What to do with £5k?
February 18, 2009 3:20 AM   Subscribe

What to do with £5,000 in the next year?

I know in investment terms £5k is not that much, but it's a lot to me! It feels like it's just lying around (in a 3% savings account) and am wondering if it could be put to better use.

Some things I've considered:
- Leave it as is and be happy there's an emergency fund given the current economic climate.

- I'm engaged! (yay!) and we are thinking the wedding will be next summer. Should I just use the £5k towards the wedding instead? We haven't started saving anything towards it yet.

- Invest somewhere else?

- Something else?

Our situation:
- We are already saving money on a monthly basis which we intend to put towards buying a house in the future. Now this will somehow need to be adjusted to save for a wedding.

- My fiance and I both currently hold jobs and bills are not a problem (touch wood).

- As of recently, neither of us have any debts (yay!)

This is just a lump sum I don't know what to do with right now and I guess it's burning a hole in my pocket. Thanks for your advice!
posted by like_neon to Work & Money (12 answers total) 1 user marked this as a favorite
Assuming you're in the UK (your profile indicates the US, the £ indicates the UK), probably the best place to put the money is an ISA, where you won't pay tax on the interest. Many ISAs will allow you to withdraw the money when you need to, although the most benefit comes from leaving the money untouched for the period of the ISA.
posted by le morte de bea arthur at 3:56 AM on February 18, 2009

And if you plan to get a mortgage later on, the bigger your deposit the better - you'll get a better deal for a smaller LTV (loan-to-value ratio).
posted by le morte de bea arthur at 3:57 AM on February 18, 2009

Blow it all on booze and cheap women! ha

Or do the sensible thing and put it in an ISA. (Can you put that much in?)

Or if you don't need it for say 12 months you could try and find a fixed Term Deposit with a higher interest rate?
posted by mary8nne at 4:10 AM on February 18, 2009

£7200 is (I think) the current limit for an ISA. This page may help point you in the right direction, although there are many guides around.
posted by le morte de bea arthur at 4:23 AM on February 18, 2009

Seconding the idea of an ISA if you haven't yet used up your tax-free allowance for the year. If this is the case you preferably want to do it before April 5th so that it counts against your 2008-2009 tax year rather than 2009-2010 - that way, if you come into a sudden windfall in May you can rinse and repeat.

If you have used up your tax-free allowance, let your decision be driven by the extent to which you can lock your money away. If you feel that you won't have to touch it for a long while and can safely put it into a higher-interest Deposit Account. The better-interest ones typically make withdrawing from them a chore that requires written notice months in advance; if you're looking for more flexibility and the ability to tap into it quickly you're looking at perhaps a high-interest Current Account.
posted by stelas at 4:38 AM on February 18, 2009

I was in a similar position to you a couple of years ago and put in the maximum cash before the April deadline for this tax year, then put the remainder in at the start of the new tax year (6th or 7th April this year). Cash deposits into ISAs are now limited to £3600 with the remainder of the £7200 allowance being for shares. Having no desire to invest in shares and wanting a guaranteed return simplifies the process too and was a stress-free decision.

That money sat there as the emergency fund while we saved as planned for our wedding. Pushing ourselves to keep up the regular monthly savings meant when we did eventually dip into the ISA to pay off larger items, it had made us a few quid more than the regular savings would've done and when buying wedding-related items, every penny really did count. If you end up ahead of schedule with other savings then it gives you a great starting point for a deposit on a house too. Good luck with the wedding plans and congratulations on the engagement!
posted by kuriyama at 4:39 AM on February 18, 2009

Response by poster: Yes, I'm in the UK on a work visa. I will be staying here for at least another year or two.

ISA is maxed out. Sorry should have mentioned that. It is part of our "saving towards a house" efforts. Thank you so much for suggestions and congratulations :)
posted by like_neon at 4:45 AM on February 18, 2009

Congrats and save it for the wedding, you'll need it! My partner and I are having a low-budget DIY wedding and it's still going to cost more than £5k. If i had that much earmarked before even starting our wedding plans, i think the initial wedding planning stages (when the stupid quotes start rolling in) would have been a lot less stressful.
posted by ukdanae at 5:26 AM on February 18, 2009

If you are a foreign national workin gin the UK can't you move the money Offshore to say Jersey and avoid tax on interest? thats what I do. Its legal.

Except well you have to pay tax on the interest if you ever do bring that money back into the UK. And the interest rates in offshore accounts doni't seem to be that great anyway.
posted by mary8nne at 6:22 AM on February 18, 2009

I assume that mary8nne's advice won't apply with the new rules on nondoms taking effect this year. You will either be taxed on your global income or pay a £30,000 annual per capita fee for the privilege of not being taxed on your foreign-source income. Doesn't sound like you have that kind of money.

I'm not wild about the new tax code, but it's probably not a bad year for it to come into effect, as most people will probably have losses rather than income on non-UK investment income.
posted by sagwalla at 6:33 AM on February 18, 2009

3% is pretty good really, looks like you can get 3.5% somewhere instant access but that's variable so might not stay that high, or a 3.9% one-year bond with ICICI if you want (try fool.co.uk, that's where I got those numbers), but that's tied up for the whole year which might not suit you.

You could spend the £5k on the whole wedding, a honeymoon and a bit for the housing fund, or you could spend it on the dress. Or something somewhere in between. If other people are going to be spending money on the wedding too, this may affect your decision. It's probably a good time to start talking to the fiancé about your expectations for the wedding and work out how much saving you're going to need to do....
posted by Lebannen at 8:12 AM on February 18, 2009

Even if your ISA is maxed out it is only about six weeks until the new tax year when you will be able to invest another £3,600. And 3% isn't too bad for the rest of it, especially since you will want to use some of it for the wedding in the nearish future.

(By the way, thanks to kuriyama for mentioning the limit has gone up from £3,000 to £3,600 as of last year - I hadn't realised that.)
posted by ninebelow at 6:26 AM on February 19, 2009

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