once you have save 6months living expense - where keep them?

[869p555]

We are lucky to have saved/got around 40k worth of savings which we have decided are our 6-12months worth of living expenses. Any advice on what to do with them? At the moment, they are sitting in our current account but my sister just told me that was stupid. I am not very financially literate - so whats best to do with them? Its not such a large amount of money but I get that this money sitting in my usual account is not great. Beside our house (mortgaged) and pensions that all the money we have. Any suggestions?

At least put it in an online savings account from your bank. Don't keep it in your current account!

Invest 20k into a stocks and shares ISA with wealthify (there are other robot investors or you can do it yourself but it's a slightly more complicated), and after 5 years you might make 4 - 12k (or less or more), or you might lose 4k (or less or more).

But if you had a repayment mortgage with 200k left to pay, at 3.5%, then a one off overpayment of 20k would save you nearly 25k in interest. Much better idea than gambling on a stocks and shares ISA for five years.

£40k seems high to me for 6 months of expenses, maybe it is nearer 12 months for you. Do you need that much to be instantly accessible? 6 months worth of expenses I would keep accessible but above that I would look to tie it up a bit, such as in a With Notice account. Compare interest rates to online savings/current accounts, as With Notice accounts will usually be higher but recently interest rates with online savings have improved.

So part of my ignorance if basically that we only just got our mortgage after saving for ages. But seeing as we have kids et etc I was feeling in need of security. Not sure whether it makes sense to have 40k saved with a 400k mortgage. The interest on it is low but I guess it's still high. Does anyone else feel like they need to ask an adult when it comes to this stuff

In the US there is a financial radio show called The Ramsey Show. That has Baby Steps to help people get out of debt, build wealth, give and have a reasonable retirement.

You would be on Baby Steps 4, 5 & 6.
Step 4 - pay 15% of your household income in to retirement vehicle.
In the UK this would mean paying in to a workplace pension and paying in to a Stocks & Shares ISA (if you are under age 40 you could use a S&S Lifetime ISA as well).
Step 5 - save for children's higher education.

This could be adding to their Junior ISA, it could be you putting money aside in your ISA which you are allocating to use to help them for educational needs later on.
Step 6 - pay off mortgage.

You do those three steps all at the same time... so step 4 up to the 15% and whilst still doing that you add to steps 5 & 6.

Video about converting the Ramsey Baby Steps for those in the UK: p_

The point of emergency savings is that they are easy to access and you won't pull them at the wrong time (if they were in an investment account you might be worried about pulling them out at the bottom of the market). Ours are in a regular bank account.
When you have your emergency fund done then you invest in more interesting things with better upside potential.

Having an emergency fund the size of 12 months expenses is fine in my view. It is personal choice as to how much you have in your emergency fund. I was very glad of having a large emergency fund when I was made redundant. Have whatever amount helps you sleep peacefully at night.

@nannynick thats really useful thank you. When you say 15% of household income is that pre-tax or post? I sort of already do that. Well mine is a public sector pension so a bit different. We also have a JISA - that seemed simple enough. Just have to figure out the rest.

For example, is it better to pay off your mortgage early or save for a retirement? We have access to a lump sum that used to be our pensions (abroad) but need to transfer it to the UK. Here we can have a choice of mortgage v pension. Not sure which is better in the long run. My parents say house but they dont believe in pensions (public sector as well so it's easy for them to say that)

@869p555 Gross or net. Using gross figure is better. For a Defined Benefit pension, such as LGPS, only take account of your contribution to it, not employer contribution. If that was 12% of your gross salary going in, then do 3% of your gross to a S&S ISA so you build up a pot of money that is accessible before your retirement age.

Pension or Mortgage... I expect the answer is to do some of both.

Pension v mortgage. I would go for mortgage because a roof over your head is priceless, and much harder to take away if paid for. I wouldn’t want to still pay a mortgage/rent on a pension. You may be able to downsize /relocate/ rent a room to free up income in the future. But every person has different circumstances!

My savings are in premium bonds..

@869p555 Is your mortgage interest only? Your lender I would have thought would have wanted to know how you would be paying it back. So if you said you would pay lump sum amounts off it every year, then you need to be doing that.
A repayment mortgage will repay the debt in the life of the mortgage, an interest only one won't but can have the advantage that you can pay back the mortgage at any amount you like, not be limited in what you can pay back each year (which is typically the case with a repayment mortgage).

So what type of mortgage do you have and how are you intending to repay it?

It's interest only but we are repaying it. The plan is to repay it, but also have the flexibility to vary our amounts or even skipping a year if need be

Decide how aggressively you want to repay the mortgage. Interest rates are low now but may not stay that way.

Math might say to invest but Emotion may say to pay off the mortgage. Owning more of the equity in your home is an investment, it will go up and down in value. It is not a liquid investment, property takes time to sell, but at some point you can take your money out by selling. Generally that is done much later in life when downsizing in property, once children have left the nest.

Once emergency fund is at a point you are happy with, then I would be paying in to pensions as much as possible, doing some investing in an ISA wrapper (so it is tax free) and paying down long term debt - the mortgage.

Does DH have an employer who contributes to pension? If so, add to his pension enough to get the employer contribution. Don't leave free money sitting on the table.

If DH is a self employed sole trader, setup a pension.
If DH is a company director, talk to accountant about how the company can tax efficiently pay in to a pension for him.

We have a bit more than that in a savings account with Marcus and actually earn about £40 a month interest. Seems a reasonable amount to me but I’m easily pleased.

I do like having my savings easily accessible but am aware I am losing out by not investing in stocks and shares.

I wouldnt confuse emergency savings with longer term goals. Mortgage or pension are totally the wrong vehicle for money you may need access too.

we have emergency find in PBs as can access in 72hrs & no risk

then we pay c. 16% of gross into pensions (inc employer contribs)

then s&s ISA to max

only at that point do I consider mortgage overpayments vs other investment options aa interest rate is only 1.3% - if that goes up (fixed til 2025) we’ll reconsider options

Is your mortgage interest only?

I’d make sure you’re saving enough to pay off the capital at the end of the term, or I’d convert your mortgage to a repayment one.

Once you’ve done that put £5k in an easy access ISA and the rest in premium bonds while you read up more on MoneySavingExpert etc.

Make sure you both have good workplace pensions too - they’re the best savings vehicle really, as you get employer contributions and govt tax relief.

Does your DH have a pension?

ISA, Premium Bonds and a savings account

Nexo for some of it. I’ve invested in stable coin which is the most conservative option, and it’s earning 8% a year. My partner is braver and does a combination between stable coin and crypto so earns up to 12%. My ISA was earning sod all so I dumped it.

See when emergency savings like 6 months salary etc, the point is you need to be able to access it quickly if the occassion arises. It cannot be tied up and inaccessible. Nor do you want to risk it in shares incase the value decreases. So that is why alot are suggesting premium bonds or other things like an offset mortgage where you will get some benefit but can still get hold of the exact same amount of money at any point