What to do with £20k cash?

magicodedos

Looking for some advice on what to do after receiving a £15k bonus (after tax)

My current situation is that I now have £30,000 in cash doing nothing, and approx £18k in a S&S ISA.

I have approx 19 years left on my mortgage with about £90k left to repay. Current interest rate is about 2.3%.

Ideally I want to keep about £5-10k liquid so I can access it for any emergencies, home improvements, holidays etc.

But what should I be thinking about doing with the rest to maximise returns? About 20k total.

I pay approx £275/month in to my private pension.

I thought about drip feeding the cash in to the S&S ISA to ride out any market fluctuations what with Brexit uncertainty and unknowns.

Also thought about paying down some of the mortgage or topping up pension.

For info I'm 30 years old.

Anything I haven't thought of and might want to consider?

EthicsGradient

Those 3 options seem the obvious ones - mortgage, pension or ISA.

2.3% still seems a low rate to me, so I'd think it's not a priority to pay extra into the mortgage at the moment. Effectively, this is a bit like putting it in a savings account at 2.3%, but with rather difficult conditions on accessing it (remortgaging, moving house, or getting to the 'all paid off' stage earlier).

If you're a higher rate taxpayer, then more into the pension seems a good idea, since you get more tax contributions. If you're not now, but might be in a few years, it's something to remember, but if not, then the time when you can get this back is even further ahead than with the mortgage. It depends on whether the expected value of it once you retire meets your needs yet - if not, you'll have to contribute more some time; again, the question of whether you'll become a higher rate taxpayer in the future might influence this.

With the ISA, you have the option of being able to get it back any time you want, even if that means you don't get the extra tax benefits after that (which won't be significant at this stage, but if the ISA rules stay roughly the same over the next couple of decades, you may well build up enough for them to be helpful). This is the most flexible option - if conditions change such that extra mortgage payments, or high pension contributions, become the definite best option, you can use the ISA money for that (or something like moving to a more expensive house).

There is also the Lifetime ISA; since you already have your house, that would mean locking up the money until you're 60. The amount the government pays into it is the same as for a basic rate taxpayer's pension, but after you're 60, you can do what you want with the money, rather than three quarters of it counting as income for tax purposes. That's up to £4,000/year of the £20,000 annual ISA contribution allowance.

steampowered

I would max out your ISA allowance, keep £5k in cash, and either put the rest into a standard S&S account or into the ISA when your allowance refreshes next April.

Putting your money into an ISA protects it from tax for the long term so it is worth using the allowance if you can.

If you are investing for the long term, I'm not sure you need to be too worried about drip feeding in. Times of uncertainty and unknowns are much better times to invest than times of stability and certainty - you are better off buying shares cheap than buying than expensive ...

Of course you can consider upping pension contributions too particularly if you are a higher rate tax payer.

It would not be a good idea to pay down the mortgage given the interest rate you are paying. However, when your fixed term ends, you could consider remortgaging onto a cheaper rate - the lowest rates in the market is about 1.5%. Mortgages tend to get cheaper at each 5% LTV threshold, so it could be worth putting some of your spare cash into the mortgage only if that brings you into the next LTV band and makes the whole thing cheaper.

Albermarle

I think you have the general idea OK and it largely comes down to personal preference .
For example the logic would probably be not to overpay the mortgage and invest instead. However many people would like to see the mortgage off their back asap .
If you invest a pension beats a S&S isa by 6.25% due to the tax relief ( assuming same investments in each) but you can not access it currently until you are 55 and this age limit will probably increase at some point.
You say you pay into a private pension . Are you not part of an employer pension scheme or are you self employed maybe ?

El_Torro

I think you've identified the 3 sensible options:
Pay more into S&S ISA
Additional mortgage payment
Additional pension contribution.

If in doubt then a bit in each of the 3 could be the solution.

Some things to consider though:

Investing in S&S, either through an ISA or pension, for at least 10 years, should give you a better return than overpaying your mortgage.

If you're a higher rate tax payer then there's a big advantage in paying more into your pension rather than into a S&S ISA (though the pension money will be tied up for longer)

If you currently pay into a workplace pension via salary sacrifice then increasing the sacrifice will give you even bigger tax benefits (though again, the money will be tied up for longer)