Unsure what to do with money

fannyanna · 22 October 2018 at 5:18PM

I've always thought I'm quite sensible with money i.e. we have a budget which I generally stick to and we save money every month.

What I am not however is savvy when it comes to money, specifically how to manage savings (and no idea when it comes to investments).

With our main savings we've now built up circa £50k. There's no real purpose behind these savings. Our other savings accounts have a clear purpose i.e. birthdays, Christmas, car maintenance, annual insurance premiums, holidays etc so we dip into these account fairly regularly and I'm therefore not too worried about the interest rate - I value the easy access.

But the £50k is a different matter. I don't need this to be easily accessible as there is no clear purpose. In my mind this will be used to clear our mortgage at some point (although I'm still unsure and therefore not actually comfortable committing making overpayments into the mortgage at the moment - currently balance circa £150k, 29 year term, rate @ 1.64% and payments low at £540).

So I'm now thinking I should try and be a bit more savvy with the £50k until we decide how to use it. But I'm at a complete loss. I'm quite conservative and am wary of investments because I know we could lose the money - although I know it's about selecting the right kind of investment.

So I guess my question is, if you had £50k what would you do with it? Other than spend it lol.

MaxiRobriguez · 22 October 2018 at 5:26PM

How old are you? Someone younger and far away from retirement age has more options and flexibility than someone who's closing in on the 3PM G+T's. It's difficult to offer any guidance without knowing your background.

At 3.3% mortgage though, I'd probably use a chunk if not all of the £50k to overpay on the mortgage if you can do so without it costing you, especially if you're quite conservative and not comfortable in taking on more riskier investments. It's an easy win if you don't need the cash.

More details though and can provide more guidance.

AnotherJoe · 22 October 2018 at 6:02PM

I agree, 3.3% tax free is a great savings rate, I'm a big proponent of putting more into pensions, but thats a very high mortgage rate I'd suggest you pay a good chunk off. You may be able to pay enough off to get to a lower LTV and thus when you next remortgage, get lower rate as well, double whammy.

fannyanna · 22 October 2018 at 6:15PM

Quick answers for now whilst I have a couple of minutes (will review in more detail later when I have more time) - I'm 33 and between me and employer I have 15% going into my pension each month.

Thank you for the responses so far. Much appreciated!

MaxiRobriguez · 22 October 2018 at 6:42PM

15% a month is a good enough sum that you don't necessarily need to do anything else with that (apart from ensuring your funds are in appropriately risked asset swithin the pension platform). Sounds like you're on a defined contribution pension too which means you won't be able to access any money that goes into until you're 55. So really, I wouldn't put anymore than you are doing into there, it's good as it is.

Which you leaves you alternative investment options of:
1) Equity funds/shares in a more easily accessible wrapper, which historically gives you greater growth potential but equity risk is quite high now due to relatively high valuations - lots of people are building cash reserves as protection against prices falling.
2) Bonds, but are a quite risky proposition given current bank rates - rates can't really go down from where they are, and if they go up, your bond (unless index-linked, which are more expensive) value will fall in price.
3) Property, but Brexit.

You've got an easy 3.3% win by paying off a chunk of mortgage and it's practically risk free. You pretty much can't beat that with bonds at the moment. Equities may beat that but you're introducing more risk to the original capital.

Make sure you keep a few months worth of cash in the bank just in case of emergencies.

xylophone · 22 October 2018 at 7:16PM

Consider £30,000 off the mortgage and open a stocks and shares ISA with the balance?

Contribute the amount you are no longer paying to the mortgage to the ISA regularly in the new tax year?

Below might be worth a look.

https://www.vanguardinvestor.co.uk/investing-explained/stocks-shares-isa?cmpgn=PS0617UKPABIS0001&gclid=EAIaIQobChMIp

http://monevator.com/using-vanguard-lifestrategy-funds-life/

kidmugsy · 22 October 2018 at 10:31PM

fannyanna wrote: »

With our main savings we've now built up circa £50k. There's no real purpose behind these savings.

Is either of you a higher rate taxpayer?

Can you explain why your mortgage is so expensive? Does it bring some advantage such as a long term fix? How much can you overpay without penalty? Are you wise to ignore the interest rates you get on your other savings pots?

LHW99 · 23 October 2018 at 8:49AM

Does your OH have a pension?

fannyanna · 23 October 2018 at 10:45AM

Sorry for any confusion but noting the comments about the mortgage rate I've just double checked and had referenced the 3.3% APRC. The current rate is actually 1.64% fixed until March 2019 (and I'll switch at that point to avoid reverting to the SVR).

I'm a higher rate taxpayer - my husband is not. He does have a pension with contributions from his employer.

There are no limitations to the amount we can overpay our mortgage.

We initially took the mortgage out over a long term so that our monthly repayments would be low and manageable (we had renovations to do etc) and I guess we've just stuck with it.

MaxiRobriguez · 23 October 2018 at 11:15AM

In which case you consider:

1) Pay £20k into S&S ISA now, and another £20k in the new financial year.
2) Pay off any student loan remaining if as I suspect you've got <£10k left.
3) Sacrifice more of your salary to your pension (if possible to bring it up to 20%) to benefit from the tax-free nature of it. This might be a £200-300 a month, and if you've got any immediate commitments this year to pay you case use money leftover from 1/2 to bridge the gap.

I wouldn't bother paying off the mortgage at 1.6% with a deal that is expiring in March 2019. What you might want to consider with that one is how long you will stay in your current house and therefore how long you can fix your next mortgage for. Interest rates over the next few years will rise.

fannyanna · 23 October 2018 at 11:29AM

I'll look into a S&S ISA.

Neither of us have a student loan. The only debt we have is our mortgage.

When we bought our house we considered it our forever home. Obviously we might change our mind in the future but for now I can't see us moving any time soon.

Thanks for all the input.

Unsure what to do with money

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