Advice on savings accounts for Inheritance

Schaffy

Hi all,
I'm trying to provide a spot of guidance for my partner's mother who has recently inherited approx £300,000. Wanted to make sure I'm on the right lines for her situation and not missing a trick.

Currently the money is mostly just sat in her standard current account earning zero interest So she wants to move it somewhere to make at least some kind of return (even if it is below inflation)

She is semi-retired with a good pension, has paid off her mortgage and has no other debt that I'm aware of.

We have spoken about investments in stocks and shares but she is not interested in this because she perceives this as risky and I don't want to push her down this route if she is not comfortable with it.

Also I'm aware of the higher paying current account offerings out there but I've ruled these out because there is no way she would be able to manage the admin of moving the money around to satisfy their criteria.

She has used her NISA allowance for the year so IMO this only really leaves the option of looking at standard instant\fixed rate savings with their feeble returns.

My thinking is maybe to split the money into 85k chunks (so its protected) and put one lot in an instant access savings account so she can get at it quickly if needed and then the rest in fixed accounts for 1-2 year so its not locked away too long in case interest rates recover.

I know I probably haven't provided all details but have I missed any other options that may be more attractive?
Any advice welcome!

mgdavid

an option for a part of it would be to max out on premium bonds.
Also, depending on her age, the new NS&I pensioner bond due on Jan 2nd 2015 could be of interest.

colsten

She should really go and see an IFA. Amongst other things, an IFA will be able to demonstrate to her that here money loses buying power every day she keeps it in a savings account.

First things first though - it's pretty mad to risk £215K. She should either move the money to NS&I, or divide it up into £85K chunks at different financial institutions. Once that is done, she can contemplate further.

Schaffy

Thanks guys.

Ye premium bonds would be an option. Will see what she thinks.
Unfortunately, she doesn't meet the age requirements yet for the pensioner bond.

mgdavid - I agree an IFA is the way to go but atm I'm just keen for her to get the money out of her current account.

Steve_xx

Just one more point on the 85k safety net on bank/savings accounts. I would put just under 85k in one account to allow for accrual of interest to bring it up to the 85k mark. It's a minor, but valid point!

xylophone

The NS&I Income Bonds might suit as a holding place while she thinks about what she wants to do - the whole £300000 ( currently paying gross(important for her tax return of 1.25 % monthly.

If she is or will be over 65 next January, there is to be a Pensioners' Bond from NS&I which she might care to use.

Other than that http://www.thisismoney.co.uk/money/saving/article-1583859/Best-savings-rates-General-savings-Internet-branch.html

However, she should note that interest rates are very poor and she is likely to be losing out to inflation.

She might wish to consider using her full NISA allowance for the year to try out a stocks and shares option - she could consider an equity income fund perhaps or a distribution fund?

atush

Yes, I agree with those above, get the money protected for now and earning something if little.

Then she needs to understand Risk. AS she just equates it with investment risk- an important risk to be aware of. However, there is Inflation risk in that her money is being shrunk every single day with the rise in prices around her.

Normally I would not mention property, but perhaps that is one thing she would understand the risk of? Although I would class it as more risky than a balanced portfolio- she might be mroe comfortable with the idea (although I would not recommend she put more than 33% in it).

As for pensions, what kind of 'good' one has she got? She could put more in if she is still earning.

Do try and get her ti an IFA.

ruinen

CPI inflation was 1.6% last month, so it seems easy enough to ensure that £300k stays in line with inflation.

£75k in 3 year bond earning 2.75%
£75k in 2 year bond earning 2.35%
£75k in 1 year bond earning 1.95%
£75k in NS&I instant access earning 1.25% **

That beats inflation with about 2.1% return. She also has no capital at risk, has a nice chunk on easy access, and then another £75k become available each year for the next 3 years.

That seems a perfectly rational strategy for someone that is mortgage free, semi-retired and has a good pension. Even though she may be missing out the gains from investment and is probably over estimating the risk involved in a portfolio of low cost index trackers.

Let's say she went with the investment option. Maybe she beat that 2% interest by a few percent. If the extra money gives her no noticeable benefit/value to her life and she gets stressed about the risk, then why bother?

**NB: Those proportions are just ones I randomly picked to demonstrate you can keep up with inflation. There is no special insight in dividing it up that particular way.

kidmugsy

ruinen wrote: »

CPI inflation was 1.6% last month, so it seems easy enough to ensure that £300k stays in line with inflation.

£75k in 3 year bond earning 2.75%
£75k in 2 year bond earning 2.35%
£75k in 1 year bond earning 1.95%
£75k in NS&I instant access earning 1.25% **

That beats inflation with about 2.1% return.

Are those after-tax returns you're quoting?

atush

looks before tax to me. and inflation in 3 years is anyones guess.

ruinen

kidmugsy wrote: »

Are those after-tax returns you're quoting?

That's a good point that I missed. But still 2.1% after tax is still on a par with inflation.