Never had any spare cash now have 40k what to do with it

sitcom321

My friend has lived on the poverty line for most of her adult life. She is now in her 40s and has inherited £40000, she is now both excited and nervous about what to do with it.

she has no ISAs and has never had any spare cash to put into savings so she is worried if she doesnt invest carefully she will blow the lot. could anyone give a bit of basic advice on what she should do with it.

she is thinking of keeping £5000 to spend on a few things and pay off overdraft etc then to put £15000 in an ISA with a look at keeping it in there for a maximum of 4 years, we have been looking at the Lloyds account and the santander 123 high interest accounts for the remaining £20000 i am not very savvy on savings myself and would hate to give her duff advice, hoping you guys could point her in the right direction

pjread

Definitely clear any debt that's costing more in interest than they can get themselves (OD, CC, etc)

"a maximum of 4 years" is possibly a little short to be super confident of a decent return if you mean equities, and from the sounds of it they're quite risk averse? Why 4 years max?

Cash ISA rates are pretty rubbish right now. Assuming they're a basic rate taxpayer they could probably do better outside of an ISA for cash. Do they own a house/have a mortgage?

sitcom321

has a mortgage which will run for another 3 or possibly 4 years
not sure why 4 years just a number we came up with happy to go longer or stocks/share with not much risk

Archi_Bald

What is the mortgage interest rate, how much is outstanding, and is it possible to overpay monthly mortgage payments, or pay off the entire mortgage early, without any penalties? Not saying she should do that, I am just after some more facts.

sitcom321

she will incur penalties if she pays it off early

pjread

Depending on the mortgage rate I'd at least see if getting rid of or putting a dent in that makes any sense, especially as it's still sounding very risk averse.

Usual guidance seems to be aim for a minimum 5 years before any "dips" can reasonably be expected to 'balance out', but there's always risk here it just broadly balances out over time.

Psychologically I wonder if (making up numbers) paying off a 40k outstanding mortgage then diverting what would have been paid in mortgage payments to investments makes more sense. As 1/ if you buy in gradually over months, any dips aren't the end of the world (the next buys are cheaper, and at least some previous buys probably were too) and 2/ the cash probably 'feels' more disposable, so I'd expect it to all be less stressful. 3/ a single lump sum could hit "bad timing" through chance alone.

That said I'm not an expert, and chucking cash at something passive that tracks a major index probably is relatively low risk compared to "Ooh lets chuck 40k at this african mining company!", but would still need a bit of research...

Archi_Bald

I would suggest that there should definitely be no investments for the next 6-12 months, simply because she has nil experience with investing and should do an awful lot of reading / thinking / asking about investing first. She needs to be able to understand any investment she wants to make, and not just follow some tip she has been given, and definitely not a 3rd hand tip from a stranger on the internet.

Whilst she is doing her reasearch, the money should sit in interest paying current accounts - TSB, Lloyds, Santander, BOS, Tesco, Santander between them will easily accommodate the entire sum and pay between 3% and 5% with instant access.

Archi_Bald

sitcom321 wrote: »

she will incur penalties if she pays it off early

Do you know how much? If we have a few numbers, it will be easier to see whether there could be a case for early redemption.

Mojisola

What are her pension arrangements like?

d70cw6

Playing it safe and overpaying mortgage without incurring penalties (you can typically do this by 10% with most mortgages - go check) seems like a good place to start.

Definitely repay any expensive debt (OD / CCs etc).

Look at high interest current accounts up to limits maybe?

sitcom321

what are the best current high interest accounts are they better than nisa