Student with a lump sum

sukstr

I realise that is unusual for a student to have any money, but my son is expecting to recieve around £20,000 from his Grandmother's will.

My thinking is that he should lock away a good chunk of this in a high interest account of some sort, with the remainder somewhere with relatively easy access (but not too easy).

In addition, I'm working on the assumption that he should certainly take advantage of all student loans and student overdrafts that he qualifies for.

Are my thoughts sound? Any other advice?

many thanks,

DB

Lokolo

Yes take all the loan possible. Even if he doesn't use it he can put it in a savings account which will pay higher than he is having to pay.

Overdraft maybe. If he ends up going to the max in the first year he will find it difficult to pay it all off when he graduates (at which point he will have to pay for it soon after).

The £20k, every year fill up his ISA (£3600 each year) and the rest in a savings account. I assume he doesn't earn over his personal allownace (part time jobs etc.) and so he can claim tax free interest by filling an R85 form in.

Any questions?

louise_1981

where do I get an R85 form, would this already have been actioned on an isa attached to a student account? (ha!, I expect the answer is no! and I have lost 8mths of tax!)

s0198362

http://www.hmrc.gov.uk/forms/r85.pdf

Lokolo

You can claim tax back when you get all your P60s. As long as the amount is less than personal allowance, copy a statement showing interest recieved in the year and you can claim it back.

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/ReclaimingTax/DG_10026651

Read and weep

Also, ISAs automatically don't tax. Its just normal savings accounts that do.

kr15snw

This is a very similar situation to mine. I received 20k a few months ago from my nans will. I have just finished my degree so have my debt now, but I did the following:

4k on new car (me and bf just moved in together, he needed a van for work so I bought a family size car for us to use together and sold my baby corsa)

1k on debt clearing (credit cards + overdraft)

1k on treats (well I had to. New wardrobe of clothes, plus a holiday and some nice things)

14k in premium bonds (just because Ive always wanted to have a go at this so thought why not!)

The 14k will be spent towards a house when me and bf look at moving in together.

I have decided not to touch my student debts yet as the job Im going into is under the 15k mark (starting at the bottom and working my way up!). So I dont have to think about this yet!

Lokolo

How long are you planning on keeping the bonds for? Over 3 years the bond calculator suggests you will win £1000+ (but less than £2,500).

http://www.moneysavingexpert.com/savings/premium-bonds-calculator/

It maybe better to stick money in a savings account for a better return.

cashpoortimerich

I would definitely take the interest free overdraft, but be a little wary on the student loan front. He should only take the loan if he does put it all into a high interest account and pays it back from this account when he finishes uni. Student loan deductions are calculated as a percentage of your total salary, but the deductions themselves are made from the bottom line i.e. AFTER taxes. So to pay back £100 to your student loan takes about £125 of your top line salary. To avoid paying student loan payments from his salary he will have to pay the whole lot back before he starts earning £15k. If he takes the full loan every year and gets a good interest rate on the savings then it's worth it.

It seems that he might not have to get a part time job to support himself, but I would suggest that he does anyway. It's good experience for life (and of course his CV) and it might get him into a good mindset about the value of money.

£20k is a lot of money for a (presumably) young guy to be in charge of, maybe encourage him to split it into allocated chunks to show him that it can't be spent several times over, i.e it won't buy a year off AND a car AND a flat deposit AND be frittered away at £100 a week for the next three years.