What to do with money I'm inheriting (40kish)

missing_string

Hi all,

My father died recently and I'm due to inherit ~£35-40k. I've been working out for the last week or so what to do with the money and so far I've come up with the following:

-Pay off a personal loan to a family member which is £4k.
-Put it into savings accounts using bankaccountsavings.com to calculate. I've estimated that I can save a further ~£18k on top of my current savings before I hit the personal savings tax allowance.
-I have a mortgage of about £122k so paying off 10% will cost ~£12k.

All of that amounts to ~34k, which is roundabout what I'm due to inherit on the lower end. I have no idea where to put the rest plus my money from my wage until I am able to pay more off on the mortgage again (it is incredibly rare that I spend more than I earn in a month, so this extra money each month has to go somewhere). There are no big purchases that I can expect as I have gradually been buying things I've wanted over the last few years and I'm not a materialistic person at all.

Finally, it is worth noting that I was intending to move from my flat to a house in the future and had calculated that this would have been possible in roughly the middle of 2020 with my current savings trajectory (loose prediction, who knows what house prices would be like then). This new injection of money will now speed up the process, but there are too many variables involved to know by how much. The key point is I do not want to put extra money into my pension or lock my money away as I will need access to it for moving up on the housing ladder, I just don't know when at the moment.

Much appreciated for any help, I realise that from a purely financial perspective, this is not a bad problem to have.

AndyT678

If more bank interest after tax is paid gives a better return than your mortgage rate then do that. If not, do that until you can overpay another 10% without penalty.

Other options would be premium bonds or possibly P2P lending.

missing_string

AndyT678 wrote: »

If more bank interest after tax is paid gives a better return than your mortgage rate then do that. If not, do that until you can overpay another 10% without penalty.

Other options would be premium bonds or possibly P2P lending.

Hi there,

Thanks for the reply.

My mortgage is fixed at 1.99% until April 2019, so right now all the major bank accounts with savings AER bonuses pay better than that with the exception of Santander @ 1.5%. Therefore, as noted above, I'm going to put the majority of my money in savings until I hit the personal savings tax allowance, then pay 10% off my mortgage, then be left with x amount (not sure how much).

I looked into bonds but they are also subject to the personal savings tax allowance.

Is P2P my only option?

kidmugsy

2020 means that you won't want to contribute extra to pensions or to S&S ISAs. Nor even buy gold sovereigns. So how about using regular savings accounts that will pay their interest in the next tax year? if you keep deferring interest like this you might reach the purchase of the new house without ever paying tax on the extra interest. Are there any Cash ISAs that pay useful interest?

kidmugsy

missing_string wrote: »

so right now all the major bank accounts with savings AER bonuses pay better than that with the exception of Santander @ 1.5%.

The rebate that Santander will give you on your bills would be free of income tax. Worth a thought?

missing_string

Hi there,

I've already factored in regular savings accounts. These are the accounts I already use (or will be using) to maximise my gains:

-Nationwide Bank Account (5%) for next ~10 months
-First Direct, M&S, Nationwide, Santander and HSBC Regular Savers (5% each)
-Tesco Bank Accounts (3%)
-TSB Bank Accounts (3%)
-Bank of Scotland Bank Accounts (2%)

You are able to have 3 Bank of Scotland Bank Accounts, but I hit the personal savings tax allowance when I've maxed 2 BOS accounts out. It's not going to work out exactly, I realise that filtering money into 5 separate regular savers will slowly dwindle my lowest percentage paying accounts, but I will get that back when the 12 months is up.

As for your other point about the bills cashback, I already use a NatWest MyRewards for cashback on bills, as the £2/pm vs £5/pm means the cashback I get is marginally better on the NatWest account.

Your point about cash ISAs - I'm just reading about it now (I've haven't used ISAs in years as the rates have been pitiful), and it looks like this might be the way to go. As far as I can tell, Cash ISAs aren't subject to the personal savings tax allowance, quoting from MSE's article on them for point 1: "Cash ISAs are just savings accounts you NEVER pay tax on" - am I right with this assumption?

AndyT678

missing_string wrote: »

"Cash ISAs are just savings accounts you NEVER pay tax on" - am I right with this assumption?

Yes but make your decisions based on what gives the best overall return.

The idea is to maximise your gains not minimise tax. £1,000,000 that you pay tax on is better than £1 tax free.

missing_string

AndyT678 wrote: »

Yes but make your decisions based on what gives the best overall return.

The idea is to maximise your gains not minimise tax. £1,000,000 that you pay tax on is better than £1 tax free.

Yes, fair point, I'll do some calculations and work out what's best. Thanks for your help.

aberlyfid_2000

once you've used up the best savings rates, you could always open a stocks and shares ISA and buy international bonds (of a short duration) and therefore gain if the pound falls. In effect, its holding cash, but in foreign exchange plus a small amount of interest.

Obviously you lose out if the pound gains, but you can always spend that money abroad!

missing_string

Thank you all for the responses - all very useful and I feel I have some options and will consider all of the info when I actually have my hands on the money. Much appreciated.