Redundancy Payout - where best to keep it?

trinity_bleu

I'm about to get a voluntary redundnacy payout of approx £22,000. I have a £220,000 mortgage in an offset account which is about to drop to the variable rate from a fixed term deal. The variable rate is currently 2.5%

I'll hopefully work pretty much straight away on an interim basis (market is very good for this and I have done it for years before this perm job) but need to be able to get at the lump sum to pay the essential bills if I am out of work for any period or for the odd week or two between contracts.

I have about £6,000 credit card debt that I assume I'll be best paying off straight away. The rate on that is 8.29% APR.

Am I better putting the money into a high rate, instant access account (Egg maybe?) or into a savings account that'll offset against the mortgage? I could split the cash up - some instant access (maybe 3 months worth) and some in a 3 month notice account or something.

I'mm totally confused and can't work out how to calculate what's best.

Many thanks,
Trinity

Primrose

If I were in your shoes I would uncomfortable about that £6,000 credit card debt at 8.29% and pay it off which leaves you with £16,000. Current instant access interest rates are pretty low and you obviously need a lump sum to meet your monthly bills. One option might be to work out what your monthly outgoings are for the next six months and keep that amount in an instant access, bearing in mind your mortgage outgoings are about to reduce, and if you feel you can risk tying up the remainder for 6 months, opt for a 6 month fixed term account which might pay a slightly higher interest rate (checking beforehand that you can get the money out in an emergency if you're prepared to sacrifice loss of interest). This is a slightly risky act though. You don't say whether you have any other savings, and I can only assume that with a high credit card debt, you probably won't, in which case, going for the best interest rate instant access account you can find would be the most sensible option. If you are able to get another fixed term contract soon you will then know more specifically what length of time your next tranche of income will be guaranteed for and can possible then look for fixed term accounts of that duration for a proportion of your savings.

trinity_bleu

No other savings - used them all up whilst on maternity leave.

getmore4less

With a £220k mortgage you are probably have been on a good wage.

What are your total earning likely to be for the year, will you hit the 40% tax or stay in the 20%.

What are your outgoings how long will £16k last if you pay of the CC debt.

On the surface paying off the CC and offsetting the rest to live of would be best if you are likely to be a 40% tax payer, at 20% Egg savings at 2.6% net will be slightly better but not worth the inconvenience.

The other thing to do is a SOA to check your outgoings and remove all the discretionary spends you can to make the money go further, they can go back when you are earning again.

trinity_bleu

I'm in the 40% tax bracket and would expect to stay within that.

The £16k should last at least 8 months, probably longer. If I'm not working there won't be travel costs to pay, I won't be paying £250 a month towards the credit card bill and if things get tight I could take my daughter out of nursery and so on (not risking it initially as have to give a months notice and I could need the place again at very short notice - previously as an interim I've been offered and started contracts the same day).

Will look at the SOA thingy tonight. Would be good to know exactly how long £16k will last. Thank you.