Where to put proceeds of house sale?

Leslie_from_Pinner

We've just (today) completed on the sale of our house (we are late-fifties) and have moved into rented premises for a couple of years while we take stock of what we need next.

As a result we have a seven-figure sum burning a hole in our bank current account. I would like to invest it for up to two years in order to provide an income to cover the rent while ensuring that the capital is protected. While we have identified a good 2-year fixed-term deal - Post Office 3.96% - I am not sure about putting such a large sum in a single institution given that only £85,000 would be protected. (We have already maxed out on the NS&I 5-year index-linked bond).

Wha advice would you give? Is the risk of loss real (in which case we need to invest in at least 12 separate institutions) or is it likely that in practice either the risk is minimal or the government would cover all losses and not just the first £85k? What would you do?

Leslie

rockitup

You should only need 6 seperate institutions with Joint Accounts, double the protection so £170k each allowed.

A small bank went bust recently in Hampshire and its savers with over the FSCS limits did not receive more than the £85k/£170k so be careful

Ark_Welder

The risk is real, Northern Rock and others are testament to that. But some banks rely more on depositors that the wholesale markets (i.e. borrowing from other institutions) for the cash that they lend, and so might be less risky. (Relying too much on wholesale markets is what did for NR).

If you do approach one or more of the larger banks then you could enquire about the money market deposit accounts that they offer (not to be confused with money market funds). These can be either for a fixed-term and fixed rate, or as a notice account. They are usually only available for larger sums. I have no experience of them myself, so I cannot say what the interest rates are like on them. But it is an option that could be explored.

Leslie_from_Pinner

rockitup wrote: »

You should only need 6 seperate institutions with Joint Accounts, double the protection so £170k each allowed.

A small bank went bust recently in Hampshire and its savers with over the FSCS limits did not receive more than the £85k/£170k so be careful

The Post Office is I think owned by Bank of Ireland - any idea what their position is on this?

Leslie_from_Pinner

Ark_Welder wrote: »

The risk is real, Northern Rock and others are testament to that. But some banks rely more on depositors that the wholesale markets (i.e. borrowing from other institutions) for the cash that they lend, and so might be less risky. (Relying too much on wholesale markets is what did for NR).

If you do approach one or more of the larger banks then you could enquire about the money market deposit accounts that they offer (not to be confused with money market funds). These can be either for a fixed-term and fixed rate, or as a notice account. They are usually only available for larger sums. I have no experience of them myself, so I cannot say what the interest rates are like on them. But it is an option that could be explored.

Thanks, I'll look into these.

Loughton_Monkey

Your task is, I would suggest, is straighforward.

Simply compile the list of products (instant plus 1 or 2 year fixes) and write them down in order of interest rate. Make decisions on how much you want in fixes, and then allocate it in 'chunks' of £85K each [same as £170K joint]. Two caveats:

1. You need to check that you don't pick two banks with different names, but are (behind the scenes) the same bank. You can check that here: http://www.moneysavingexpert.com/savings/safe-savings#whatcounts

2. Unless you are going for 'Monthly Interest', you are well advised to keep the amounts a bit below £85K to give 'room' for the accumulated interest. [Personally, I think I would opt for monthly interest where available in your circumstances].

rockitup

Leslie_from_Pinner wrote: »

The Post Office is I think owned by Bank of Ireland - any idea what their position is on this?

I think Post Office are currently covered by FSCS compensation scheme but I have been out of UK since just before the 2008 financial crisis so don't hold me to that.

Don't just chance the lot for a better percentage rate on your savings, thousands did that with the Icelandic banks 3 years ago and got a shock.

Check out Moneyfacts website for savings accounts and fixed term deposits. There are a lot of slightly lesser known banks on there which don't always appear on the comparison sites, but they still have the FSCS coverage.

Ark_Welder

rockitup wrote: »

I think Post Office are currently covered by FSCS compensation scheme

It is for accounts opened since January 2011. More info here

Sceptic001

Ark_Welder wrote: »

It is for accounts opened since January 2011. More info here

No, it is for all PO accounts covered by Bank of Ireland, not just new accounts. January 2011 is the date it transferred from Irish compensation scheme to FSCS.

Ark_Welder

Sceptic001 wrote: »

No, it is for all PO accounts covered by Bank of Ireland, not just new accounts. January 2011 is the date it transferred from Irish compensation scheme to FSCS.

Yes - it is the wording 'which product you have and when you took it out' that confuses me. Some existing products have additional cover from the Irish scheme until either the end of this year or for the duration of the product.

calypso_rhapsody

Take Loughton Monkey's advice and choose enough accounts to both ensure you have full FSCS cover and the best return you can for the period(s) you want. I find the FSA website http://www.moneymadeclear.org.uk/tables useful for comparing accounts - just take care to ask for the results in AER order as the default, rather bizarrely, is alphabetic!

It may seem a lot of hassle to open up 6 or so joint accounts (or more sole ones) ... but account opening on the internet is remarkably quick these days and i find i am rarely asked for identification paperwork.

One other thing you might think about is the relative tax positions of yourself and your wife (I presume!) ... it makes sense for interest earnings to fall to the one with the lowest marginal rate - if they are different. In which case you may want to open more sole accounts in the lower rate taxpayer's name than fewer joint accounts. Of course if you are not married, then gifting money around may not make sense ...