Lump sum help....

lucy_lu26

Hi all,

So I am separated from my partner and he will be buying me out of a jointly owned property for between 55-60k...

I am on a part time wage (very low under 10k a year) and receive top up of tax credits (work and child) now I know they arent affected by the amount of savings but only the interest when I receive it if its more than £300 a tax year...

What is the best way to make this money work for me? my wage is too low to buy anywhere where I live as I live in London... I would like to grow this money without affecting my tax credits too much... until my son is at school (3 years) so I can work full time and buy a property then hopefully.. I have no pension and no other savings...

I have no debt or student loans at all...

Thanks
Lucy

TakeCareOfThePennies_2

lucy_lu26

Lots of people round here will tell you that you should dump much or all of the money into the markets. But you should ignore them. Given your described circumstances, hitting the markets aggressively would not be a wise idea for you.

You must ensure you keep sufficient cash at all times to cover both day-to-day expenses as well as cover you for 6-12 months incase you loose your job and/or tax credits.

You say you have no savings or pension. These are both things you might want to consider too.

My view is the same as summarised by KGriff on another recent thread :

...... is not an approach to take by a new investor such as tiamaria, who started this thread to seek advice and was being advised to ’heavily' invest a lot of their £40-50,000 virtually straight away in stocks and shares.

My position was that I thought tiamaria should begin with a slightly more balanced or cautious approach to stocks and shares that's why my earlier advice was to opt for the 123 account, a cash ISA and the remainder (£9,760) for use in early share trading.

Although I would replace the words "early share trading" with "decent index tracker fund". You should keep it simple.

Basically, don't put more than around 20-30% of your money into the markets when you are just a beginner wanting to dip your toe into the water. Also, given your description of your circumstances, you should adopt a cautious stance when it comes to the markets.

bowlhead99

The first £30-35k or so will fit into the top paying current accounts at 3%,4%,5% by opening up accounts with multiple banks. That will earn you £1k of interest income which won't be taxed if you're earning under £15k or so in total, but it will probably affect benefits.

After that it becomes harder to find a decent return without risk as the rates available fall. Some of it can be dripped into "regular saver"accounts which only accept a certain maximum deposit each month. After that you would be looking at normal savings accounts so probably take a 2 year plus fixed rate given you don't need the money in a hurry. It might as well be an ISA if the rate is as good as a non ISA account.

Help to Buy ISA once available later this year may be of use.

As you don't have a pension, put a few thousand into one. You'll need income in your old age just as much as you need a home. Pension has tax benefits and also the assets within it are out of scope of means testing.

If you are willing to consider outside of London (which might be a stretch if on your own needing support of family and friends) then your money would go much further towards buying a house.

jimjames

TakeCareOfThePennies wrote: »

lucy_lu26

Lots of people round here will tell you that you should dump much or all of the money into the markets. But you should ignore them. Given your described circumstances, hitting the markets aggressively would not be a wise idea for you.

I totally agree about not using investments but I think you're being a bit misleading suggesting that lots of people would suggest it as this is a completely different scenario from the one on the other thread and would be a very different suggestion.

I can't see anyone suggesting that investments are a good idea for money needed in 3 years time so maximising the returns in interest paying accounts would be best option as Bowlhead has outlined.

I can't really see a case for any money being put into investments given the scenario detailed and savings would be far safer option.

KGriff

jimjames wrote: »

I totally agree about not using investments but I think you're being a bit misleading suggesting that lots of people would suggest it as this is a completely different scenario from the one on the other thread and would be a very different suggestion.

I can't see anyone suggesting that investments are a good idea for money needed in 3 years time so maximising the returns in interest paying accounts would be best option as Bowlhead has outlined.

I can't really see a case for any money being put into investments given the scenario detailed and savings would be far safer option.

Jimjames,

Yes I would totally agree with your approach. I reckon the thing would be for Lucy to open up the high interest current and savings accounts as mentioned on the MSE website and fill those as much as possible.

Next look at trying to put away £15,240 into an instant access ISA and hope the rates go up in the coming years and place the small amount of money, that may be left over, in premium bonds in the hope the lucky number comes up. (Premium bonds are only used, when you have maxed out all the other interest paying accounts.)

Make sure that the interest paying current account 'requirements', such as paying-in a certain amount of cash etc; are adhered to, in order to ensure that you get the interest and best opportunities from those accounts. (this can be done by setting up standing orders to move the money between accounts).

I would also assign your relevant household bills possibly to the Santander 123 account to take advantage of the cash-back that it offers. I would pay your wage into that account too.

If you find yourself overspending in the months or years ahead then take the money out in reverse order starting with your premium bonds then next choose whichever pays the least interest at the time.

Try to keep the max full amount of money in the highest interest paying accounts... Keep a regular watch on the accounts.

Once you find yourself sorted financially and things become settled in your work and personal life, then that would be the time to think about stocks and shares ISA's etc... or better still investment in a property of your own.

Remember this is only advice and the decision lies with you in the end once you have looked into all the available options.

Anyhow Lucy, let me wish you best of luck to you and your child and fingers-x'd for the future.