Where to save proceeds of house sale pending another purchase?

randompenitent

Recently retired, considering downsizing. This may involve renting for a period in-between selling our current home and buying something new which raises the question of where to put the proceeds of the sale in the interim. Since the amount would be a significant multiple of the FSCS limit, splitting the sum between a number of savings accounts seems sensible but sounds fiddly. What have others done? Any recommendations?

daveyjp

National Savings direct saver.  100% deposit protection, but interest isn't table topping,

TheBanker

https://www.fscs.org.uk/making-a-claim/claims-process/temporary-high-balances/

FSCS will cover balances of up to £1m for up to six months where they relate to a real estate transaction. So depending on how long you're planning to rent for, you may not need to split the money. And even if you do, no need to do it immediatly.

You're right that splitting the money can be a pain - obviously the more money you have, the bigger the pain! I would probably put £80k with each of the banks offering top rates (checking they're not in any way linked or sharing FSCS cover) then put the remainder in National Savings, accepting it wouldn't generate as much interest.

Also worth checking your tax position - may be worth putting some of it in a Cash ISA depending on whether you have an allowance available and whether you'd' be liable for tax on the interest.

TheBanker

The other option might be to look at a platform like Hargreaves Lansdown Active Savings. You can open accounts with multiple banks, each of which has their own FSCS cover, but they're all opened and managed through the HL platform which can make life a bit easier. The rates are not market leading but it may be worth giving up some interest for the convenience factor. They've got Easy Access accounts as well as 6, 9 and 12 month fixed rates so if you know you won't be buying a new house for at least six months there's a chance to earn a bit more interest.

TheBanker

And sorry for the third reply! You said 'our house'. Remember that the £85k is per individual, so if you use joint accounts you will be covered upto £170k, which would reduce the number of accounts needed. 

Band7

If you like a bit of a flutter, and if you don't have them already, you could also consider parking £50k each in Premium Bonds.  

cwep2

Would be good to know the ballpark amount you are talking about as it makes a difference.
Assuming it is somewhere between £85k and £1mio, so above the 'normal' FSCS limit but below what is protected for up to 6 months in your situation:

1. Worth having more than one savings account anyway, although the FSCS aim to pay the guaranteed amount within 7 days, if you are relying on that money during that time, having a second account with £10k in it would cover short term needs *just in case*. Two accounts would be sufficient for this, I'm not advocating having 5-10.
2. Best rates are moving a lot at the moment, and the have a Bank of England interest rate hike expected today so things are likely to change again in the next week. Any advice on the best rate may go out of date quickly.
3. Some banks are near the top of the table almost all the time, Chip (the current top payer) in particular seems to react quickly to maintain it's top spot, having said that, 6 months ago it was Al Rayan doing the same thing and now they're not.
4. A lot of the top payers will have an 85k limit on how much you can deposit, the MSE tables normally give an upper limit. This means you may need to split the money anyway. Chip's upper limit is £250k, Shawbrook is £85k, Cynergy is £1mio (the current top 3).
5. Many banks will require you to use an App, some will be online/app only, there are not many household names within 0.5% of the top rates.
6. Most guides concentrate on 'up to 85k' because many consider it irresponsible to put more in one place when you can be 100% safe by splitting it up into £85k chunks, for 6 months your situation is different to most - but in 6 months if you haven't purchased a new property you might want to divvy things up again.

What I'd recommend for higher amounts right now is the Virgin Money private savings account. This normally doesn't appear on lists because for much of the time it doesn't work out best for up to £85k - it works out better than Chip for anything >£86,500 at the moment, and gets significantly better at £500k+.

There is a monthly fee of £25 to have their private current account (required) but you get travel insurance thrown in, you don't have to use this current account though or move your banking here. The Private Savings account which you can then set up pays the Bank of England rate -0.25% (gross) on amounts between £0-499,999, it pays the BoE rate for amounts between £500k-1mio and BoE rate +0.25% for £1mio+. Currently the BoE rate is 4.25%, so you get 4% gross, (up to £500k) which equates to 4.06% AER.

The BoE rate is expected to go to 4.5% today, and if that happens then this will beat the best 'normal' savings account for anything over £51k approx. but of course we may see others increase rates as well.

Some sums to illustrate:
Current rates (Chip 3.71% AER, VM 4.00% gross)
on £85k for a 30 day month, Chip pays £254.89, VM pays £279.45, charges £25 leaving you with £254.45 net.
on £250k for a 30 day month, Chip pays £749.67, VM pays £821.92, charges £25 leaving you with £796.92 net. 
on £500k* for a 30 day month, 2 Chip accounts pay £1499.34, VM pays £1746.58, charges £25 leaving you with £1721.58 net.
Note on 500k this is almost £250 per month better off.

*Chip max deposit in 250k, assuming you had two accounts open if you have a partner and they opened one also. Otherwise a second account somewhere else paying a bit less.

If BoE raises rates by 0.25% today then VM will be even better but obviously we can't make assumptions about what happens elsewhere, but it does mean BoE rate rises are passed on very quickly and you are not waiting for banks to react which can take weeks.

An alternative would be a Money Market Fund, but this doesn't work in the same way as a savings account, there are various threads on these forums about MMFs. I would add that the VM account beats these for over £500k, but MMFs are comparable and maybe slightly better for 0-£500k. There are dealing charges and it's slower to move money from/to.

It goes without saying that there are also tax implications and you should probably put some in an ISA to avoid paying tax on interest, but this will be limited to £20k per person per tax year. You also may like to consider which name you put this money in if there are two of you on different tax rates or whether you wish to split the money between two of you, again if you have a partner.

randompenitent

Thanks all. Very useful. I didn't know about NS&I Direct savings, nor was I aware of the £1M temporary FSCS limit for proceeds of property transactions. And the H&L Active Savings looks worth investigating too.

TiVo_Lad

randompenitent said:

...nor was I aware of the £1M temporary FSCS limit for proceeds of property transactions.

Be careful with this. The "Temporary High Balance" protection is not automatic, unlike the standard £85K which normally pays out in a week or so. Payment under temporary high balance protection is at the sole discretion of the scheme and may take several months to pay out, if at all. The "rules" are also somewhat opaque as different people on this board have been told different things by the FSCS.

I am in the exact same position as you and decided that I was not prepared to take the risk of THB not paying out, and have split the proceeds across a number of accounts. It's been a bit of work keeping up with increasing rates, requiring money to be moved around, but it's ultimately to my benefit.

One word of advice though. When you move, it takes 2-3 months for the credit reference agencies (that support the "Know Your Customer" checks) to catch up with your move, even if you register to vote at your new address on the day you move in. As a result, you'll probably fail a lot of automatic KYC checks during that time because they won't have your new details on file. Some organisations refuse to open an account point blank, while others require various forms of ID to be sent in. It is a faff, so if you can get ahead and open the accounts BEFORE the move, it'll save you a bunch of hassle.

Bigwheels1111

I’ve split my house sale money into several accounts.
I do not plan to buy for over 5 years.
So took out 5 year fixed rate accounts @ 5%, 4.85%, 4.5%, 4.4% and another 4.4%.
Plus emergency fund in Chip for instant access @ 3.71%.
I don’t pay tax so will get a great income for 5-7 year.

fourmarks

I'm a few months into this process and one thing I would do differently would be to start opening multiple savings accounts (with small deposits) before I actually move. If you do it after you move, using your new rental address, then some of the banks/building societies etc, will seem to believe that you no longer exist and make it harder (driving licences/passports/bills) to open simple accounts. You'll find yourself opening and closing and opening thousands of the little devils so you want each process to be as simple as possible. Most banks etc are fine but inevitably a couple will drive you mad.

Also, when you start farming out large sums of money, the computers will probably throw a fit and lock you down. For what it's worth I would give the banks fraud section a heads up about what you are going to be doing.  In reality that won't stop your account being frozen but it may help when you have to ring up and ask for your ball back.

Good luck.