Clueless: may have 42K coming in as a lump sum, what should I do with it?

dyst_2

I'm disabled, and have been on benefits (including means tested) since childhood.  I have had a letter from the council recently, saying that they have charged me care contributions when they shouldn't have (because of section 117), and that they owe me 42K (as it's been over a decade).  Obviously I will have to come off my benefits, but I'm not sure what I do then?  I looked at ISAs, and they have a maximum annual deposit of 20K - what would I do with the rest of it?

eskbanker

The Flowchart - UKPersonalFinance Wiki may be a good place to start?

dyst_2

Thanks - I've always lived within my means, so it's more about how to save etc, but that link is useful in designating an emergency fund as part of it.

refluxer

dyst_2 said:

I looked at ISAs, and they have a maximum annual deposit of 20K - what would I do with the rest of it?

If it's cash ISAs you're considering, then it's worth bearing in mind that you can earn up to £18,570 a year in combined income (salary, pensions etc) and savings interest before you start paying tax so, as cash ISA accounts often pay lower rates of interest than their non-ISA equivalents, they make the most sense if your income is likely to exceed that figure, either currently or in the near future.

MSE's guide to the 'starting rate for savings' is worth a read...
https://www.moneysavingexpert.com/savings/tax-free-savings/

dyst_2

Would it be sensible to put a certain amount into emergency savings, 20K into an ISA, and some into premium bonds?

dyst_2

I suppose I also need to bear in mind that I wont have an income, so I need to be able to access it to live on.

eskbanker

dyst_2 said:

Would it be sensible to put a certain amount into emergency savings, 20K into an ISA, and some into premium bonds?

dyst_2 said:

I suppose I also need to bear in mind that I wont have an income, so I need to be able to access it to live on.

The starting point for any savings plan really needs to be some idea of when the money is likely to be needed, so before thinking about detailed answers like ISAs and premium bonds, it's important to identify what the question is, in terms of your objectives for the money.  For example, how much income do you anticipate needing to draw from it?

Middle_of_the_Road

dyst_2 said:

Would it be sensible to put a certain amount into emergency savings, 20K into an ISA, and some into premium bonds?

Depending on your taxible income you might have no need for ISA accounts.
You could also explore your continued benefit entitlement by posting your situation here-

https://forums.moneysavingexpert.com/categories/benefits-tax-credits

refluxer

dyst_2 said:

Would it be sensible to put a certain amount into emergency savings, 20K into an ISA, and some into premium bonds?

As I mentioned above, if you're a low earner who isn't likely to pay tax, then a cash ISA isn't particularly necessary and would only really make sense if it pays more than a standard savings account.

Premium Bonds are sometimes considered to be a good option for high earners (eg. those who earn >£50k PA) and who know they will exceed their £500 Personal Savings Allowance for savings interest, because the prizes are tax-free. You need to have somewhere approaching the full amount allowed though in order to stand a good chance of achieving a rate anywhere near the official prize rate.

If you're a low earner who isn't going to pay tax, then Premium Bonds are likely to be a poor choice and you'll probably earn more interest in a standard savings account than you will in Premium Bond prizes.

As an example - if you had £20k in Premium Bonds, you would expect to win £675 in prizes every year with 'average luck' (based on next January's prize rate of 4%) which would equate to an effective interest rate of 3.38% - you could win more than this of course, but you could also win less. You can currently get anything up to 4.85% in the best easy access savings accounts.

https://www.premiumbondsprizes.com/#20000

Beddie

dyst_2 said:

Would it be sensible to put a certain amount into emergency savings, 20K into an ISA, and some into premium bonds?

It's as good an idea as any other. It's not worth trying to find the "perfect" solution, so the one you've come up with here works fine. You may or may not win on premium bonds, but if you find after 6 months it's not for you move back into savings - you'll have another £20k ISA allowance on 6th April.

dyst_2

Thanks all. I've just filled in the budget from the mse website, and a monthly income of £798.02 against a total spend of £1668.71, which is a deficit of £870.69 monthly and £10,448.26.  So I will need easy access to the money to live on, I think?