Where to put 45k

ruthshaw2206

I’ve I’ve just been given 45k. 

It has a specific purpose to help pay off my mortgage which is around 90k right now. 

However, its fixed rate at 1.67% until Jan 2026 so am I right in thinking it wouldn’t be wise to pay any off now? I know I can only pay so much off anyway with it being fixed rate. 

So is my best option to pop it in a 2 year fixed saver (smart save looks to be highest right now)
Or should I pay some of the mortgage off and save some? 

It’s a lot of money for us but it has a very specific purpose. 

We could probably add another 100 a month to it too if there was a regular saver that was better for it? 

Thanks for any help 

pjcox2005

Savings accounts: 3.2% easy access or up to 4.51% fixed (moneysavingexpert.com) could be a useful place to start.

Looks like you can get 4.56% so extra cash of c.£1,250 per year if you were to put it in a fixed savings account. You'll have to do own reading up to check they've all got the protection cover if the bank failed but i expect so. NS&I may also be worth looking at for their savings accounts.

If you can't risk losing it and planning on using the money in three years then investing is probably not the answer.

badmemory

Make the max overpayment you can now & find an account that gives you a higher rate.  That way you won't pay penalties.  Put some in one year re overpayment allowance without penalty & the rest in 2 yr.  I'm sure someone will be along soon to get it spot on.

Cressida100

Premium bonds? You then have the fun of checking the app every month to see if you've won anything. I've done pretty well on mine now the prize fund has changed. I believe you can withdraw your monies with 3 days notice and any winnings are tax free. 

tony_1

You may have to pay tax on that amount in a 2 year fix , depending on your earnings .

Best to check both your thresholds etc.

Perhaps one fixed acc each and some in fixed ISA each ?

Worth doing the sums to get best return and not getting hit for tax on savings

ruthshaw2206

badmemory said:

Make the max overpayment you can now & find an account that gives you a higher rate.  That way you won't pay penalties.  Put some in one year re overpayment allowance without penalty & the rest in 2 yr.  I'm sure someone will be along soon to get it spot on.

So is this still going to save more than putting it in a higher rate interest account paying off some of the low rate mortgage?

lohr500

I would first establish what the maximum annual or total amount is that you can pay off early without penalties and what the penalties would be if you did want to pay off more.
And how many more years do you have left on the mortgage?

The big unknown is what the mortgage rate will be at the end of your January 2026 fix. I am no financial expert, but if the rates are likely to be much higher, then I'm presuming it would be better to reduce the £90k by as much as possible before January 2026.

Albermarle

pjcox2005 said:

Savings accounts: 3.2% easy access or up to 4.51% fixed (moneysavingexpert.com) could be a useful place to start.

Looks like you can get 4.56% so extra cash of c.£1,250 per year if you were to put it in a fixed savings account. You'll have to do own reading up to check they've all got the protection cover if the bank failed but i expect so. NS&I may also be worth looking at for their savings accounts.

If you can't risk losing it and planning on using the money in three years then investing is probably not the answer.

All savings accounts listed on the MSE website are fully covered with the £85K FSCS compensation limit.

pjcox2005

ruthshaw2206 said:

badmemory said:

Make the max overpayment you can now & find an account that gives you a higher rate.  That way you won't pay penalties.  Put some in one year re overpayment allowance without penalty & the rest in 2 yr.  I'm sure someone will be along soon to get it spot on.

So is this still going to save more than putting it in a higher rate interest account paying off some of the low rate mortgage?

No, on a purely maths basis you are better of putting it in a savings account if the interest rate is higher than your mortgage interest rate. That will make you more money than overpaying your mortgage. Plus it gives greater access to money should circumstance change.

Some though prefer the emotional feeling of paying down a mortgage earlier, particularly if you may be tempted to spend your savings on other things, plus those savings could limit benefits available if circumstances changed e.g. unemployment.

AndyW79

Reduce the mortgage at all cost as the compounding is higher for the longer term loan as it builds over the years plus the fees and you can get exposed in 2026 to the unknown. It might seem that you are better off but do the exercise in excel and validate if it’s worth it.

retiringtoosoon

Pension is the right answer