Investing the money from the old house sale

[Triassic]

We’ve now sold the old house and have far too much money sat in a bank account, it’s not earning its keep and it’s over the Government guarantee if the bank went bust.

 

So the question is what to do with it? We need some short term and longer term investments. Any low to medium risk suggestions?

 

Edited August 31, 2018 by Triassic

[ProDave]

First thing don't panic over the over £85K protection limit.  I am sure I read somewhere there is short term protection (6 months) for a LOT more than that. So you have time to make an informed choice.

 

And when you find a good home for £85K chunks, please share it with us.

[le-cerveau]

24 minutes ago, Triassic said:

it’s not earning its keep and it’s over the Government guarantee if the bank went bust.

Split it up between financial institutions.

You can double that amount for joint accounts's (it is per person).

Slap as much as possible in a  CASH ISA (easy access), and the same again next year. (remember this counts towards the 85K limit) so if it is a CASH ISA i with your bank deduct that from your totals.

Everything else is risk based and I would seek professional Financial advice if it is a significant amount.

[Stones]

Dave is correct, there is short term protection designed to cover the proceeds of a house sale.  Difficult to advise what to do because of where we currently are - stock markets are at record highs and interest rates (unless you count Turkey and Argentina) at very low levels.  My own view is that when the inevitable (colossal) Brexit deal fudge is presented in a couple of months, the £ will begin to strengthen and the stock market start to fall.  Of course throw in the 'Trump' card and who knows!

 

 

[Guest Alphonsox]

I've got exactly the same problem at the moment. Low risk is probably cash, but difficult to get near to inflation at the moment. The best I could find while looking last week was ICICI HiSave paying 2%. Alternatively NSandI provide absolute safety with Premium bonds paying around 1.4% tax free (if tax is an issue).

 

A better return implies more risk. If your happy to invest for the longer term then take a look at investing in a diverse set of investment trusts or the cheap and popular Vanguard LifeStratagy funds.

[MikeSharp01]

Don't forget to max out your premium bond limit.

[AliG]

Assuming that you are in a large well capitalised bank I would not worry about the £85,000 limit. Banks are considerably less risky than they were 10 years ago.

 

I would consider National Savings as not only is your investment 100% guaranteed if that bothers you, but also interest rates tend to be higher than at large banks.

 

If you want safety and don't need the money for a while I would consider a long term fixed rate account such as  Tesco 5 year saver at 2.5%. Personally I don't consider the extra 0.1-0.2% from a riskier bank with perhaps worse customer service to be worth it.

 

You would think ISAs would be ideal due to the tax saving, but often the rates are lower so the saving seems to go to the bank not the customer. Coventry BS seem to have a 5 year fixed ISA at 2.3%, better after tax than Tesco, but of course there is a limit on the amount you can put in. You can also now earn £1000 of interest tax free without an ISA.

 

Don't forget to spread savings between you and your partner to maximise use of your tax allowance.

 

After that you go to financial products, bonds, equities property funds etc. You would need to take advice on this and of course they are riskier. I would recommend that you take advice here and be careful of the fees that could wipe out any supposed higher returns.

[ragg987]

Some good advise here. If I were investing this (bear in mind this is for my situation) :

 

First clear any debts, especially the more expensive ones.

Put some cash where it can earn interest and be readily accessible. Santander 123 current account give 1.5% up to £20k, some provisos and a monthly fee.

Invest balance between low, medium and high risk. Vary the split according to your risk appetite and how long before you need to access it. Use ISA limits :

 - cash is safe and you will not lose any money with the £85k safeguard

 - low/medium risk like the Vanguard Lifestrategy mentioned by @Alphonsox, the 20% variant is lowest risk for lowest potential returns

 - higher risks like indexed-linked to S&P 500 (more suitable if for 5 years+ horizon)

 

Of course with latter 2 you risk losing money. I am a big fan of Vanguard, they do not gobble up your savings in fees and a lot of their investments are free of buy / sell charges. But you need to have the right attitude to understanding and coping with the risk - they give no guidance.

[Jeremy Harris]

@Triassic, I'd just like to thank you for raising this and generating so many useful replies.  We're shortly going to be in a similar position when the sale of our old house goes through, and the £85k liability limit was something I was wholly unaware of.  I'll be following this thread with interest to see which options best suit us; I know my wife's first priority is to go on an expensive holiday, so that will blow a hunk of the cash in one go...

[Temp]

For longer term investments:

 

Consider topping up your pension and claiming the extra tax relief. Let them worry about investing it for you.

 

Check your/wifes NI record. Currently you can buy missed years for £750 ish and get an extra £250 ish a year pension. That's a pretty good return. Important to get advice because you may not get extra pension if you have already paid enough years. Currently you can back date to 2006 but this is temporary. Normally you can only backdate 6 years.

 

Consider setting up SIPP(s) grand children no matter how young they are. You can put in £2880 a year and 6 months later the government will add another £720 making it up to £3,600 gross even if they aren't tax payers. Free money right there. Double check the amounts as they may have changed? If you want them to have access to the money earlier then look as an JISA or Adult ISA but watch the fees. 

 

Perhaps hold off investing in the stock market until Brexit is out of the way. It's not at all obvious how Brexit it will effect the stock market. If you do invest I would look at both UK and overseas. eg UK based funds that invest in a diverse range of UK and overseas companies. 

 

[ragg987]

7 minutes ago, Temp said:

Perhaps hold off investing in the stock market until Brexit is out of the way.

There is always an "event" just round the corner. I personally would not hold off, just invest it in a balanced way.

 

Example: Brexit doom has been on the cards for about 2 years. Over that period markets (albeit higher risk side) have returned me over 20%. I believe there is never a right or wrong time, just do it early, spread the risk and also buy frequently and often rather than one one big lump payment.

[PeterW]

Drop £20k  into premium bonds too.. no guarantee of a return but easy access and in reality can return 2-5% 

[Stones]

https://www.fscs.org.uk/news/2015/july/new-protection-from-today-for-temporary-high-balances/

 

Protection for temporary high balances.

[Guest Alphonsox]

41 minutes ago, PeterW said:

Drop £20k  into premium bonds too.. no guarantee of a return but easy access and in reality can return 2-5% 

 

The max is currently £50K and the prize fund pays out 1.4% tax free

[Triassic]

1 hour ago, Temp said:

Consider setting up SIPP(s) grand children no matter how young they are. You can put in £2880 a year and 6 months later the government will add another £720 making it up to £3,600 gross even if they aren't tax payers. Free money right there. Double check the amounts as they may have changed? If you want them to have access to the money earlier then look as an JISA or Adult ISA but watch the fees. 

Is this limited to grand children?

 

I mentioned starting a family to the wife but she tells me she’s past it !

 

However we have god children, some of whom I’d invest in !

[Guest Alphonsox]

A Sipp can be set up for a Godchild - You can stick in up to £2880 per annum and the government tops it up to £3600.

https://www.hl.co.uk/pensions/junior-sipp

https://www.youinvest.co.uk/investing-for-children/junior-sipp

 

[newhome]

I have money in a fixed term savings account for 12 months. Personally I am not going to go for anything longer than 12 months as the additional interest doesn't seem worth it. I would rather take the return after a year and see where interest rates are headed then. I got 2.05% on a 12 month fixed rate savings bond with Atom Bank (down to 2% now). Has to be done via an app though, although I'm fine with that. It was very straightforward. I am now about to do another one but I will go for the ICICI one (2.02%) but if the application is made via Raisin there is up to £80 cashback. Those tie your money up for the entire fixed term however. There is a 9 month one on the market too with ICICI (and cashback via Raisin). 

 

As has been said, max out your ISAs either in cash (no risk up to 85k if FSCS protected - always check) or stocks and shares (obviously dependent on the stock market). That will be 40k used up and free of tax of course although the returns may not be great on the cash ISAs.  

 

I have 3 interest paying current accounts; Santander 123 account, Club Lloyds and TSB Classic Plus. Most of the interest earning accounts require a minimum amount to be paid in each month and a certain number of direct debits to be set up. I use standing orders to switch money between them to tick the minimum amount paid in box. My constraint is that I don't have any more direct debits so I can only have the 3 accounts. The Santander 123 account also pays cashback on bills so I put the 3 largest direct debits through that account. The other 2 accounts get smaller direct debits like the TV licence. I also use their monthly saver options. They are limited as to how much you can pay in each month but the interest rates pay up to 5% so I do them anyway. There are some better current accounts now but current accounts are more of a faff to set up so I'm not looking to switch. Nationwide Flexdirect and Tesco Bank offer options that I would go with now if I wanted to open a new one. 

 

Be mindful of the limits after which you will need to pay tax. It could determine where you stash your cash if you and the wife are in different tax bands. £1000 savings interest tax free if you are a basic rate tax payer, £500 if you are a higher rate tax payer (none for the additional rate taxpayers). The limit on tax free dividend payments dropped this tax year from 5k to 2k . If one of you isn't working (or earns below the personal allowance) and the other is a basic rate tax payer you can apply for the married persons tax allowance. I doubt that many people qualify for this on here, however some people might if they have given up working for a period to work on their build for example. It's worth £238 a year and can be backdated. 

 

Consider paying extra into your pension but be mindful of the annual allowance and the lifetime allowance if you have a lot of pension savings already.  

 

I'm not going to invest much more in the stock market this year personally. I've just taken the cash equivalent transfer value for my defined benefit pension and put it in a SIPP so that's enough stock market exposure for one year! That almost guarantees that the stock market will tank now! 

 

I had forgotten about premium bonds. Will shove some in there and see what happens. 

 

[Guest Alphonsox]

29 minutes ago, newhome said:

I have 3 interest paying current accounts; Santander 123 account, Club Lloyds and TSB Classic Plus.

 

I bank with First Direct but see that as a different problem to investment returns. I actively do what I can to hasten the day when Santander go out of business.

[newhome]

I don’t have an issue with any particular bank. I just look for the best return. TSB have come close to p*****g me off enough that I will leave but I can’t be arsed in truth. 

[Hecateh]

My parents each had £30,000 in premium bonds.  Mum's return was about 5%, Dad's was less than one.  None of this was with big wins.  £50 to £200 max each win.  Mum had about 3 wins to every one of Dad's.  However they both enjoyed the wins far more than any guaranteed interest.  

[Temp]

8 hours ago, Triassic said:

Is this limited to grand children?

 

I mentioned starting a family to the wife but she tells me she’s past it !

 

However we have god children, some of whom I’d invest in !

 

You can set up a SIPP for anyone. If under 16/18 the SIPP is usually in your name (or parents name) with the childs initials added. They sometimes refer to this as a "designated" account. They get control when they are 18 I think but cant withdraw it until 55. ISA or a combination of both might be better if they are likely to need access sooner.

 

Generally it's best for you to give the money direct to the child rather than via their parents. That's because if parents give their children money, any income they earn over £100 a year it treated as the parents income.

 

Keep record of payments for IHT purposes (exempt after 7 years). 

 

[Triassic]

5 hours ago, Temp said:

They get control when they are 18 I think but cant withdraw it until 55. 

Can’t withdraw until 55.....

 

That’s a long time to wait for the money. I was hoping they’d get it sooner, maybe to use as part of a house deposit!

[newhome]

46 minutes ago, Triassic said:

Can’t withdraw until 55.....

 

That’s a long time to wait for the money. I was hoping they’d get it sooner, maybe to use as part of a house deposit!

 

It’s a pension hence the age 55 and relies on the government not changing the rules as they’ve done in the fairly recent past to change the age from 50. So a JISA may be a better bet, or if they are over 18 and you want to help with money towards their first home a Lifetime ISA. Big penalty for withdrawing early if not for a house however. 

[Jeremy Harris]

13 hours ago, Alphonsox said:

 

I bank with First Direct but see that as a different problem to investment returns. I actively do what I can to hasten the day when Santander go out of business.

 

We're shifting from Santander right now - we only stayed with them because I'd already set up the "house build" account with them before they managed to REALLY piss me off.  My beef with them is the way they reneged on our mortgage and have then refused to refund the costs we'd incurred as a consequence of them unilaterally withdrawing their written offer on the day we went to draw it down. 

 

We knew we needed to borrow some money on our old house, which was mortgage free (not a massive amount compared to its value - £110k against a mortgage valuation at the time of £260k) and Santander accepted our application and fee, did all the checks and gave us a formal mortgage offer.  I explained that we didn't need to draw it down immediately, but needed the offer in place before I placed our frame contract, so there would be a couple of months delay before I drew down the mortgage.   They agreed this would be no problem as their formal offer was valid for three months.  First stage payment came in for the frame and I went into the bank to draw down the agreed mortgage.  Santander said they were withdrawing the offer as their internal policy had changed.  I argued with them that they had taken the money for the arrangement fee, valuation etc and they were in breach of their contract with us.  Basically they said tough, we're not lending you the money.

 

We ended up having to use our cash reserve to tide us over whilst I hurriedly arranged another mortgage with the Leeds, at a significantly higher cost.  To say it was stressful is an understatement.

 

Nothing on this planet will induce me to do business with Santander ever again after that episode, and I'm still arguing with them over the fee I paid them for a non-existent mortgage.

[newhome]

11 minutes ago, JSHarris said:

Nothing on this planet will induce me to do business with Santander ever again after that episode, and I'm still arguing with them over the fee I paid them for a non-existent mortgage.

 

Oh I wouldn't do business with any organisation that peed me off that much either unless I had to. Can't swap from the horrendous service from Willis Towers Watson though as they administer my work pension. They are a complete joke of an organisation.