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  • FIRST POST
    • Jon12345
    • By Jon12345 2nd Jul 18, 3:58 PM
    • 93Posts
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    Jon12345
    £40K sitting in non-interest bearing account
    • #1
    • 2nd Jul 18, 3:58 PM
    £40K sitting in non-interest bearing account 2nd Jul 18 at 3:58 PM
    What to do with it? I think I should be earning some interest, before inflation whittles it away!

    Jon
Page 1
    • Terry Towelling
    • By Terry Towelling 2nd Jul 18, 4:18 PM
    • 706 Posts
    • 564 Thanks
    Terry Towelling
    • #2
    • 2nd Jul 18, 4:18 PM
    • #2
    • 2nd Jul 18, 4:18 PM
    Well, what are you waiting for?

    High-interest current accounts plus linked regular savers (Nationwide FlexDirect at 5% for example).

    Some 'unlinked' regular savers too (Virgin at 2.25% perhaps)

    How about some 1 year fixed rate accounts? (a few available paying between 1.8 and 2%)

    What about a notice account? (Paragon 120-day paying 1.66%).

    Have you thought about paying something into a SIPP/personal pension for the tax relief? We don't know your personal circumstances to know if this is suitable for you.

    Do you have a mortgage? Perhaps some overpayments on that?

    S&S ISA?

    Spend it all on sweets?

    There are many options open to you
    • kidmugsy
    • By kidmugsy 2nd Jul 18, 4:30 PM
    • 12,082 Posts
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    kidmugsy
    • #3
    • 2nd Jul 18, 4:30 PM
    • #3
    • 2nd Jul 18, 4:30 PM
    Spend it all on sweets?
    Originally posted by Terry Towelling
    Do they still make rum & butter toffees?

    But seriously, if you can't be fagged searching for suitable interest rates just bung it all into Premium Bonds before the end of the month.
    Free the dunston one next time too.
    • Brynsam
    • By Brynsam 2nd Jul 18, 7:41 PM
    • 1,684 Posts
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    Brynsam
    • #4
    • 2nd Jul 18, 7:41 PM
    • #4
    • 2nd Jul 18, 7:41 PM
    Click on the 'banking and saving' tab at the top of this page for plenty of ideas on where to invest.
    • Terry Towelling
    • By Terry Towelling 2nd Jul 18, 7:48 PM
    • 706 Posts
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    Terry Towelling
    • #5
    • 2nd Jul 18, 7:48 PM
    • #5
    • 2nd Jul 18, 7:48 PM
    Do they still make rum & butter toffees?
    Originally posted by kidmugsy
    They do! You can even get gluten free ones.

    If OP can provide a bit more background, some more informed comment could be provided (not necessarily by me, though)
    • Jon12345
    • By Jon12345 3rd Jul 18, 11:16 AM
    • 93 Posts
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    Jon12345
    • #6
    • 3rd Jul 18, 11:16 AM
    • #6
    • 3rd Jul 18, 11:16 AM
    Thanks for the great ideas so far!

    Some more info...? Well, I already have £20K stored in a Santander account because they had a good interest rate at the time, so long as I keep paying £500 pm in there. I have one ISA with Virgin. I have a Virgin savings account with perhaps £15K in it.

    In my business account, I have about £20K just sitting there. I want to keep maybe £5K there for expenses, but it is such a waste having £15K of it earning nothing!

    With the pensions nowadays, can you draw out 100% at any time? I have no idea what is going on with the pension thing nowadays, as they have changed the rules so many times.
    Last edited by Jon12345; 03-07-2018 at 11:19 AM.
    • Terry Towelling
    • By Terry Towelling 3rd Jul 18, 12:21 PM
    • 706 Posts
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    Terry Towelling
    • #7
    • 3rd Jul 18, 12:21 PM
    • #7
    • 3rd Jul 18, 12:21 PM
    Do you have any pension provision beyond the state pension? That definitely seems like something you need to research.

    Yes, it will be possible with some schemes to pull the whole fund out at once but only 25% of it will be tax free. The rest will be taxable as income subject to the normal allowances and tax bandings. There is a process, known as UFPLS (Uncrystallised Funds Pension Lump Sum) which lets you draw income where 25% of each withdrawal is tax free and 75% is taxable - again this will be scheme-dependent.

    Beyond the above I am neither qualified nor in possession of enough information to advise you on pensions. Others will hopefully step in but they too will need to know more about your current pension arrangements.

    Is the £15K your money or does it belong to the business? Either way, it is a waste for it not to be earning anything. Presumably, if it is business money then any interest earned will belong to the business unless you withdraw it and then there may be tax implications. Once again, I am not qualified to advise and I don't know how your business is set up.

    Mortgage?

    There are some very knowledgeable people on this forum and I hope they will be along soon to offer something more useful.
    • kidmugsy
    • By kidmugsy 3rd Jul 18, 12:38 PM
    • 12,082 Posts
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    kidmugsy
    • #8
    • 3rd Jul 18, 12:38 PM
    • #8
    • 3rd Jul 18, 12:38 PM
    Yes, it will be possible with some schemes to pull the whole fund out at once but only 25% of it will be tax free. The rest will be taxable as income
    Originally posted by Terry Towelling
    Mind you, only if you are 55 or older, or are so ill as to be at death's door.
    (My instinct is that the OP hasn't reached 55; I may be entirely wrong.)
    Free the dunston one next time too.
    • Jon12345
    • By Jon12345 4th Jul 18, 11:54 AM
    • 93 Posts
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    Jon12345
    • #9
    • 4th Jul 18, 11:54 AM
    • #9
    • 4th Jul 18, 11:54 AM
    I am close to 55. No mortgage.

    Business is as a sole trader so leaving it in or drawing it out doesn't really affect the tax implications. There is no corporation tax.

    As daft as this sounds, premium bonds seem like a good short term option. I that gives me say £30pm interest on average if I pay in some money from various sources. Currently I am getting nothing. I want to keep the money relatively liquid so I presume premium bonds can be cashed in pretty quickly.

    I will also check out the pension option, as if I can draw on that more tax efficiently, it might be worthwhile.
    • enthusiasticsaver
    • By enthusiasticsaver 4th Jul 18, 12:21 PM
    • 7,288 Posts
    • 16,021 Thanks
    enthusiasticsaver
    What you do with the £40k depends on how accessible it needs to be, your attitude to risk and willingness to spend time researching and the eventual aim for the money. At the moment it is being whittled away by inflation so it will be worth less in a few years time. Earning a return on it will minimise the loss.

    If it needs to be readily accessible and you don't want to spend time opening up lots of high rate current accounts and regular savers and comply with funding requirements then premium bonds or national savings are easily accessed and earn some return.

    If you are willing to open higher rate current accounts like TsB, Nationwide, Tesco, lloyds vantage and Bank of Scotland plus regular savers you could get most if not all of the £40k in accounts earning 2% or 3%. This involves setting up payments in monthly and most of them now ask for direct debits to be set up.

    Pensions and investments are another option and certainly pensions are the most tax efficient. If you don't already have one you could open A SIPP and benefit from HMRC topping up your payments by 25%. You can access this after 55 but you need to decide which funds and platform to invest in and it will not be instantly available although you can hold cash within a SIPP.
    Debt free and mortgage free and early retiree. Living the dream

    I'm a Board Guide on the Debt-Free Wannabe, Mortgages and Endowments, Banking and Budgeting boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Any views are mine and not the official line of moneysavingexpert.com. Pease remember, board guides don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com
    • Terry Towelling
    • By Terry Towelling 4th Jul 18, 1:04 PM
    • 706 Posts
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    Terry Towelling
    Premium Bonds may give you some small prizes, or some large ones, or even the top prize but, equally, you may get nothing and you don't get anything until they've been invested for a full month. Probability and chance are separate things. Statistical Probability says you may expect to get X% in return but chance says you could get something or nothing at all.

    If you want certainty you'd be better off with a simple easy access account paying about 1.3%pa or a notice account paying 1.66%.

    Putting some in a SIPP to get the tax relief is an option but it may mean the cash is not fully accessible at once - and certainly not until you are 55. Although it seems like an easy way to get cash from HMRC, it may not be worth quite that much because you will likely have to pay tax on anything after the 25% TFLS - and you certainly won't want to draw it all out within the 1st year due to the high closure penalty at that point.

    So, probably the best for speed, ease of access, a guarantee of a return and no faff is the good old simple savings account.
    • kidmugsy
    • By kidmugsy 4th Jul 18, 3:55 PM
    • 12,082 Posts
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    kidmugsy
    Premium Bonds may give you some small prizes, or some large ones, or even the top prize but, equally, you may get nothing
    Originally posted by Terry Towelling
    Once you've got £40k-£50k invested you can expect a roughly steady stream of small monthly prizes, a tax-free 1.20 -1.25% p.a.

    The prize fund pays out 1.4% p.a. so the other 0.15% or so goes on the bigger prizes. The chance of the OP winning one is remote.
    Free the dunston one next time too.
    • Terry Towelling
    • By Terry Towelling 4th Jul 18, 5:29 PM
    • 706 Posts
    • 564 Thanks
    Terry Towelling
    Once you've got £40k-£50k invested you can expect a roughly steady stream of small monthly prizes, a tax-free 1.20 -1.25% p.a.

    The prize fund pays out 1.4% p.a. so the other 0.15% or so goes on the bigger prizes. The chance of the OP winning one is remote.
    Originally posted by kidmugsy
    There is that word again - 'Expect'. Long ago, when £20K was the max and then £30K and the prize fund rate was higher, I had the full quota of bonds. I got a reasonable number of small wins (£50 min in those days) and a couple of slightly bigger ones over the course of 12 months and then they just stopped coming over the second year. Eventually I got fed up and cashed them all in.

    Many people have reported this phenomenon of early wins and then nothing. If there is no 'fix' in the Bonds system (surely not) then this just goes to show that 'probability' (or 'expectation' if you prefer) and 'chance' are different animals and you just cannot rely on them unless you have above average luck - there's another one of those words, 'luck'; some people have it, some people don't: that's the nature of the beast.

    Another thing about averages is that it is sometimes rare for the average to ever occur. Often there is a considerable spread above and below but nothing on the average. Bonds will be no different and some people will get much more than expected and others will get less.

    Thinking about it, 1.25% (if you get it) isn't so bad but it isn't as good as a guaranteed 1.3% easy access account or a 1.66% notice account. Perhaps the only benefit then is if your interest will be taxable then a Bond win would be preferable because it attracts no taxation.
    • eskbanker
    • By eskbanker 4th Jul 18, 7:57 PM
    • 8,458 Posts
    • 9,586 Thanks
    eskbanker
    Another thing about averages is that it is sometimes rare for the average to ever occur. Often there is a considerable spread above and below but nothing on the average.
    Originally posted by Terry Towelling
    ....which gives me the chance to wheel out my favourite example of the quirks of averages, namely that the average human being has almost exactly one breast and one testicle (and most wouldn't be mad keen on meeting that in a club!)

    And of course the vast majority of the human race has an above-average number of legs, as very few have exactly 1.99999999999999

    However, picking up on kidmugsy's point, a maximum holding for a significant period of time will naturally tend towards the (mean) average return, whereas smaller holdings, or smaller time periods, will intrinsically involve more volatile returns. If I could remember enough from my stats course from many moons ago, the answer will involve standard deviation....
    • Terry Towelling
    • By Terry Towelling 4th Jul 18, 8:35 PM
    • 706 Posts
    • 564 Thanks
    Terry Towelling
    ....which gives me the chance to wheel out my favourite example of the quirks of averages, namely that the average human being has almost exactly one breast and one testicle (and most wouldn't be mad keen on meeting that in a club!)

    And of course the vast majority of the human race has an above-average number of legs, as very few have exactly 1.99999999999999

    However, picking up on kidmugsy's point, a maximum holding for a significant period of time will naturally tend towards the (mean) average return, whereas smaller holdings, or smaller time periods, will intrinsically involve more volatile returns. If I could remember enough from my stats course from many moons ago, the answer will involve standard deviation....
    Originally posted by eskbanker

    I think I met that person when I was at college!

    I can't remember (and haven't looked it up) but doesn't the premium bonds website suggest that people with average luck and the maximum holding should expect to win 12 or 13 prizes a year? (I think that applied in the days of the £30K max holding). Perhaps it should also say that such expectation is most likely to be observed in the longer term - i.e after several years (as you stated, Eskbanker). Is it perhaps a little improper of NS&I to suggest it is likely from the outset? (if it still does, that is).
    • DrEskimo
    • By DrEskimo 4th Jul 18, 9:14 PM
    • 295 Posts
    • 215 Thanks
    DrEskimo
    If I could remember enough from my stats course from many moons ago, the answer will involve standard deviation....
    Originally posted by eskbanker
    As a statistician, I am more than happy to bore you with a deeper explanation of a standard deviation...

    But yes you are spot on. The standard deviation will give you a good idea of the spread of the data around the mean. Assuming the data follows a Gaussian distribution (so called 'normal' or 'bell-curve'), approximately 2 S.Ds above and below the mean will include approximately 95% of all your data points.
    • DrEskimo
    • By DrEskimo 5th Jul 18, 12:15 AM
    • 295 Posts
    • 215 Thanks
    DrEskimo
    Premium Bonds may give you some small prizes, or some large ones, or even the top prize but, equally, you may get nothing and you don't get anything until they've been invested for a full month. Probability and chance are separate things. Statistical Probability says you may expect to get X% in return but chance says you could get something or nothing at all.
    Originally posted by Terry Towelling
    Sorry to be pedantic, but it almost certainly is not equally likely...With any given holding over any given time frame the probability of getting a none, a small or a large prize is certainly not equal. On a large holding (say £50k), it's highly likely that any given month you will win a small amount, very unlikely you will win nothing, and extremely unlikely you will win any big prizes.
    Likewise, with a small holding, it's highly likely you will see no winnings, a small chance of a small prize, and again an extremely small chance of a big prize.

    Also I'm not entirely sure what you are trying to say at the end...? Probability and chance are absolutely the same thing. They are just synonyms of each other...? Unless you are alluding to the difference between expected winnings and observed winnings?

    Another thing about averages is that it is sometimes rare for the average to ever occur. Often there is a considerable spread above and below but nothing on the average. Bonds will be no different and some people will get much more than expected and others will get less.
    Originally posted by Terry Towelling
    Without boring you too much and getting too technical, but this is not entirely accurate either, particularly with respect to premium bonds. The mean is a useful summary statistics at denoting the central tendency of any data. That is, it represents the data point that occurs at the highest frequency.

    The mean is only really suitable when the data follow a Gaussian distribution (otherwise known as 'normal' or 'the bell curve'). If the mean does not accurately represent the central tendency (i.e. the value that occurs most frequently), then other summary statistics should be used, such as the median. This is often seen with things like salaries (and indeed the number of legs ), as this tends to be quite highly positively skewed, with large dispersion due to high value outliers. The mean will tend to overestimate the central tendency point, and the median can be more meaningful.

    Perhaps it should also say that such expectation is most likely to be observed in the longer term - i.e after several years (as you stated, Eskbanker). Is it perhaps a little improper of NS&I to suggest it is likely from the outset? (if it still does, that is).
    Originally posted by Terry Towelling
    I agree, the quote of the rate could be misleading. It states 1.4% is the 'annual prize fund interest rate". Now I take this to mean that when the look at the entire holding over a year, and the entire amount paid out, it would equal a rate of 1.4%...? As you and Eskbanker say, the longer a person holds the bonds, the closer to this 1.4% rate they will be (in essence they have greater amounts of data, and the more data there is, the more likely it will represent the 'true' estimate). Of course knowing the spread of the data around this mean estimate would show you where you could lie in the extremes.

    The MSE premium bond calculator I believe just looks at the expected return at any given month, given the amount of bonds you hold. There is a saying in statistics, most models are wrong, but some are useful...that is to say that while the 'model' from the MSE premium bond checker can often be wrong in trying to predict the exact amount you will win (and in very rare cases, can be extraordinarily wrong..) it is helpful it gauging what you are likely to expect to get with a certain holding at any given month, and whether other savings may be more suitable.

    To go off on a bit of tangent, but the same applies in my field of medical statistics. We use large amounts of clinical data to model things, like risk of heart attack. We can look at things like age, cholesterol and diet to see what impact it has on the probability of having a heart attack. However, these models are generally pretty poor at predicting any one individuals risk of having a heart attack to a precise point in time..! Nevertheless, it's still useful in providing health advice and reducing the risk of heart attacks in the population in general.
    Last edited by DrEskimo; 05-07-2018 at 12:23 AM.
    • eskbanker
    • By eskbanker 5th Jul 18, 12:21 AM
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    eskbanker
    I can't remember (and haven't looked it up) but doesn't the premium bonds website suggest that people with average luck and the maximum holding should expect to win 12 or 13 prizes a year? (I think that applied in the days of the £30K max holding).
    Originally posted by Terry Towelling
    It doesn't say that because it isn't true - it does say that each bond has 24,500 to 1 odds of winning a prize, or to put it another way (in my words rather than theirs) a £50K holding should win just over two prizes per month on average. Given the overwhelming likelihood that all such prizes will be £25s, this would give a (median) average annual return of £600, i.e. 1.2%, despite the mean average being the stated 1.4%.

    Perhaps it should also say that such expectation is most likely to be observed in the longer term - i.e after several years (as you stated, Eskbanker). Is it perhaps a little improper of NS&I to suggest it is likely from the outset? (if it still does, that is).
    Originally posted by Terry Towelling
    The NS&I wording is careful, as you might expect, but is accurate in stating the odds of any bond winning in a given month, and also the mean return being 1.4%, in terms of this simply being the prize fund divided by the number of bonds.

    There are any number of ways of presenting the figures - one of the better ones IMHO is the MSE calculator, which allows modelling of different amounts over different time periods. However, its use of wide bandings distorts figures, so for £50K over one year (a popular choice for measuring annual return), it states that there's an 87% probability of winning at least £500 and a 24.7% probability of winning at least £750, with no intermediate results shown. Its high-level conclusion that "With £50,000 in Premium Bonds, if you have average luck you would expect to win roughly £500 over 1 year" is therefore flawed, as the true figure is more like £600 (£50 per month) - the difference between a (notional) 1% and a 1.2% return being quite significant....
    • traineepensioner
    • By traineepensioner 5th Jul 18, 10:08 AM
    • 277 Posts
    • 155 Thanks
    traineepensioner
    "There are any number of ways of presenting the figures - one of the better ones IMHO is the MSE calculator, which allows modelling of different amounts over different time periods." eskbanker

    Funnily enough, I received an email from NS&I this morning and decided to check on the MSE calculator. I have a £30,000 holding and have received £350 "prizes" over the last 12 months. One side of the calculator said I was unlucky as 55% of bond holders received higher than this. The other side of the calculator said that, if I had average luck, I should receive £350.
    If I've calculated correctly, my interest looks to be 1.17%
    No longer trainee
    Retired in 2012 (54)
    State pension due 2024 (66)
    • Paul_DNAP
    • By Paul_DNAP 5th Jul 18, 11:25 AM
    • 299 Posts
    • 360 Thanks
    Paul_DNAP
    I agree, the quote of the rate could be misleading. It states 1.4% is the 'annual prize fund interest rate". Now I take this to mean that when the look at the entire holding over a year, and the entire amount paid out, it would equal a rate of 1.4%...? As you and Eskbanker say, the longer a person holds the bonds, the closer to this 1.4% rate they will be (in essence they have greater amounts of data, and the more data there is, the more likely it will represent the 'true' estimate). Of course knowing the spread of the data around this mean estimate would show you where you could lie in the extremes.
    Originally posted by DrEskimo

    With the prize pot being so skewed, in particular the big jump up between the top prize and the second to top prize, then nobody will trend towards earning the 1.4% return rate. Nearly everybody will be earning below that, averaging about 1% return, who will be subsidising the millionaires who are getting a million percent uplift on a £100 bond.
    The only way to get 1.4% would be to own every single premium bond out there by yourself. Even if you let someone else have just one, they could win one of the £million prizes and make a serious dent in your returns (even if they won a £25 it would drop your return below 1.4%, but you'd have to go to a lot of decimal places to see it).
    (Although I could be wrong, I often am.)
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