What to do with £40,000 savings?

frugalescrow

Pretty sure the great gold rush is over. But then they said the same thing a few years ago!

grey_gym_sock

G_M wrote: »

+ the excitement at the start of each month finding out if you've won the big one!

this is a bit like enthusing about some kind of food, or music ... if you enjoy it, good for you, but it's not for everyone

rb10

kidmugsy wrote: »

On average the holders' get 1.5% pa, which is the equivalent of 2.5% pa to a higher rate tax payer. That's about what savings accounts are paying at the mo'. So it's not "pretty poor" at all.

Most Premium Bond holders do not actually get 1.5% pa.

The total prize fund is 1.5%, but this is massively skewed in favour of the very small number of high value prizes.

The interest rate received by the majority of holders is closer to 1.3%.

Factor in the first month - during which you are paid nothing at all - and this drops further to c. 1.2%.

Jegersmart

GlasgowDentist wrote: »

I currently have around £40,000 sitting in a instant access savings account. I have used up my ISA allowance, I am currently still stuck in the fixed rate period of my mortgage but overpaying it each month by the most I can without incurring fines.

I should have enough saved in 2 years to pay the mortgage off, but what should I do with this spare cash in the meantime?

How much is the penalty if you pay off the mortgage entirely?

droopsnoot

rb10 wrote: »

Most Premium Bond holders do not actually get 1.5% pa.

From my records I am getting around 0.85%. OK so it's not a great deal of interest but there is always that possibility, however remote, of the windfall. I wouldn't suggest it as a savings strategy, but as part of a wider portfolio it has its place, for me at least.

grey_gym_sock

sorry if i'm flogging a dead horse, but ...

IMO, premium bonds may be worth it for you - they are if you value the possibility of winning big as greater than the cost, which is amount you are likely to lose relative to a savings account.

but you can and should calculate what this cost is. then you can make an informed decision.

e.g. if the typical return from premium bonds (i.e. excluding the big prizes) is c. 1.3%, and the alternative is a 1-year fixed rate account at 3%, on which you pay 40% tax, leaving 1.8% net, then the cost is 1.8% - 1.3% = 0.5% of your capital. i.e. £150 if you have the maximum £30k in premium bond, but only 50p if you have the minimum £100 (is that still the minimum?).

GlasgowDentist

Jegersmart wrote: »

How much is the penalty if you pay off the mortgage entirely?

The penalty is around £6000. I wont be able to pay the mortgage off while I'm in the fixed rate period anyway. It's annoying as the Building Society changed their rules about 2 months after I took the mortgage out and now allow an overpayment of 10% of last years balance. Instead I'm stuck with this £499 a month rule. Very frustrating.