£20k nest egg - I want to be tax efficient and safe

SavvyNew2016

Hi all, I wonder if anyone might be able to give me some insight in to the best ways to look after an egg of £20k. Admittedly I am usually not great at saving and am not particularly financially savvy (despite my user name!).

Background - I have managed to save £20k this year and am now unemployed. I would like this money to be put away somewhere safe but tax efficient. Would I now be classed as the lower band tax payer as I am now no longer in employment? In addition, I am also hoping to get a tax rebate in spring based on my earnings this year (which were paid at the highest tax rate) as I only worked 4 months of this tax year. 

What would be the best way of looking after my money? Would it be a Cash ISA? With £20k now sitting in a current account, how much interest/tax would I be paying on this as an unemployed person? I really want to get this sorted by January so that I can use up this year's Cash ISA allowance. I do not need immediate access to the funds and I currently have fairly small outgoings. Are there any other safe options I should consider? TIA

penners324

Pension if you're happy to lock away until your 55

S&S ISA if you're happy to invest, though a longer term strategy than an S&S ISA

You don't need to any of those you mentioned. Marcus Savings at 0.6% will be perfectly fine. No tax to pay as you'll be below the threshold on interest.

SavvyNew2016

I should have clarified that the £20k is cash sitting in my current account. I have company pension which I stopped contributing to around 10 years ago which is currently worth just over £80k but no other pension, plus £5k in a cash ISA from years ago. 

I am currently in my late 40's and our mortgage will have been paid off by the time I'm 61. Would it be more prudent to put a large part of this £20k into my pension? Alternatively I was also toying with the idea of using the £20k as a deposit for a buy-to-let one bedroom flat. How do I weigh up the options?

SavvyNew2016

Sorry that should have read "company pension.....currently worth just over £180k" (I can't work out how to edit the post lol)

SavvyNew2016

penners324 said:

Pension if you're happy to lock away until your 55

S&S ISA if you're happy to invest, though a longer term strategy than an S&S ISA

You don't need to any of those you mentioned. Marcus Savings at 0.6% will be perfectly fine. No tax to pay as you'll be below the threshold on interest.

Thanks penners324 for your advice. I really wanted to avoid a stocks and shares ISA, although I realise my company pension will also be invested in the market and is therefore not a guaranteed return on capital. I'm unlikely to be able to save this kind of amount again so am keen not to lose capital on stocks and shares.

Can you clarify please "No tax to pay as you'll be below the threshold on interest." What is the current threshold?

penners324

£1000 in interest per year.
Ie if it's in an account earning 1% you would need £100,000 in the account. 

Why have you stopped paying into your pension? This seriously needs attention.

penners324

Why would you rule out an investment like an S&S ISA? In the medium to long term they will very likely go up in value far more than savings account.

A pension is also an investment just a different tax wrapper to a S&S ISA and with better tax advantages.

SavvyNew2016

penners324 said:

£1000 in interest per year.
Ie if it's in an account earning 1% you would need £100,000 in the account. 

Why have you stopped paying into your pension? This seriously needs attention.

I worked and paid into my pension up until I finished maternity leave and then handed my notice in to work. Took a career break for 6 years to look after my you family. For the the past few years I’ve been doing contract work and hadn’t gotten round to sorting out a pension as the hours and pay were so changeable. You’re right though, I really need to give this some serious attention though hence wanting to put my money into something safe for the future. 

SavvyNew2016

Up until 10 years ago I worked and paid into my pension. Then I went on maternity leave and then handed my notice in to work. Took a career break for 6 years to look after my young family. For the past few years since then I’ve been doing contract work and hadn’t gotten round to sorting out a pension as the hours and pay were so changeable. You’re right though, I really need to give this some serious attention though hence wanting to put my money into something safe for the future. 

TheMilkmansDad

I would look at putting it in you pension if possible. Failing that maybe look at overpaying you mortgage a bit if allowed?

El_Torro

Assuming you don't want to invest the money ( a safe assumption to make I think, since you've stated as much a few times in this thread) then Premium Bonds isn't a bad choice for £20k. The prizes are tax free and the expected return is higher than any instant access savings account available today. The downside is that your savings are going to be eroded by inflation. This becomes more of a problem the longer you keep your £20k in cash. 

Savings accounts are becoming more competitive compared to Premium Bonds, especially if you're willing to tie your money up for a year or more. Personally I would stick to Premium Bonds for now as interest rates on savings accounts are likely to increase next year.