Advice needed: Best thing to do with £17k?

alicaurusrex

Hello everybody! Newbie here asking for some advice (bit cheeky for my first post, sorry!)

I am in my mid 20s, living and working in London. I am paying extortionate amount in rent and dream of buying my own place within the next few years, although currently that is out of my reach in London.

My grandfather passed away at the beginning of this year, and I have recently had some inheritance money come my way - around 17k in total after I have paid for some much-needed repairs and so on.

I am wondering now what I should do with this. This is a massive amount of money for me and hopefully will make up a big chunk of a deposit for a property one day so I want to make sure I put it somewhere secure where I will hopefully see some benefit, and I can access within the next few years.

The number one advice with inheritance seems to be to pay off any debts, but I have none (I have also never had any credit which I imagine I also need to sort if I one day hope to get a mortgage??)

My mum thinks I should put it all into Premium Bonds until April and see what the interest rates are like on 2014 ISAs, without getting tied into anything low-rate for the next year or so. This still doesn't account for the whole sum though so I am unsure what is the wisest thing to do with the rest.

Would it make sense to wait until April to see the new interest rates or should I fill my 2013 ISA allowance while I can?

Are Premium Bonds a sensible option, or are there other saving options?

A friend suggested looking at investing some of it, but I have no experience or knowledge of this and wouldn't know where to start!

Thank you in advance

Stubod

If you need the money in a "few" years investments may not be for you. Unfortunately all "safe" savings accounts only pay a pittance in interest.

Depending on your "current" current account you could switch to a Santander 123 account and get 3%..(need to put £500 per month in and have 2 direct debits set up).....if not, do not rule out a cash ISA...interst rates are low, but you don't pay tax....plus if you have an instant access one you can still move it next April.

alicaurusrex

Thank you Stubod!

I am looking at the Santander 123 now and it looks pretty good. Thanks for the tip.

What do people think about Premium Bonds? My mum is a massive fan but she has had them for a very long time and has had a couple of reasonably big wins from it - so of course her opinion is biased! I realise it is unlikely that I would see much return on it, but it seems secure and I could just file that money away until I need it without having to think too much about it.

Archi_Bald

As already commented, if you need the money "in the next few years", investments aren't for you.

How much is in your emergency fund? Always good to have 6-12 months spending money, and extra cash for the car / boiler etc failing, in easily accessible cash.

You can only put max £5,760 into an ISA this tax year, and rates are terrible. They are not likely to look an awful lot different come April. If you want to spend the money in the next few years, you will most certainly get better interest rates elsewhere, like in current accounts.

Premium Bonds are paying even more terrible interest than ISAs, and the chances of winning big are minute. Yes, there will be a £1m winner once a month, but the average return still remains at 1.3% AER for now. So, how many people will need to get nothing for how many months to fund that £1m? And all the other big "prices"? How much more likely will you, your mum, and the rest of us, be a loser than a winner? Check the main MSE site for a detailed article.

You get most interest right now from one or more current accounts. A bit of research on the main site and the forum will provide you with lots more information. You can also read this: http://monevator.com/maximise-savings-rates/

Seeing that you are working, you a probably a taxpayer. If not, you can get interest paid gross, by filling in one R85 form per account.

Archi_Bald

alicaurusrex wrote: »

My mum is a massive fan but she has had them for a very long time and has had a couple of reasonably big wins from it

Have you asked here what her compound interest rate is, over the entire time she had them? What guarantee can she give you you will get the same, or better?

PB's are ok, IMO, for people who have exhausted every other alternative, and want to have a punt with their spare money. Anyone starting out their serious financial life would need to be a serious gambler if they relied on PBs.

http://www.moneysavingexpert.com/savings/premium-bonds

pip895

I would second the Santander 123 account - if you can fulfil the requirements - would take the entire balance and give good interest.

block10

Investing into premium bonds will allow inflation to gradually erode the inheritance. PBs work best at the max holding and if your a higher rate tax payer.

Better putting funds to work into the instant access savings accounts that others have suggested.

Wilkins

PBs are not really a good idea in your situation. Using a cash ISA now, despite the low interest, might be a good idea if you might not want to use all the £17k for a deposit, since the money you put in can be tax-protected forever and one day rates will be better.

alicaurusrex

Thank you all so much for your advice, it is very much appreciated!

Archi Bald, good advice on having an emergency fund, and one of the reasons I don't want to look it away as (god forbid) I might have to get at it quickly one day.

Re: my mum and Premium Bonds - she once had a big win from it and obviously therefore swears by them! I think they're good for some people, and obviously worked out well for her, but not right for me.

I am researching Current Accounts as we speak.

Thanks again for your help guys! :T

chirpchirp

Check out Lloyds Vantage account - they have a reasonable rate of interest and had an offer which lasted a year - hopefully they might do another one - where the interest was at 4% on a certain balance. I think you can have three, but this may have changed.

When considering the ISA, remember that if you are thinking that you may have this money for five years, that interest rates may rise. Whilst the rates are low at the moment, I'm still filling my ISA this year as in a couple of years time the interest rates may be higher and I can then benefit from a higher proportion of my money being tax free.

dancingfairy

investing is only really worthwhile if you can lock the money away for at least 3 years, 5 years plus is better. You generally need some time to ride the highs and lows of the stock market. I think also you need to be able to time your entry and exit. There's no point needing your money at a certain point only to find that the whole market has taken a crash and you have to take a massive hit.
As the money is need for something specific in the next few years I'd be tempted to keep it in cash for now.
You might want to read Martins articles on where to start with savings as well. You might want to fix for a year if you can find a decent rate but I personally wouldn't fix too far ahead.
In an ISA you can probably get 2% but you can do better that this with the Santander 123 account (Even at 3% with tax then you'd get 2.4%), although you have to be sure you won't spend it. I dont' know whether you can have Santander 123 current account just for savings and keep your actual current account. If not then I might be tempted to go for an ISA. I know the rates aren't quite as good but at least then the money would be seperate and you wouldn't be tempted to spend it.

df