Where to put £300k lump sum so I can withdraw the interest monthly?

[Purplepassionflowers]

I'm in the process of divorcing and selling the family home. Once it's sold, I will have a lump sum from the equity of around £300k.

I need to stay in this area for 3 more years due to dc's schools. It's an expensive area for housing, so I was thinking that I would rent here for a few years, then move out of the area and buy somewhere.

So I've been wondering where would be best to put the £300k? I would need to withdraw the interest monthly to help pay for the rent (I will probably need to top it up from my salary too). I was just wondering if anyone had any advice about particular accounts/ investments that would be good in this situation? Thank you.

You would be best off speaking to a financial advisor.

I agree with VillanousVillans. You need advice.

You may need to consider splitting the £300k into an annual ‘lump’ to get you through the first year of renting, then longer term amounts which credit interest annually, as that may get you the better rate.

So think about how much you need to supplement your income on a monthly basis, before you commit.

@Villanousvillans Thanks. I wasn't sure if there was a simple answer or if it might be a bit more complex! I only have minimal savings (apart from when I get this equity) and am on minimum wage so I don't have other finances to talk about really. But I could look into a financial advisor, maybe that would be the best option.

@Dearg Thank you. That's a good idea. I'm sure there must be different ways to use/ invest the money to get the best rate that I wouldn't have even thought about.

I haven't ruled out buying a house in this area, rather than renting, but as I want to move to a cheaper area in a few years, I'm not sure it would be worth it, what with all the moving costs etc.

So yes, hopefully a financial advisor would be able to help work out the best way forward!

I would set aside £40000 for this year and next ISA. Then split the rest between 3 building societies paying a decent rate. Newcastle, Ford Money, all have account paying around 4%. You can do fixed or variable. Word is that interest rates are going to rise this year so you might want to do both to hedge your bets. Monthly interest paying accounts are not very common these days.
Maybe look at National Savings Income Bonds . When choosing where to put your money, pick a name that is British and you are familiar with. Financial Markets are very volatile at the moments

I am a retired FA . I would not use an FA as they are likely to steer you towards S&S. There are always charges for these accounts not always transparent and not suitable for short term

Good post from @Rictasmorticia you don’t need an advisor for this- waste of money. For such a short period you should be thinking in terms of saving not investing.

Can you say how much you will need per month in rent and how much you could afford from your salary to top it up? Then you’ll be able to see whether it’s viable or if you’ll need to use some of the capital.

The advantage of using NSI Is the safety. There are lots of options to choose from . If you choose the Income Bonds you are not restricted to the £120,000 limit guarantee. For peace of mind and convenience you might be willing to accept the lower interest rate. Don’t forget to set aside some of your money for income tax. This will be due in the next tax year. Hopefully they will just alter your tax code, but last year, I had a similar amount and has £900 tax bill. I received the bill in November and had to pay by April.. £300,000 at 3% Uk around £9000 in interest Gross.

NS&I do lots of different terms and types of investments. I am a very cautious investor and in your shoes I would set aside the two years ISA money, then put the rest into the NS&I for 3 months. This way you can really assess what your expenses are and use the time to look around at what else is available.

NS&I pay interest yearly.

Put £20k in a T212 isa and leave it. Plus another £20k in April

Stick £120k in a chase account and get 4.5%. You'll earn c400 a month in interest just on that bit.

Be aware that if you are earning interest outside of an isa you will quickly get to a level where you pay tax on it.

Depends what product you’ve got. The income bonds pay out monthly.

You might find that the issue is doing it without paying too much tax on the interest. That's where a financial adviser can help you. You can't just take the interest - it needs tax paid on it!

I’m in a similar position- waiting for a flat to complete which has taken far longer than anticipated, didn’t want that sitting in a regular savings account so have £225k in an NS&I account which I can withdraw at any time (needed for if/when I finally complete) and currently pays roughly £600 per month into my current account. Would this work for you?

I recently opened a Chase Saver account. That pays me 4.25% interest monthly. I had to open a current account with it, so I just transfer the interest to the current account each month.

We were in a similar situation recently and quite risk averse so didn’t consult a FA (not saying you shouldn’t op, it’s a personal choice) but we did our own research and maxed out two ISAs then put a large lump sum in an NS&I Guaranteed Income Bond where interest is paid out monthly as an income.

This is not to be confused with the NS&I Guaranteed Growth Bond where interest is paid one year on from when you take it out. A PP says “NS&I pay interest yearly”, yes on the latter not the former.

Hargreaves Lansdown have an Active savings account, you can chop and change for the best rates without faffing around with different providers. I’m currently getting 4% with shawbrook but it’s due to reduce to 3.78% soon.
More important is to get £20k into an ISA NOW then £20k after 5 April, which will save you £300 ( or £600 if you pay 40% tax) in tax over the next year.

I agree you don't need an IFA.

You just need to put it in the best paying accounts and understand what tax you will pay and how to minimise it.

See if fixed rates pay higher interest. Maximise your ISA usage. Consider whether you could invest some and leave it invested and take a (bigger) mortgage instead as over time, investments should grow faster than mortgage rates, but obviously 3 years is too short a period to have to withdraw the money especially with current global events.

Also consider premium bonds especially if you are a higher rate tax payer as the prizes, which on full holdings are likely to be similar to the average payout rate, are tax free.

You'll typically make more on taxed savings interest than on premium bonds.

OP is on minimum wage.

Definitely don't buy premium bonds- the average return will be less than you get in a savings account and you need certainty about your returns if you are relying on them for your rent.

An IFA won't advise on cash savings - their job is to sell you financial investment products.

If you're looking to access the money in under 5 years, stick to cash savings that pay interest without penalty for withdrawals. Keep an eye on rates every 6 months to a year and switch to a better rate if another provider starts to look more attractive.