Medium Term Saving of a large Lump Sum

Cpfoxhunt

Hello,

I was recently lucky enough to inherit some money. Now that all the tax and fees and things have been paid, I appear to have about £25,000.

I also have a student loan to pay off worth £27416 which rises by approximately 30 quid per month in interest payments.

It seems to me that there is no advantage in paying off the loan - I don't think I'll be able to have a lump sum this size available for quite some years (as I am still currently a student), and intend to use it to fund a deposit on a house at some point in the future, perhaps in about 5 years time. I'll pay the loan off in the usual way, i.e. incrementally when my job starts in a years time.

What should I do with the money in the meantime? Are any banks especially good for investment purposes, or are there other schemes to be aware of? Is it worth paying a financial advisor some money, or would that just be a waste (and how can you tell who the good ones are anyway?)

Any advice is very much appreciated,

Cpfoxhunt

Edit: I should mention that I spoke to the Santander Premium Investments team, but I have no idea whether or not the deal they were offering was good or not.

xylophone

I wouldn't take advice from a bank's tied adviser.

If you must have capital security, then deposit accounts of one kind or another seem the answer but be aware of the inflation risk.

You might want to use your ISA allowance- even if you are not a taxpayer now, you're likely to be in the future.

You might want to consider fixed term accounts.

See here http://www.moneysupermarket.com/savings/

srcandas

First off you need to assess risk. As you are looking at possibly 5 years if you take the decision to invest in a risk asset you need to think long and hard. You may get a bigger return and you may loose some of your money. If you go for the favourite in the 2:30 at Epsom you could loose it all

I would suggest you ignore the word 'ISA'. It normally has no benefit for short term saving - and five years is a short time. If by chance you become a higher rate tax payer in the next 5 years you will have other options to reduce tax.

Just look at return. If the best return happens to be in an ISA so be it. Of course ensure you take any tax into account when calculating return.

One possible option might be to tie the money up for a set period to attract a higher rate of return. If the worst came to the worst and yo8 needed the money urgently you may pay a penalty, and that might be a fair few quid, but equally being imprisoned as it were it might well survive where otherwise it might be spent :beer: Know what I mean

Certainly you can make a profit maintaining your student loan and depositing your money to earn interest.

Another option would be to deposit a percentage in fixed return and throw some at a risk option. But ensure for any option you scour the marketplace and do not listen to any one source like a bank.

With regard to paid for advise I would not go there. Too little money for too little period of time for anyone to bother. Better have a look at options and use the joint brains and the experience of the people here. It is free and if you get several people saying the same thing then you can be fairly sure it relates to sanity.

Whatever do nothing quickly; take your time.

Good Luck :beer:

buffman

I agree with Xylophone that you should use your ISA allowance. As you are young and can have a long term investment horizon, I would put £10k in a a stock ISA. My suggestion would be a FTSE All share index tracker (e.g. Fidelity) with the money drip fed monthy over 6 months to reduce your risk of investing at the wrong level. I would put a further £10k in Coventry's 18 month fixed rate bond paying 3.65% and the remainder in their instant access Telephone Saver paying 3.25% for the first year.

gadgetmind

My daughter is in a vaguely similar position, but hasn't yet started university.

She has some money in a Santander First Home Saver account (sadly no longer available), some in NS&I index linked bonds (sadly not available right now) and some in UK bank preference shares. Overall, she has 80% in cash savings that are beating inflation and 20% in something more risky. (She also has some VERY risky holdings, but this position is being unwound.)

You need to focus on protecting your money from inflation (hard!) and then maybe taking a little more risk with some of it. For inflation protection, you need savings accounts (regular savers and term accounts) that get as much interest as you can get. You will have to tie money up for a while to get good returns, but don't go mad.

For the risk part, I chose bank preference shares for my daughter as the returns are good, HMG have shown that they will fight hard to prevent banks failing, and they are less volatile than other equities. They are also easier to exit than various corporate bonds.

I'm sure you'll get lots of opinions regards how to split between safe and risky, and even more on what to do with the risk element, I'm simply saying what daughter and I decided for her.

kidmugsy

If you expect to start work in a year you'll presumably become a tax payer. So open a Cash ISA this tax year. For the time being put the other cash into one or two savings account and complete an R85 form so that you get the interest tax-free.

If, next tax year, ns&i offer an issue of their Index-Linked Savings Certificates on good terms, buy lots. Also open another next Cash ISA.

You might be happy to try to get a higher interest rate on your ISAs by going for fixed term, fixed rate, accounts.

Select your ISAs on some combination of interest rate and convenience for you.

Cpfoxhunt

The advice I was previously given from Santander went something along the following lines:

Put £2000 in a savings account basically for emergencies.

Put about £3000 in a short term 12 month cash Isa at about 4% (which might be bloody difficult to find now.)

Put 10,00 in a capital protected thing such as an inflation linked bond or a guaranteed growth plan.

Put the rest in a medium to low risk portfolio with pan european and asian exposure (probably less european these days.)

Not sure if that's quite what was said but it was a year or so ago when I initially consulted on this, before a bit of legal and tax wrangling slammed on the breaks.

How sensible does that sound today?

bigadaj

That sounds a bit bank salesman talk to me.

Why not max out your cash ISA allowance anyway, maybe fix for two years, but keep an emergency float in cash.

Their bonds and Inflation products are generally poor value, so a stocks and shares ISA may be best for another chunk and take you up to eleven grand. Five years is short timescale for equity investment, but everything is a gamble, I'd look at equity income or possibly Asia, Newton asian income combines the two and is what I used this years ISA allowance on.

The remainder might be worth keeping in a savings account until April next year when you click do the same again. That means you have the cash available immediately until next year and gives you time to consider whether whether you what to stay in cash, go for shares or something else.