Where to park £100k

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I’ll be getting £100k inheritance soon and won’t be spending it on anything anytime soon as we need to decide what to do with it. It might sit for a year or even end up staying in savings permanently.

Where is best to put it? I’m inexperienced with savings as only have £20k saved at present.

Other questions:

• Will I have to pay tax on the interest?
• Is it best to split it between accounts?

put half in premium bonds?

You can put £20k into a cash ISA and £60k (I think) into premium bonds. Any interest in the isa is tax free, as are premium bond prizes. If you leave it in a bank account, yes you’ll pay tax on the interest. But you know, tax isn’t a dirty word. You’re lucky to be gifted quite a lot of money so if you have to pay some tax is that the end of the world …? 🤷‍♀️

Put £20k in a cash ISA, fixed for a year at a good rate, because you don’t pay tax on ISAs

Put £50k in Premium Bonds because winnings are tax free

Put £30k in a high interest savings account, fixed for a year.

MSE clearly lists the highest paying accounts of each type.

Are you a basic rate tax payer and use all your personal allowance? You can earn an additional £1k in interest tax free.

Put the £30k in an account that pays interest monthly , not all in one lump at the end of the fix, to spread the tax.

In April next year shunt another £20k savings to ISA, but this time into a flexible ISA in case you want to spend it next year. You can move your this year’s ISA into that when it matures, so you have £40k plus first year’s interest in the new ISA, but you have to do it the way they tell you in order to preserve it in tax free ISA status, don’t just withdraw the money yourself.

It’s £50k max in Premium Binds.

And ‘lucky’ isn’t always the best way to describe money from a deceased loved one

You might want to look at adding to your pension too. The shattered of salary sacrifice might make it worthwhile up upping pension this year and spending the last 30k of inheritance instead of salary.

If you're married you can utilise DPs ISA allowance too (in their name). But the Chancellor is considering reducing isa limit so I get it in as soon as you can.

@MJOverInvestor thanks for the advice. I do already have some premium bonds but only low value. I hadn’t realised it would be the best place to invest larger values since it is essentially a lottery. Is it likely the gain on premium bonds might actually outweigh the guaranteed interest I would get from a savings account?

Thanks for the advice @CortadoPlease I’ve asked above about premium bonds as I’m surprised to see it being suggested but clearly missing something. Regarding the tax I didn’t mean I have any issue paying it, in fact it’s the opposite - I want to be sure I do pay it as I didn’t know until this week that tax had be paid on interest!

Thank you @BangersAndGnash that's really helpful. Again I’ve mentioned above that the suggestion of max value in premium bonds surprises me since I didn’t realise it could likely/potentially give more return than a savings account.
Thats great advice regarding using an account which pays invoice monthly. I’m completely clueless on paying tax on interest - how do you actually pay it? Is it automated or do I have to declare it? Apologies for my naivety!

This is a very good point, thanks @Rollercoaster1920

Thanks for the tip @SatsumaCat

I would look on Money Saving Expert rather than on here. I would be very surprised if premium bonds are the best choice for you.

i would utilise ISA allowance and make sure I have an emergency fund (3-6 months expenses) in a high interest easy access account, rest into SIPP

Well it's the nature of premium bonds that you can't know for sure, but the only thing is that on "full holdings" of 50K, your winnings tend to average out a bit more than with low holdings. Our experience is that you almost always win something.

For example, if the fund prize rate is 4% and you've got £50k, on average you "should" get about £2000 a year (actually a bit less for various reasons), so that's about £167 a month, or about 6-7 of the minimum £25 prizes. Whereas if you take the other extreme of holding the minimum £25, the 4% average would be £1 over the whole year, which isn't actually possible. A single minimum win of £25 would be a 100% return! So you have to be statistically extremely lucky to win anything on small holdings.

DH and I have had full holdings for over 2 years and I've kept track because I had similar questions originally. My min and max have been £0 and £300 (once each), and on average I get £139 a month. DH is luckier and has had a £1000 once. I have been a bit disappointed because my total yearly takings have been quite far below the advertised prize fund rate both years (2.7% instead of 3.8% and 3.4% instead of 4.4%). But on the other hand, DH has been above both years, so coupled with the tax saving, he's vastly outperformed a savings account.

We like the fact it's easy access (no need to forfeit the interest if we need it for an emergency like you would with fixed rate accounts) and we enjoy the little flutter of excitement every month finding out if we're going to become millionaires😀To us that's worth the risk our our return being a bit lower.

No, it isn't really likely. Even with full holdings most people are better off with high interest savings account, or ISAs. Even after paying any tax due on non ISA savings interest. How much tax you would pay very much depends on your other income.

You need to look at your whole financial situation before deciding what to do with the £100k. Do you have a mortgage? I’d pay that off first for peace of mind. Do you have pension savings? If you’re a higher rate tax payer I’d put some there for the tax relief. I’ve no idea why premium bonds are always recommended on here, I definitely wouldn’t do that. Personally I’d buy another property. If that’s not for you then S&S ISA for you and DH. The rest in high interest savings until you can use next year’s ISA.

It's the 'while we think what to do' short term aspect of the OP that makes PBs a possible option.

A S&S ISA is only for a long term investment. Especially at the moment while Trump plays Russian Roulette with the stock market - just my opinion.

With PBs, yes, you are essentially gambling with your potential interest. And the overall interest at their rate of % prize giving is not more than a high interest savings account. BUT you might get lucky, the winnings are tax free so that (if you get winnings) mitigates the lower % rate, and also, though it seems counter-logical, there is something complicated and mathematical to do with probability that increases your overall rate of winning the more bonds you have. Yes, obviously, the more you have the more bonds to win, but the rate increases more than this. Martin Lewis explained it in one of his Premium Bond 'luckometer' articles, and it is explained in the Novel 'The Curious Incident...' but I'm not one to explain it!

Tread carefully before putting money into your pension - it might be better to up the amount as salary sacrifice from your employer - or it might not!

It make NO financial sense to pay off your mortgage if you are borrowing at a low rate atm and could get a higher rate of interest in a high interest account or ISA. Also check for early exit fees / max overpayment.

OP - if you are a PYE tax payer you do an additional self assessment at the end of the tax year if your taxable interest has exceeded £1k that year. If it hasn't, do nothing. I think. The self assessment form has lots of helpful advice as you go through it, and the banks send you a Tax Certificate at the end of the tax year telling you how much interest you earned in that year. Again: Interest on ISAs and PB winnings do not count for tax!

100k is a fair chunk! If you have no short term plans I would certainly consider putting at least a small amount in longer term investments. As others have said your pension would be a great starter as would a stocks and shares ISA. These will always outperform cash over longer periods (5+years) so getting in your pension now you may also be able to get a 20% bonus from tax rebate too which is even more bang for your buck.

the ISA limit is 20K so putting half and half over cash and S&S could be a good plan?

Hi @KarmenPQZ Thanks for the reply. The OP was more around what to do with is for the next few months while I decide, but I have also moved on to thinking about what I’ll do with it after that point.

I think I’d like it to allow for more/better holidays from 2026 onwards. In theory I could just put it in a short term savings account (lower interest) and just use the actual money to pay for holidays for the next 10 years or so.
But then I wondered if it made more sense to put it in high interest savings account and use the interest earned to pay for holidays.
Or pay off a large chunk of mortgage to reduce our monthly payments and use the extra disposable income towards holidays.

I’ve no idea which option makes the most financial sense!

I’d invest in stocks and shares. The markets have been volatile but now is a good time to enter the market. It’s not a crash, it’s a sale. As the saying goes.

I use a site called interactive investor, ii.com. The fees are cheap and you make the trades yourself. Look up ETFs. They are like a basket of shares in a type of business, ie tech or gaming or defence.

Sorry for your loss, OP.
It's been a month so I wondered what you've decided to do with the money?
What is the interest rate on your mortgage?

@AnotherEmma thanks for checking in! We have put £20k into an ISA and paid the 10% of our mortgage that we can pay before a penalty is applied.
The rest is in premium bonds at the moment but I think we will put it into the mortgage and just pay the penalty. Our mortgage rate is 3.07%.

Atom Bank is offering an interest rate of 4.75% at the moment, so depending how much tax you'll pay on the interest, you might find that you'd be better off putting the money in savings instead of overpaying any more of your mortgage (especially as there's a penalty).
See
https://www.moneysavingexpert.com/mortgages/mortgages-vs-savings/
and
https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#easyaccess

(Do you mean you've put £20k each into an ISA? Or £20k total?)

I can't recall howuch it is but everyone is allowed a certain amount of interest on investment before they pay tax on it. Anything in an ISA is tax free.