<£50k to invest

casey_junior

My sister has recently had to sell the family home due to the breakdown of her marriage, all her children live away and she has moved to rented accommodation. The sale should bring her just short of £50k after mortgage and legal fees are cleared. At present she works part time and is in receipt of State Pension of £110 pw. She expects to retire in about two years and thinks her works pension should pay about £30 pw.Any savings she had went on furnishing her new house. She would like to know how to get the best return on her money but is not prepared to do shares. Any suggestions would be welcome.

Marco12452

It is down to cash investment and bonds if stocks and shares are out. This also depends on how long the investment is to stay untouched, though I presume it is 2 years, until retirement ?
Check for a good rate ISA if not already in one, and top it to the max £5340, then same again next April if there is any cash remaining. This could also act as the rainy day fund, but should be left to maturity where possible each year.
Think about depositing the rest in bonds, you can currently get around 4% for a 2 year bond, but this can mean tying up the money for this period, or incurring loss of interest for early withdrawal.
See - http://www.moneysupermarket.com/savings/fixed-rate-bonds/ - as an example, but check other sites too.
Also think about splitting the money into a 2, 3, 4 and 5 year bond (10K-ish in each), so you get a return at regular intervals. On getting the return you can choose to use the cash or reinvest. The longer the term, the better the interest.
Remember though, that with the cost of living at around 5%, the 4% return is actually a loss in real terms, but it will be much better than storing under the matress. It could be that the cost of living comes down in this period too, representing a better return then.

xylophone

She should check her income tax position. Personal allowances go up again next tax year


http://www.hmrc.gov.uk/tdsi/example25.htm

NB The allowance figures in this example are for 08-09 so you need to put in the current (11-12) figures from http://www.hmrc.gov.uk/rates/it.htm - 10% rate in chart at the end of the page.

Linton

Assuming she has no dependents and no overriding desire to leave money to anyone after her death the best return not involving her directly buying shares would seem to be an annuity. It would provide more income than a bank account of any type and would continue to be paid until her death.

Of course one downside would be that she would lose any access to her £50K. Also I guess that it would affect her entitlement to benefits. Were interest rates to rise significantly then taking an annuity now could prove not be such a good idea.