amount on a treat.
2. If you have debts on which you are paying a greater rate of interest then you would receive with a savings account - then it probably makes sense to pay them off with some part of the lump sum.
3. You mention that you have ongoing expenses which are going to eat into the lump sum in the future. It sounds like the extra money has saved you from running up an overdraft which would have gradually become unsustainable. You are lucky - but you need to solve the underlying problem of not living within your means or you will run into more problems in the future. Spend less than a fiver on a copy of "Your Money or Your Life" - the book is a bit dated, a bit American and very hard core in its strategy. Don't let that put you off - it is still one of the best books on money management out there.
4. Any further money you have left over could be invested - probably in a diversified portfolio of vehicles which have minimum management charges, which are shielded from tax as effectively as possible and into which you drip-feed the money gradually over a few years. Before you venture down this road spend some time reading some of the threads on investment here - and read some of the books. Calculate what 3 months of living expenses would be for you and keep at least this amount in cash as an emergency buffer.
5. While you are doing the research for stage 4 keep all the money in a savings account. Give yourself several months to do the research and to think about exactly what goals you might like to use the money to accomplish.
posted by rongorongo at 1:08 PM on December 6, 2010


£5,100 in whichever cash ISA combines the best interest rate (I went for one-year-fixed, which may mean moving to a different provider next year if I can be bothered) with an acceptable level of hassle in opening the account (I opened a postal one, which involved a certain amount of hassle in sending them documents; if I'd been able to get to a town with a better range of building societies etc at the time, I probably wouldn't have bothered).

I looked at moneysupermarket to compare rates/deals; you need to click the little green "Search all UK cash ISAs" link or it just gives you the ones they're promoting.

Some instant access savings accounts will give you better rates if they have more money in, e.g. the Lloyds online one that gives a better rate with >£10k; it may be worth seeing if your current bank has that kind of account that you could stick some of the money in just so that it's doing better than in a current account, without having to go through the hassle of opening an account with a new bank/building society. (... yeah, ok, NatWest does one with a flat 1% rate, you could probably do better if you wanted but it's still better than nothing, if you have online banking already you can probably open it now tonight and then it would be done). If you want to put the effort in and will definitely do it, you can go back to moneysupermarket or whichever other calculator you use, tell them how much you want in an instant access account, and it'll tell you the rates for that amount.

I would also put some money in one, two and three year fixed-rate bonds, so that you get a better rate for the money that you won't need until next year's expenses etc. The NatWest ones seem ok, but again, the calculator of your choice will help find whatever's optimal.

[Please bear in mind that I am very lazy when it comes to my money and currently need to find a new home for some money that came to the end of its fixed-rate term about two months ago, it's currently getting about 0.1%, and that's really not that great. Just open that e-savings account now and stick the money in there while you decide what to do with it properly, it'll get itself about a pound a day while you're deciding.]
posted by Lebannen at 1:27 PM on December 6, 2010


Okay, first thing's first, fill up your 2010 cash ISA - £5,100. The tax year starts on 5th April, so keep the next £5,100 ready for your 2011 ISA in just 4 months' time. Put a note in your calendar now. Then you'll have about 30% of your money beyond the Revenue's reach.

You don't mention what types of expenses you have which mean that you can't put the money to work for you in a long-term fashion (like e.g. buying a house of flat - £30k is a 15% mortgage on a £200k property).

If those expenses are just a gap between your income and your cost of living, then like rongorongo says you really need to address this - otherwise you will just burn through the money and be back in overdraft in a few years with nothing to show for it.

If you can't do anything about these expenses, then how much of the money will you need to spend on expenses? The golden rule is, don't move that amount into another asset class (e.g. shares), because when you come to convert it to pay the expenses, it could easily be less than you put in.

But what you can do is figure out how much of that money you'll need at what time, and allocate the rest to fixed term investments. Basically if you need e.g. £10k of the money in 2012, you can sign up for a 1-year fixed bond for that £10k, which will give you more interest than just keeping it in a savings account. It'll mature in December 2011, and you can withdraw it and pay your 2012 expenses without penalty. You can do something similar with a 2 year fixed for the money you want to spend in 2013. Here's some example 2-year fixed bonds from Cheshire Building Society.

Finally, good luck! And if you can keep enough of the money back to trade up to a bigger and better asset class than cash (like a flat or house), then go for it, this is a great opportunity to do so.
posted by runkelfinker at 1:30 PM on December 6, 2010


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