What to do with £80k to get the best "safe" benefit

Elika0215

Genuinely asking for a friend (although I wish I was in their financial situation!)

What should they do with the money in this scenario?

- They have £80k sitting in a savings account with Halifax that they've had for years. The rate is about 0.5% interest!

- They have a repayment mortgage with about 14 years left on it for £60k (about £400 a month)

- No other debts

- Their income is pretty tight with their expenditure, so they want to minimise risks associated with shares and the like

Questions!
- What should they do with the £80k?

Options I’ve seen;
- Pay off the mortgage in full, hence reducing expenditure by £400 per month

- Keep paying the mortgage but tie the money in for a set-term (maybe up to 5 years) in a savings account

- I saw the peer-to-peer lending sites but am really wary of the risk. Reviews seem really positive and on the few sites I researched they have 100% payout and repayments on their policies. Worth considering this as close to risk free (barring a complete financial collapse)?

- A combination of these

- Any other suggestions?

Thanks

Alexland

Do you know the mortgage rate? If limited to totally safe products then paying it back may be the best option.

My view is that P2P is higher risk than sensible S&S investments which are likely to outperform a mortgage over the long term. Particularly if done inside tax efficient wrappers such as pensions and S&S ISAs.

Alex

Wildsound

Steer clear of P2P. This is by no means in the slighest "close to risk free" - quite the opposite.

xylophone

What rate is being paid on the mortgage?

They might consider repaying the mortgage - this would give them £400 a month to save.

Do they have pensions? They might consider increasing their pension contributions with that money.

Have they ever had Nationwide Flexdirect accounts?

They might consider opening a sole each and a joint and depositing £2500 in each - they would need to credit the accounts each month with £1000 from outside NW but this is easily managed with FP in and out.

They can also each open the Flex monthly saver.

Other savings rates here

https://www.thisismoney.co.uk/money/article-1583859/Best-savings-rates-General-savings-Internet-branch.html

Elika0215

Thanks for replies.

Their mortgage interest rate is 1.95% to 2%. I don't know anything about their pensions.

Alexland

There are fixed term ISAs etc offering slightly above 2% but it's marginal so if the OP wants absoloute safety then repaying the mortgage might make sense (assuming no early repayment charge).

There are a few accounts offering 3% and 5% however their limits mean they are not suitable for stashing a large lump sum. Still might be useful for some of the money.

However for the best financial result over the long term then a sensible diversified S&S investment via ISA and pension contributions is likely to beat that rate.

Alex

Audaxer

Elika0215 wrote: »

- Their income is pretty tight with their expenditure, so they want to minimise risks associated with shares and the like

As the money as been sitting in a savings account for years, and income is tight, it seems to me that the best option would be to clear the mortgage and free up £400 per month.

- I saw the peer-to-peer lending sites but am really wary of the risk. Reviews seem really positive and on the few sites I researched they have 100% payout and repayments on their policies. Worth considering this as close to risk free (barring a complete financial collapse)?

I definitely don't think the above option is risk free, especially as they want "to minimise risks associated with shares and the like". As far as I am aware peer-to-peer lending has no FSCS protection and in more risky than mainstream investing.

msallen

Alexland wrote: »

However for the best financial result over the long term then a sensible diversified S&S investment via ISA and pension contributions is likely to beat that rate.

I agree, but given the lack of appetite for risk, and the fact that its the OP's friend we're talking about means we can't really get any sort of nuanced feel for exactly what level of risk may be acceptable. I would suggest that clearing the mortgage would be their best bet. The remaining £20K could be spread around the usual high interest current accounts and regular savers.

Then, being mortgage free; their cash savings still making as much, if not more, interest as when they had 80K; and an extra £400 a month in their pocket ... that might be an appropriate time to think about a regular monthly investment of perhaps £200 or £300 (via pension or S&S ISA)

Elika0215 wrote: »

I saw the peer-to-peer lending sites but am really wary of the risk. Reviews seem really positive and on the few sites I researched they have 100% payout and repayments on their policies. Worth considering this as close to risk free (barring a complete financial collapse)?

There is a wide range of risk within P2P, but even that at the safest end is nowhere near "close to risk free."

Malthusian

Elika0215 wrote: »

- I saw the peer-to-peer lending sites but am really wary of the risk. Reviews seem really positive and on the few sites I researched they have 100% payout and repayments on their policies.

You should be really wary because "really positive reviews" and "100% repayments on their policies" is usually the hallmark of a scam. Every failed investment had positive reviews and 100% repayments until it collapsed and lost everyone's money.

Which means that positive reviews and 100% repayments is, at best, totally meaningless. At worst, if someone is flogging you an investment and trumpeting the fact that it has great reviews and 100% repayments, it's probably a scam.

P2P is in general not a scam but it is a high risk and opaque investment.

Elika0215

Thanks for the replies. So for stocks and shares, the fear is a financial crash could wipe their savings out. They (and I) know very little about markets and fluctuations with stocks and shares, so wouldn't that be an added risk?

Also, one of them is unemployed due to a disability and their income just above covers expenditure. Further thoughts occur;

- For the unemployed partner, what tax rate would apply to savings interest? The other partner earns in the region of £15k py.


- What about say, £40k in a long term (5 year) fixed savings account. £20k mortgage repayment and £20k in say an ISA/Interest Earning account as a buffer for emergencies (without a penalty for withdrawing)?

loskie

put 15k in an instant access savings account, 20k in a SIPP (remember to claim the tax relief) £20k in a stocks and shares ISA and pay a chunk of £25k off the mortgage. keep the monthly payments the same after to get it paid off early.