£500,000...where to save?

halcyon_drift

All,

I'm sure this question has been asked hundreds (thousands?) of times before, but I hope you appreciate each circumstance varies so maybe you can help with this:

My grandmother has just sold her house and is looking to invest the funds into a savings account. Although property would be an obvious choice, it is also the reason behind her selling her current house (i.e. she doesn't want the hassle of owning a property).

She is looking at moving into sheltered accomodation in the next few months, so would like to have approx. £100,000 easily accessible...the remaining £400,000 can be tied up in savings for up to a year.

Any solutions?

Reestit_Mutton

halcyon_drift wrote:

All,

I'm sure this question has been asked hundreds (thousands?) of times before, but I hope you appreciate each circumstance varies so maybe you can help with this:

My grandmother has just sold her house and is looking to invest the funds into a savings account. Although property would be an obvious choice, it is also the reason behind her selling her current house (i.e. she doesn't want the hassle of owning a property).

She is looking at moving into sheltered accomodation in the next few months, so would like to have approx. £100,000 easily accessible...the remaining £400,000 can be tied up in savings for up to a year.

Any solutions?

Hi Halcyon Drift,

When you say "easily accessible", are you referring to instant access or is there an additional (unspoken) requirement that your grandmother can access it herself without help from anyone else?

If the latter, then that rules out all online accounts unless you are prepared to administer the account(s) for her (albeit with the account still in her name) and transfer any cash that she wants to her nominated current account as and when she needs it.

That's what I do for my mum and, even though I don't have power of attorney over her funds, the online system has no idea of my identity beyond the fact that I know all her necessary access information.

If you are going to use an online account of some sort I would try and stick with a single (well respected) organisation for simplicity - notwithstanding the government limits on compensation, should your bank go into liquidation.

With that it mind you could put £100,000 in the ING websaver (at 5.65%) and the remainder in a number of their 6% fixed rate accounts (6 month term). IIRC you can have up to 10 such fixed rate accounts attached to your main account with a maximum of £50K in each.

While their variable instant access rate isn't the best (top rates are at around 5.8% ATM), it's more than made up for by their very generous fixed rate on their six month term account and there's minimal risk that you will lose out with rate changes over that timeperiod (not so for 1-2 year fixed rate accounts IMHO).

Equally, if you select a high street bank for her current account that provides online access, you can also keep an eye on that account's balance via the internet and top it up as necessary when it drops below a certain threshold.

I'm a very busy chap these days and I find this arrangement simple enough to administer for my mum.

Oh...and I should also add that you should reassess your grandmother's position once the 6 month fix is up as it would be a lot of money to leave with ING if they've let their rates dwindle by that time (many leading savings accounts aren't at or near the top of the table for very long).

As a guide, on a £500K deposit, every 0.1% reduction in interest equates to approx £40 in lost interest per month (before tax).

HtH
Reestit Mutton

dunstonh

500,000 @ 5% = £25,000 p.a.

That means she will pay increased tax because it will wipe out her age allowance if she puts it on a savings account.

She needs to be considering investment options (which could include property funds). If she is drawing the interest, then having it on a savings account would mean she would be losing money in real terms (500k would be worth around 350k after 10 years due to inflation).

nrsql

>> the remaining £400,000 can be tied up in savings for up to a year.
You mean she might want to draw it out after a year?

suzieemm

Hi Halcyon Drift,

I am new to this site and would like to have posted my own problem but could not find where. Anyway, it is very close to your Grandmother's dilemma and hopefully someone else might be able to advise. I also am about to exchange on the selling of my property with an average of £200,000 + to invest. Am I a dimbo, or is this against the law ...? but I know for an instance of people who invest off shore and are not resident in that country but do that for higher savings investment purposes? How do they manage this, is it all it is cracked up to be and where do they invest?

Reestit_Mutton

suzieemm wrote:

Hi Halcyon Drift,

I am new to this site and would like to have posted my own problem but could not find where. Anyway, it is very close to your Grandmother's dilemma and hopefully someone else might be able to advise. I also am about to exchange on the selling of my property with an average of £200,000 + to invest. Am I a dimbo, or is this against the law ...? but I know for an instance of people who invest off shore and are not resident in that country but do that for higher savings investment purposes? How do they manage this, is it all it is cracked up to be and where do they invest?

Hi suzieemm,

Welcome to MSE.

It's been a while since I last looked at this - however, the last time I looked, rules were put in place to tax earnings on entering the country.

Thus, while you could earn a better rate due to the tax status of such accounts while it was domiciled off-shore, you would have to declare your earnings the moment you brought the money back onshore and pay tax on those earnings - subject to deduction of any tax already paid at source (if any).

What's more, it wouldn't surprise me if legislation requires offshore institutions to notify the exchequer of their customers' interest anyhow. I certainly know that some, if not all, banks on the continent have to do this.

However, I'm sure that someone more up to date on the detail will be able to clarify this for you.

HtH
Reestit Mutton

Ian_W

Hi suzieemm,
Selling your house and putting the money in savings or investments against the law? No, why should you think that?
Using offshore accounts though isn't what it was. It can get very complicated in respect of nationality, domicile etc but if you're a UK national normally resident here then you're required to declare your worldwide earnings including interest earned offshore for tax. I think it was the case as Reesit says that you only got taxed when you brought it home but I don't think that is now the case. The are also European directives which means most offshore banks notify the IR so if you don't declare - which is against the law - you're likely to get caught.
How long do you want to tie the money up for. If it's longish term, say 5yrs+ then you should consider investments, any shorter or if you are risk averse then I'd look at savings accounts and cash ISA's.

abitrubbish

Hi

I know this isn't the question you asked but I couldn't help thinking when I read your post...

What are her longer term plans for the money. With her age and especially being about to move into sheltered accommodation, this has got to be a time to be thinking about inheritance tax planning. If she keeps all the money, however it is invested I cannot help thinking it will all be either claimed to pay for her housing or subject to IHT if she dies (sorry).

I really think it would be worth getting advice on maybe putting some or most of this in trust for children/grandchildren etc. This must be done 7 years before death to avoid IHT, and £500,000 is well over the threshold for this. It could then be invested for the benefit of the beneficiaries.

Sorry if this is out of turn, but it made me sad to think of all this hard earned money being lost to the government or the taxman.

EdInvestor

If she's going to use it to pay for her sheltered accommodation, it may run down below the threshold fairly quickly.

If not, she can give an unlimited amount away completely IHT free as regular gifts from income without needing to bother with trusts or 7 year rules.

Reestit_Mutton

EdInvestor wrote:

If she's going to use it to pay for her sheltered accommodation, it may run down below the threshold fairly quickly.

If not, she can give an unlimited amount away completely IHT free as regular gifts from income without needing to bother with trusts or 7 year rules.

Can you elaborate?...

The only IHT-free gifts I'm aware of are £3k to a single person per year or £250 per person to any number of people per year....notwithstanding one-off wedding gifts of up to £5k upon marriage of a child (IIRC).

Are you saying that there are other rules covering what can be done with income rather than capital?

cheers,
Reestit Mutton

EdInvestor

Are you saying that there are other rules covering what can be done with income rather than capital?

Yes.You can give unlimited amounts away on a regular basis (eg Xmas and birthdays) from income as long as it doesn't impact your lifestyle.

IHT info