Inheritance - Best Savings Combination?

samhew1980 · 16 July 2018 at 1:24PM

Hi
Thanks in advance for reading! I'm new here!
I'm due to get an inheritance in the next few weeks and am looking for advice/opinions on the best savings combinations I could have to get most benefit.
I went round the banks on the weekend and feel more confused for it!
I'm happy to squirrel some money away in a fixed term account for more benefit; but also want an easy access option.
Also wondering how you work out whether the savings accounts are the best option or whether I should over-pay a chunk off the mortgage? All advice appreciated.
Inheritance should be roughly £50k (after I've paid off other debts excluding my mortgage) Mortgage has 27 yrs left; £159k left to pay; 61% loan to value. Re fixed for 5 yrs in November 2016 at 2.1%
Thanks in advance

kidmugsy · 16 July 2018 at 3:23PM

It all depends on your priorities. For example suppose you'd like to open the possibility of a cheaper mortgage in 2021 by reducing your LTV to 50%. Assuming your house value doesn't change, you'd want to knock nearly £30k off the loan. So either save £30k in a suitable way or start the process by overpaying: how much are you allowed to overpay per annum?

One good temporary home for part of your money might be the Santander 123 current account. It costs a fee of £5 per month but pays interest at 1.5% AER on up to £20k, gives you cashback on your bills (which for most people will probably exceed the fee), and gives you access to their regular saver paying 5% AER. A FlexDirect C/A at Nationwide will pay 5% on up to £2,500 and also give you access to a 5% AER regular saver. In fact you should look here:
https://forums.moneysavingexpert.com/showthread.php?t=5868889

Now, for the longer term - do you contribute enough to a pension to get the max employer contribution? Can you contribute by salary sacrifice (aka salary exchange, smart pension, ...)? Are you a higher rate taxpayer?

If "yes", "no", and "no" you might instead consider S&S ISAs. If you are under 40 consider opening a LISA, perhaps with a nominal sum - that would keep the option open until age 50.

samhew1980 · 16 July 2018 at 9:00PM

Thanks so much for your reply! All good things to think about! Really helpful for someone as clueless as me!!

ValiantSon · 16 July 2018 at 10:44PM

kidmugsy wrote: »

One good temporary home for part of your money might be the Santander 123 current account. It costs a fee of £5 per month but pays interest at 1.5% AER on up to £20k, gives you cashback on your bills (which for most people will probably exceed the fee), and gives you access to their regular saver paying 5% AER.

I'm not one of those wholly opposed to Santander 123, but the fee is quite high, and with the interest rate now only at 1.5% (rather than the happy days of 3%) it is a less surefire winning choice. Many have downgraded their accounts to Santander 123 Lite, which pays the same cashback, but only costs £1 per month. While it doesn't pay any interest, the OP might still be better of with an easy access account for the savings element. You say that, "most people will probably exceed the fee" from cashback, but I'm not so comvinced; £5 is actually quite a high hurdle to get over with the cashback, and is most likely met only by those with high bills and/or a Santander mortgage. Every penny short of £5 in cashback erodes the 1.5% interest rate. To illustrate the point, if you earn £4 cashback per month, then the account is effectively costing you £12 per year. If we assume the maximum holding of £20,000 in the account, then the interest earned is £300 minus £12, which equals £288. £288 return on £20,000 is 1.44%, so it still beats the best easy access account, but if that cashback drops to £3.00, then the return becomes £300 minus £24, which is £276, so 1.38%, and the best current easy access rates are at 1.35%. Clearly, you need to be earning a high level of cashback to fully benefit from the interest rate.

The above, however, doesn't take into account the potential greater gain from Santander 123 Lite that results from the lower fee. Let's say that cashback earned is £4 per month. In the 123 account this costs you £12 per annum, but in the 123 Lite you earn £36. Now, if you have the 123 Lite, and an easy access account at 1.35% on £20,000, your combined return would be £306, i.e. £18 more than in the 123 Account! If you want to look at it as a per centage return on £20,000 across the two accounts, then it is 1.53%.

Of course, the logical conclusion of this is that, actually, the 123 account makes less sense no matter what the amount of cashback earned. For the sake of argument, let's say you do really well and get £7 per month cashback. In the 123 account you would get a total return of £324 (1.62%), but with 123 Lite and easy access, you would get a total return of £342 (1.71%).

The 5% regular saver is also still available to 123 Lite customers too.

kidmugsy wrote: »

A FlexDirect C/A at Nationwide will pay 5% on up to £2,500 and also give you access to a 5% AER regular saver. In fact you should look here:
https://forums.moneysavingexpert.com/showthread.php?t=5868889

Agreed, the FlexDirect account is a good option, but the OP needs to bear in mind that this is only really of value for 12 months (for holding a sum of cash), as the rate reduces to 1% after that. The account is still worth keeping after 12 months - for access to the regular saver - but not for holding any cash in, as 1% is very easily beaten.

DiggerUK · 17 July 2018 at 10:34AM

You would be best served, in both long and short term, by killing the mortgage, possibly the biggest debt you will ever have.

The downside is that you won't be able to buy a Porsche. The upside is that you won't have it in risk bearing investments, or inflation slaughtered savings accounts. Neither will you have to run the risk of having to finance higher interest repayments......I believe there is a little chance of reduced mortgage rates going forward.
Check your deal to see when it is best to make overpayments, or lump sum payments..._

Edit, I would not go rushing to buy too much gold just yet, you can exercise such an option in future years

Terry_Towelling · 19 July 2018 at 3:12PM

If you did want to use it to pay off some of your mortgage and you didn't want a lot of faff with regular savers and high-interest current accounts, you could put it into a 3 year fixed-rate account paying around 2.66% (many providers). This would net you more in interest than you would be paying on an equivalent £50K slice of your mortgage. It would also more or less coincide with the end of your 5-year low-ish-rate fix and allow you to keep your options open if you found something else you'd prefer to do with the cash at that point instead of paying down the mortgage with it.

Of course, if you feel you would need to have some cash readily available you could indeed keep that portion in an easy-access account (and perhaps recycle it into independent easy-access regular savers - like Virgin) and put the rest into the fixed-rate account.

These options may cause some issues if you go over your tax-free interest allowance.

How about investing some in a pension? You won't be able to get at it until age 55 (or a bit later depending how old you actually are) but there are tax-relief benefits. If your alias is anything to go by you are 38 years old, so it will be locked away for a fair few years but that is plenty of time for growth and many years of tax-relief for regular annual contributions.

Inheritance - Best Savings Combination?

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