Savings strategy for grown up children with a decent pile of cash?

thewinelake66

So our daughters aged 21 and 24 have until recently left their money in a general BS savings account with Nationwide. It's about time they started trying to optimise this, as they've got quite a lot of cash in there (about £50k), mostly tanks to generous grandparents.

I initially thought that a Lifetime ISA might be an idea, but there's a cap of £450,000 on the linked house purchase. That's quite a lot of money for a residence for one person, but they're thinking that they'd like to buy a 3 or 4 bedroom house in the outskirts London together - and it's quite likely that this will be in excess of £450k. So that seems to rule out Lifetime ISA.

Then the next best options seem to be for existing account holders (eg. Yorkshire BS) and so that's not available.

Regular savings accounts could be an option, but as neither of them work, they'd have to essentially use their savings to drip-feed such an account.

I guess one key question is what the purpose of the savings account is, and that's a bit of an unknown - could be needed for a deposit in 1-2 years time, or maybe left longer as an emergency fund.

Any suggestions? Or any good articles about this kind of situation?

km1500

50k would buy the max holding of premium bonds you should average about 1.4% with the chance to win enough to buy that London house ...

Exodi

km1500 said:

50k would buy the max holding of premium bonds you should average about 1.4% with the chance to win enough to buy that London house ...

Premium bonds have a real prize rate of about 1.3% (as the vast majority of people will get less than 1.4%, except the few lucky ones who win big). The tax saving benefit is worthless to the OP's daughters.

OP could put it in an easy access acount paying 1.85% or 3.47% in a 12 month fixed account.

BoE is expected to raise interest rates this week, though there's no telling how long the banks will take to update their products.

Albermarle

km1500 said:

50k would buy the max holding of premium bonds you should average about 1.4% with the chance to win enough to buy that London house ...

Unfortunately, the chance of winning big is so very very small, that you have to discount it.

thewinelake66

Exodi said:

km1500 said:

50k would buy the max holding of premium bonds you should average about 1.4% with the chance to win enough to buy that London house ...

Premium bonds have a real prize rate of about 1.3% (as the vast majority of people will get less than 1.4%, except the few lucky ones who win big). The tax saving benefit is worthless to the OP's daughters.

OP could put it in an easy access acount paying 1.85% or 3.47% in a 12 month fixed account.

BoE is expected to raise interest rates this week, though there's no telling how long the banks will take to update their products.

So maybe wait to see which banks react before making a decision.

Exodi

thewinelake66 said:

Exodi said:

km1500 said:

50k would buy the max holding of premium bonds you should average about 1.4% with the chance to win enough to buy that London house ...

Premium bonds have a real prize rate of about 1.3% (as the vast majority of people will get less than 1.4%, except the few lucky ones who win big). The tax saving benefit is worthless to the OP's daughters.

OP could put it in an easy access acount paying 1.85% or 3.47% in a 12 month fixed account.

BoE is expected to raise interest rates this week, though there's no telling how long the banks will take to update their products.

So maybe wait to see which banks react before making a decision.

I had this view a few weeks ago and got proved wrong.

With the time it takes banks to announce new rates, combined with the fact they are meeting every 6 weeks, and you get drawn into a situation where you are continiously waiting for a new higher rate.

I think the conclusion was that it's probably better to save the money as soon as possible.

See the bottom post of page 1:

https://forums.moneysavingexpert.com/discussion/6387206/for-a-one-year-fixed-are-there-any-more-competitive-comparison-sites-than-mse/p1

Bridlington1

At the moment Al Rayan bank pays 2.1% on its easy access account (£5k minimum) so if I were them I'd stick most of the money in that whilst they decide what to do with it.

Also do your daughters have a current account with Nationwide? If they've never had a flex direct account before they could open one as they would get 5% interest on balances below £1.5k if they pay in £1k or more per month. The minimum pay in can be achieved by opening a current/savings account outside of Nationwide and transferring £1k out of Nationwide and then back in again.

If your daughters are thinking long-term (5 years minimum) there's always the option of investing. That tends to offer a higher yield in the long term though I must stress there's a strong element of risk involved as they could get back less than they originally invested. 

One thing they could do is to open a string of easy access accounts with banks/building societies that have better rates for existing account holders. E.g. YBS have a family saver account at 1.75% with a minimum balance of £1 so stick £1 in that. This will allow them to become eligible for the loyalty account in however long. I've got quite a few savings accounts with balances of £1 for that purpose.

As for regular savers I've got 22 at the moment (though one is only open because it lets me pay in by direct debit) and I've found them to be quite low maintenance so worth looking at if they do not want to lock their savings away for any length of time.

If your daughters really don't want to keep money outside of Nationwide, Nationwide offers 2 regular savers at 3% variable, one lets you pay in £200/mth and the other lets you pay in £50/mth. They also offer a triple access account at 1.75%, which would likely be better than the account they've got at the moment.

Albermarle

If your daughters are thinking long-term (5 years minimum) there's always the option of investing. That tends to offer a higher yield in the long term though I must stress there's a strong element of risk involved as they could get back less than they originally invested.

The risk of actually losing money diminishes rapidly with time. After 8 years the chance is only 5% based on average historical statistics and being invested 100% in developed world index trackers. However of course you need to make some gains just to keep up with inflation, so even if you do not make an actual loss, you can still make a loss in real terms. Similar as with savings accounts.