What to do with money?

Dragon_Lady_3

Hi, my daughter has recently turned 18 and is now able to claim her compensation award from 6 years ago.

The initial amount was £7500, we took out £1000 to part pay for an educational trip abroad when she was 16. So the amount will be £6500 plus the interest.

The question is, what is the best way to look after the money when she receives it?

She is going to book a block of driving lessons and have a little splurge with a small amount of it. She is at college at the moment and has at least another year there before she is qualified.

She admits she is not very good with money and she knows that if she just sticks it in a savings account, she will constantly dip into it.

We are looking at 'locking' some of it away for about 3-5 years, but don't know what the best thing to do.

Never had this amount of money all at once before so it is a bit scarey.

She has a current account with Nationwide, but all banks will promote their own accounts.

Any help please?

Lokolo

Will you want to invest and risk the money losing value (so starts off with £3000, 5 years she only gets £2500)

Or be safe and go for savings?

Is she planning on going to university?

Dragon_Lady_3

Hi, No we don't want to risk losing any of it.

She is not going to uni. She is doing her NVQ's in Hairdressing and then maybe a mangerial course.

So something that can be locked away for a while and earns a decent amount of interest.

She may set up on her own when she's fully qualified.

Lokolo

ok lets start with £6500.

£3600 can go in an ISA as these are tax free, its worth doing this as in 3 years time she will be working and her normal savings will not be tax free.

£2900 left. I would go for a 1 year fixed account, so when this matures (i.e. you get your money) you can then move it over to an ISA as well. If she is earning less than her personal allownance (£6k something) then she can fill in an R85 form and get tax free interest.

ISAs - you get £3600 allownace each tax year for cash.

---

Cash ISA. HSBC Cash e-ISA, at 6.25% <--- £3600

ICICI BANK have a 7.2% 1 year fixed account for a normal savings account. R85 <-- remember if she is allowed. <--- £2900+ whatever interest is

Dragon_Lady_3

So, put £3,600 in ISA. Sounds good to me. How do I find out who is paying the best interest rate for these?

I know these seem stupid questions. But as I said before, we have never had this amount of money before and obviously we want to advise her the best way we know how.

She has a part time job, will this effect any tax payable on a fixed term savings account like the one you mentioned?

I picked up a leaflet for NS&I Index-linkied savings certificates the other day, are these any good?

Lokolo

They're good if you are a higher rate tax payer. Not sure about others.

http://www.moneysupermarket.com/savings/ <-- for the best rate. currently (I did say below ) that HSBC's Cash e-ISA is the best, at 6.25%.

If your daughter earns more than £6,000 a year (i.e. over her personal allownace) then she will have to pay tax on normal savings account. otherwise, no she won't have to. but she will have to tell the bank by filling in an R85 form.

- They are only stupid questions for me as I know the answers. But when I end up getting a mortgage I will just be asking stupid questions on the mortgage board as I know nothing about them hehe.

Dragon_Lady_3

Just looked at the HSBC one, and it is only available if you are an HSBC existing customer.

So would it be worth her changing her bank account?

The one at Nationawide [where she currently banks] are only offering 6.15%

Good luck when you start looking for a mortgage. Not something I would want to do in the current climate.

Lokolo

Haha no don't worry I am planning on getting one in about 5 years depending on financial and job situation.

Ok well she doesn't have to close the nationwide. She could just open a current account with HSBC and just not use it.

If you don't want to go to HSBC, look on the money supermarket link I put in and look through the list, she doesn't necessarily need the best rate though.

Dragon_Lady_3

Thanks very much for your help.

Just got to wait for her to get home and then talk with her about it all.

Going to court to sign over the money [I am her litigation friend] on 19th this month, then the funds take about a month to come through. So we have a little while yet to set things up.

Many thanks again, you are a star :beer:

Mikeyorks

Dragon_Lady wrote: »

We are looking at 'locking' some of it away for about 3-5 years, but don't know what the best thing to do.

Either put it in a fixed term deposit account for 3 years (around 7.15% with Kaupthing Edge) or ........... put it in a 1 or 2 year deposit account and then move it across (you will have to do it as 2 x chunks of £3600 either side of 5th April) into an ISA when she starts to pay tax. Again - make it a fixed term ISA if you still wish to stop her dipping into it.

Both fixed term deposits and ISAs selectable from this link :

http://www.moneysupermarket.com/Savings/Default.asp