Just received £15k windfall

rorylando45

Hi there, I'm a student and have just turned 21 and received an unexpected windfall of £15,680. At the moment I've just paid the cheque into my Nationwide FlexAccount but obviously that offers next to nothing in terms of interest as it is a current account. As things stand, I have no current investments; I just read the MSE article on ISAs and it seems sensible to use my full allowance in an ISA. However, I'm a bit confused by the allowances. Should I open one now or wait until next year when it goes up to £5,100? And with my remaining funds, I'd like to invest most (80%) in a fixed term thing, preferably for a year, and with the other 20% I'd like that somewhere more accessible in case I need it for the summer. Can anyone make any suggestions or point me to any articles? As I am quite hopeless when it comes to banking and getting the most out of my money!

Many thanks

pressuredrop_2

£3,600 this tax year, £5,100 next tax year are the allowances.

ISA's are useful for long-term tax-free savings.

If you don't pay tax and the money isn't long term.......

McKneff

yes get your £3,600 in ASAp, talk your bank about a cash isa or a stocks and shares isa and where to put the rest.

Wow, well done and good for you for being sensible.

cloud_dog

McKneff wrote: »

....talk your bank about a cash isa or a stocks and shares isa and where to put the rest.

NOOOOO!!!! Never talk just to your bank, the products they can offer will be very restricted.

Use sites like MSE or https://www.moneysupermarket.com to find hte best accounts.

As you are a newbie to actual investments (as opposed to savings accounts) you need to sit down and think about what you may want / need the money for, what timescales are involved, etc, etc (lots and lots of things to consider).

rorylando45

I just spoke to my Mum and she said that cos I'm not earning over the personal allowance of £6,475, that I'm not being taxed anyway, and so putting money into an ISA would be rendered useless.

So I'm thinking I'll invest most of it in a fixed rate short-term (1 year) account and then put some into an accessible savings account just in case i need it in the next year or so

financial_illiterate

Your mum is right unless you plan on hanging on to the money for the long-term; As soon as you start earning money you'll pay tax on savings interest; therefore, you might be better off putting £3,600 in an ISA this year (and £5,100 next year) as that money will always earn interest tax free.

If you're planning to spend it before or soon after you become a tax-payer than go with whatever you like.

Inactive

In the short term, transfer your money to a Nationwide e saver account, you can move it back instantly to your Flexaccount.

ViolaLass

McKneff wrote: »

yes get your £3,600 in ASAp, talk your bank about a cash isa or a stocks and shares isa and where to put the rest.

OP says s/he wants to invest 80% for about a year and you recommend looking at an S&S ISA??


OP, your mum is right, if you won't have the money once you become a tax payer then you should look outside cash ISAs as you should get a better rate. If you'll start paying tax in the next year or two then it might be sensible to put some of your money into a cash ISA because you won't be able to put it all in in one go (£5100 per year from next April).

Primrose

Putting any money to an equity (stock & shares ISA) is not advisable unless you plan on a longer term investment of at least five years. And if you're totally confident that any annual vacation earnings while you're a student will not take you over the annual personal allowance limit, a cash ISA would not seem to offer any greater benefit over putting the money in the best paying fixed term account you can find. However, if you're coming to the end of your studies and are likely to be a permanent taxpayer soon, it may be worth grabbing an ISA now to protect your interest from future tax.
Be sure you provide the appropriate R85 form to your provider to have interest paid gross rather than having tax deducted. More info and to download a form at http://www.hmrc.gov.uk/incometax/tax-free-interest.htm

zag2me

Its worth putting the money into an ISA because it will take 3 years to use up your allowance. By which time you will probably be working and earning enough to be taxed on your savings.

Thats assuming you don't want to spend the money int the short term of course.

rorylando45

Wow, thanks for all the replies!

I am in my second year of study, due to graduate July 2011, so I've still got a year and a half. I do work as a night manager at a nearby hotel but only sporadically so I don't think Apr-Apr I earn over my personal allowance.

But I see the sense in putting some money into an ISA now, as it means when I do start earning above the threshold, that I will already have some tax-free savings banked away. Besides, the difference in interest between the top ISA and the top Short Term Fixed Rate savings account isn't much.

So I think I'll invest £3,600 in an ISA, then the remainder in a Post Office 1 year Growth Bond. Or I might save £1000 or something in my current account just in case I need it for something urgent. The only thing I'm slightly concerned about is that I've read that the PO Growth Bond isn't covered by the UK Financial Safety scheme as it is backed by the Bank of Ireland...this shouldn't be an issue though, surely?