How to invest 70k lump sum for 2-3 months only

Cascade

I've just sold my house and am staying with friends for a few months while I look for and buy a new house.

I've got 70k from the sale of the house that I want to put somewhere where it will gain lots of interest, but I expect to need it back within 2-3 months time.

I'll need to be able to get access with a maximum notice of 30 days and preferably less, and I'm not organised enough to invest it into tons of different accounts all simultaniously; 1-3 different locations would be all I could manage.

I think the Alliance and Leicester DirectSaver or the ICICI accounts (as listed in Best Buys) are my best bets, but those are of course all taxed on interest (I'm a lower-band taxpayer). Am I correct to put the cash into the A&L account, or should I consider also putting some of into tax-free accounts?

Edit: I forgot to mention: I don't like risk. I don't want to put the money anywhere where there's a chance I might lose money - I can't afford to lose this lump sum.

Thanks,
Cas

cheerfulcat

Hi, Cascade,

Ask your bank whether they offer a money market account. Terms ( which can be rolled over ) as short as overnight; fixed rates, and interest paid gross on deposits over £50,000. Most banks/building societies offer them.

HTH

Cheerfulcat

Madiba_2

If you are a tax payer, you wont be able to avoid paying tax on the interest, other than your 3k isa allowance.

However, if if you aren't a tax payer, you can fill in the R85 form and get interest gross.

If it were me, I'd stick the money in A&L Direct saver, as you'd get it opened quicker than ICICI, and just make sure you withdraw it all at the beginning of a month when you do.

Cascade

cheerfulcat wrote:

Ask your bank whether they offer a money market account. Terms ( which can be rolled over ) as short as overnight; fixed rates, and interest paid gross on deposits over £50,000. Most banks/building societies offer them.

Thanks, Cheerfulcat. I haven't heard of these accounts before, and a quick google seems to indicate that the rates are < 5% (though I guess this might be offset by higher interest on sums over 50k?). Could you or anyone else suggest a good provider for this kind of account, as I don't really know where to start except with Natwest (where I hold my current account).

cheerfulcat

Hi, Cascade,

The rates on money market accounts are based on LIBOR and will vary depending on the term and when you fix; right now, I think that short and medium term rates will be more generous than longer term. Term seems more important than amount of capital in determining the rate these days btw... Don't forget that you have the advantage of the interest rolling over tax-free ( though of course if you are a taxpayer you will have to pay tax eventually, you still get an improved compounding effect in the mean time).

You could ring HSBC to get an idea of current rates ( they won't vary much from bank to bank ) - here's a link to their MM account. But there's nothing wrong with trying your own bank, as they may well offer something similar.

Cascade

Thank you both for the advice. I contacted HSBC and the numbers they quoted me in terms of the interest I could expect over 3 months (£510) paled in comparison to the interest I could expect from the A&L account, which was in excess of £2000.

(In case you're interested, the quote I asked for was: 30 day notice period, 3 months fixed-term account, single initial investment of £70k.)

Based on that information, I think I'll be going with the A&L DirectSaver account.

cheerfulcat

Cascade,

There is no way that the A&L account is paying you over £2000 for a £70,000 deposit over three months. Are you sure that isn't the annual interest? In which case they will work out roughly the same...

Cascade

*throws up hands with wry grin* I genuinely don't know. I phoned both A&L and HSBC, and those are the quotes they gave me. But I can't guarantee they got their sums right.

I'm very much a beginner, and though I do some maths, the maths of finance have always eluded me. I saw the figure of 5.5% gross interest on the A&L, but don't know if that's annual or monthly. If it's annual, I don't know how to turn it into a monthly figure.

frivolous_fay

£2,000 on £70,000 in 3 months would work out at an annual rate of 34% (correct me if I'm wrong, someone) so I think you must have been quoted a rate which would give you £2,000 p/a.

Cascade, have a read here about interest rates, it may help:

http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1156249740,89525,

Boozie_Suzie

frivolous fay is absolutely correct.
We sold our house early last year and have put our £50k equity on a 1 year fixed bond set at 5.2%. The interest is paid annually...and there is no way you would be getting £2k for 3 months...otherwise I would have snapped an offer up like that one for sure...we will be getting just over that after tax after 1 year.

brasso

Interesting how we respond differently to risk, isn't it?

I sold a property recently, and came out with £57K. I've put £7K into an equities ISA, buying 7 x £1K equity funds. The £50K I wanted to invest for about 6-12 months. I'm the opposite of the OP. I really want to make this money work for me, though I accept that I might lose some of it in the process.

I've put the £50K all in a fund account and have invested 10 x £5000 in different equity funds, spread across sectors and geography. Obviously I'm keeping a very close eye on how they're doing, plus trying to pick up economic signals which might presage a drop.

It's extremely early days, and I'm under no illusions. SO far though, the equities ISA has made £247 (+3.53%) in 7 days.

The fund account has been going just 2 days and has made (on paper at least) £647 (1.29%).

As I said, I'm under no illusions. This may be the stupidest thing I ever do with my money, but there again, I think it can pay off if the funds are chosen well and can build up a head of steam before the market turns too much. Obviously I will have to pay tax on any fund account gains.