ISA and savings help please

penguin10

Hi - I will soon get a lump sum from my public sector pension, partial retirement  - around £75,000.
I have never had such an amount of money in my life so could someone please guide me what to do with it please?
I will use around £16k for house updates so that leaves £60,000.
I am quite risk averse and would like to always have pretty quick access to my money.
I plan to open an easy access ISA  (A) now and put £20k into it straight away.  Then in April 26 open another one (B) and put another £20k and the same for April 27 (C).
I will consider if its worth changing from A, B or C as time goes on  being mindful to follow guidance about withdrawals etc.
For now though, should I just put the £40,000 into a savings account?  I understand the first couple of thousand interest will be tax free anyway but that anything over and above that will be taxed at 20% at source i.e. I don't need to tell HMRC about my savings . (My pension plus earnings will be approx. £40k per annum).
Am I going along the right path?
Thanks in advance

eskbanker

penguin10 said:

For now though, should I just put the £40,000 into a savings account?  I understand the first couple of thousand interest will be tax free anyway but that anything over and above that will be taxed at 20% at source i.e. I don't need to tell HMRC about my savings . (My pension plus earnings will be approx. £40k per annum).
Am I going along the right path?

Probably - your personal savings allowance is £1K rather than £2K, but the usual recommendation is to maximise net return rather than to try to avoid tax as such, as they're not always the same thing, so consider taxable savings accounts rather than ISAs anyway, not just as a temporary stopgap.

The Flowchart - UKPersonalFinance Wiki offers a structured process to assist you.

penguin10

Great thank you - I will study the flow chart

NorthYorkie

You say " I understand the first couple of thousand interest will be tax free anyway but that anything over and above that will be taxed at 20% at source i.e. I don't need to tell HMRC about my savings .

No! Interest is not taxed at source. You have to declare it to the Revenue and pay any tax due on it. All banks do is report the amount of interest to the Revenue.

Albermarle

NorthYorkie said:

You say " I understand the first couple of thousand interest will be tax free anyway but that anything over and above that will be taxed at 20% at source i.e. I don't need to tell HMRC about my savings .

No! Interest is not taxed at source. You have to declare it to the Revenue and pay any tax due on it. All banks do is report the amount of interest to the Revenue.

You do not have to declare interest to HMRC, unless you do a self assessment tax return anyway and/or the interest is above £10K .
For most people the banks reporting the interest is enough for HMRC to calculate any tax due.

wmb194

NorthYorkie said:

You say " I understand the first couple of thousand interest will be tax free anyway but that anything over and above that will be taxed at 20% at source i.e. I don't need to tell HMRC about my savings .

No! Interest is not taxed at source. You have to declare it to the Revenue and pay any tax due on it. All banks do is report the amount of interest to the Revenue.

To be clear, banks and BS’ report interest earned to HMRC and then HMRC will usually adjust your tax code to collect any tax due.

If things work as they should the OP shouldn’t need to contact HMRC at all.

Albermarle

 am quite risk averse and would like to always have pretty quick access to my money.

On the first point there is actually a risk in keeping all the money as cash savings, if you want it to last for many years. Inflation can erode the real value.
Investments will nearly always give a better return over the long term.

On the second point do you really need quick access to all that money ?

penguin10

Albermarle said:

 am quite risk averse and would like to always have pretty quick access to my money.

On the first point there is actually a risk in keeping all the money as cash savings, if you want it to last for many years. Inflation can erode the real value.
Investments will nearly always give a better return over the long term.

On the second point do you really need quick access to all that money ?

Possibly I don't need access to it all and down the line will perhaps work that out.  But for now I want to know I can get it if I need it.  Totally understand there's more money to be made via other routes.

ToastLady

Very best of luck with your partial retirement.

When I had a large lump sum come in a few years ago, it was quite daunting to know what to do with it. I wasn't expecting it at the time, and hadn't done any planning. In the first instance I stuck it into an easy access account so that it was at least getting interest. Then I started doing my homework, mostly by reading here and putting money elsewhere into a combination of fixed, notice and ISA, as well as keeping an emergency stash in easy access. I've changed things about now and have several years ISA's, a load of regular savers and fixes, plus easy access, and done away with notice accounts for the moment. I've been quite risk averse too and don't have much in stocks and shares, but may well change that in the next tax year. This is no way any strategy for you to follow, as you can easily tell I hadn't a clue to start with, but I have grown more confident nowadays, thanks to the very many helpful people on this forum. Also check https://moneyfactscompare.co.uk/ for the best rates.

Remember there is talk of cash ISA amounts changing in the future, so probably wise to lump £20K in this year, and then see what happens in the future. As others have said, your money may be better in a normal savings account of some sort rather than an ISA. There are comparison figures on the main MSE site to help you make up your mind, which I've copied and pasted below. 
https://www.moneysavingexpert.com/savings/best-cash-isa/

Might I still be better off in normal savings even if I pay tax?

Currently, the answer is no. However, if you did want to check here's a simple method to help you compare. Take the rate on the ISA you're looking at and multiply it by:

- 1.25 if you're a basic-rate taxpayer
- 1.66 if you're higher-rate taxpayer
- 1.82 if you're a top-rate taxpayer

The result of that sum is the rate you need to get on normal savings for it to be the winner. If normal savings don't pay more than that, then you're better off in the cash ISA.

penguin10

Thanks @ToastLady - I hope that once i get over the 'excitement' of having money, I will make better decisions about what to do with it just like you.  

ToastLady

@penguin10 - am sure you will do just fine. At least you can read up on your options and plan ahead. Lots of reading to be done on this forum, just ask questions and the helpful folk on here will give you advice.
Don't think you will need easy access to all this money, as making it too easy to get your hands on, may not be a good thing. Way I looked at it, was how often have I needed to have, say £20,000, today or tomorrow? Think you can guess the answer to myself, but it was never. 
Anyway, hope that you have an enjoyable learning curve, and enjoy your excitement at having your money. All the very best to you.