What to do short term with £20k

Philip624

My wife takes redundancy at the end of March. She will receive around £20k. We are trying to decide in the short term the best course of action for saving the money.

We are thinking that we could open an instant access ISA in each of our names and pay in £3600 this year and then £5100 after April, assuming I have those figures right. That would take care of £17k, but are there any instant saving accounts that you could pay £20k into that would beat ISAs rate, even allowing for the tax-free part?

My wife does not want to tie up the money straight away but could maybe consider a 30 day notice account.

Any thoughts?

adambro

Philip624 wrote: »

are there any instant saving accounts that you could pay £20k into that would beat ISAs rate, even allowing for the tax-free part?

To answer that part of your question we'd really need to know whether your and/or your wife are paying tax at the higher rate (40%) because that determines how significant the ISA benefit will be for you.

MarkFromCornwall

Philip624 wrote: »

Any thoughts?

Consider opening two or three Lloyds TSB current accounts with Vantage. If you pay in £1000 per month (which you can do by shuffling the money around) and keep the balance in each account between £5000 and £7000, you will get 4% interest (before tax) with instant access (and it really is instant because they do Faster Payments). There are lots of messages on here giving more details about these Vantage accounts.

I hope this helps.

Mark

Mikeyorks

Philip624 wrote: »

but are there any instant saving accounts that you could pay £20k into that would beat ISAs rate, even allowing for the tax-free part?

Yes. It's more a current account .... but the Lloyds TSB Classic + Vantage will pay you 4% on everything, for balances between £5k and £7k. You will find it difficult to get an easy access ISA that gives the net of 3.2% to beat that. Most top out around 2.5%

You can open 3 of the Lloyds accounts each. But I'd suggest a couple in your wife's name (in particular if she will she be entitled to gross interest after 5th April?) and either one in yours .... or use the £6k in an ISA if you want to buffer your options. Personally I would forget the ISA at this point if you're still in 'making your mind up' time?

You have to pay £1k monthly into Lloyds to provoke that interest rate ... but you can achieve that by an instant transfer of £1k between all the Lloyds accounts you open. It's allowed.

http://www.lloydstsb.com/current_accounts/classic_and_classic_plus_accounts.asp


(EDIT ..... sorry Mark, your reply wasn't there when I started. I take too long researching ISA rates!)

Philip624

thanks - we are both basic rate tax payers

Philip624

thanks both, so if I understand this right, we could cover the full £20k in three accounts. Is the interest paid monthly? Trying to calculate roughly what that would be per month - £50 in total after tax?

Baldur

Philip624 wrote: »

Is the interest paid monthly?

Yes - credited to the account in the first few days of each calendar month.

Trying to calculate roughly what that would be per month - £50 in total after tax?

Roughly - my 3 Vantage accounts pay just over £20 each per month on a balance of £7k in each.

Mikeyorks

Philip624 wrote: »

thanks - we are both basic rate tax payers

But will your wife still be after the redundancy at March end? If she's seeking employment - fine. If not ..... makes a difference as to how you best place the money.

Trying to calculate roughly what that would be per month - £50 in total after tax?

(£20k x 4% / 12) x .80 = £53.33 net. But allow variation as they will calculate based on the days in each month ... rather than just dividing by 12. And make sure you remove the monthly interest from the account if it takes it over £7k. As the excess only gets 0.1%.

Philip624

thanks for all this good advice. One thing that occurs is my wife receives the money on 31 March. Is it worthwhile putting as much as possible i.e 7200 between the two of us in an ISA quickly before the April deadline and then transferring it to vantage etc.

Do some ISAs pay interest annually or would the interest be divided by the maount of time you had the money in the account before the end of the year so just pennies?