safest place to invest money from house sale

bootalishus

Just accepted an offer on our house. Fingers crossed it goes through and we are going into rented. We have £725k to bank. From which we will need £1700 a month to cover rent the rest we will leave in.

I am worried about where to but it. I know Northern Rock are 100% safe, but what about the big banks like Barclays and Halifax. I really don't want loads of accounts everywhere to try and split into blocks of £35k.

Any advice welcome.

We have both worked hard to get to this point with our finances - no hand outs or inheritances, just hard work, only buying what we could afford and needed and a good bit of luck.

nzseries1

Do you have anything in particular against Northern Rock?

Martin touches on this subject in his "how safe are your savings" article. He says that the "No more than £35k" rule is less important than the "spread it around" rule for larger amounts. He suggests split the money between 3 or 4 accounts to hedge your risk.

JohnAnt

bootalishus, I found Northern Rock really excellent to deal with, although theirs is not a top savings rate. I am in the same situation (sold my property early in 2007, renting since then), and what I did was take up a Northern Rock instant access savings account, monthly interest option, and transfer the monthly rent directly to my landlord's account from the savings account. However, with falling interest rates and falling house prices on the cards, I decided this is not maximising my capital, so I suggest you do what I've just done and consider the option of deciding to rent for at least a year, putting a large amount of your capital in a one-year account with Northern Rock (6.70% one year bond online, and safe as the B of E), then putting the smaller amount you need for one year's worth of rent plus extras (as much as you think you'll need, up to 35K) in a different bank with a more competitive high interest instant access online account than N Rock's current 6%. That combination gives you access to ready cash as and when you need it, hedges you against the drop in interest rates which is pretty certain to come within a few months, and will avoid the drop in income you would get if you required a monthly interest option for your 725K to pay bills. The result will give you (if you work it out with a calculator and imagine the effect of an interest rate reduction being announced any time from November onwards) far more interest than if you put it in savings. You also avoid paying 40% tax on the upper slice of the gross savings income in this financial year (but consider putting some of it in a SIPP or ISA to reduce the tax obligation).
The 'big banks' are not much good at giving you savings rates, frankly.
I hope this helps.

JohnAnt

bootalishus, I found Northern Rock really excellent to deal with, although theirs is not a top savings rate. I am in the same situation (sold my property early in 2007, renting since then), and what I did was take up a Northern Rock instant access savings account, monthly interest option, and transfer the monthly rent directly to my landlord's account from the savings account. However, with falling interest rates and falling house prices on the cards, I decided this is not maximising my capital, so I suggest you do what I've just done and consider the option of deciding to rent for at least a year, putting a large amount of your capital in a one-year account with Northern Rock (6.70% one year bond online, and safe as the B of E), then putting the smaller amount you need for one year's worth of rent plus extras (as much as you think you'll need, up to 35K) in a different bank with a more competitive high interest instant access online account than N Rock's current 6%. That combination gives you access to ready cash as and when you need it, hedges you against the drop in interest rates which is pretty certain to come within a few months, and will avoid the drop in income you would get if you required a monthly interest option for your 725K to pay bills. The result will give you (if you work it out with a calculator and imagine the effect of an interest rate reduction being announced any time from November onwards) far more interest than if you put it in savings.
The 'big banks' are not much good at giving you savings rates, frankly. The best savings rates are in smaller banks and BSs - some of which are controlled by larger banks. This website reflects the best offers pretty faithfully.
I hope this helps.

JohnAnt

I hadn't realised the first one had got posted! I deliberately edited it to omit the reference to tax saving, as I didn't want to mislead, and I'm not absolutely 100% sure when the extra tax on a bond becomes due, though I assume it's only in the tax year when the amount is actually paid (i.e. it should the next tax year 2009/10 for a one year bond that'd start now.) Anyone know for certain?

Jonbvn

You only pay tax on interest when it is paid to your account. So at the end of the fixed rate term.

nzseries1

JohnAnt wrote: »

I hadn't realised the first one had got posted! I deliberately edited it to omit the reference to tax saving, as I didn't want to mislead, and I'm not absolutely 100% sure when the extra tax on a bond becomes due, though I assume it's only in the tax year when the amount is actually paid (i.e. it should the next tax year 2009/10 for a one year bond that'd start now.) Anyone know for certain?

You can delete your post by editing it and then check the "delete this post" box.

JimmyTheWig

What rate of income tax do you (and/or your spouse) pay?
I believe NS&I are good for high rate tax payers (and completely safe).

Other than that I think JohnAnt's suggestion of a NR bond plus the rest in, for example, Kaupthang Edge is better than anything I could have come up with...

dunstonh

Can you clarify whether you mean invest or save. In your first post you say invest but then go on to describe savings accounts and the savings limits on FSCS (not investments or the investment limits).

JimmyTheWig

Good question, dunstonh. I'd assumed savings.
Though could a fixed rate account be counted as an "investment" as there is an element of risk of interest rates (and inflation) going up and you losing out against a standard savings account?

The other thing that needs to be established is when the OP wants access to this money. If we are talking a 5-10+ year timescale then investments may well be wise. If less than that then it's got to be a savings account, unless you're happy with a big risk.

dunstonh

Though could a fixed rate account be counted as an "investment" as there is an element of risk of interest rates (and inflation) going up and you losing out against a standard savings account?

Their correct name is "fixed term deposit". So, when labled correctly by providers (which is increasingly rare thanks to their love of calling everything bond) they are clearly under the deposit protection scheme.

Of course, inflation risk is something people do need to consider as they may find that risk is higher than investment risk depending on what their aims are.