redundancy help - in a bit of a muddle with money and feel stupid

[itcanonlygetbetter]

hi im rubbish with money and all things financial.

a bit of background, i took vol redundancy and finished work last week. apart from feeling a bit down about it and life in general now that im not working (and through choice at that so only myself to blame!) i now have my lump sum sat in my bank account and i have no idea what to do next.

i have an overdraft from my student days and about £1700 on a credit card which i am going to pay off in the first instance as i think thats sensible. but then what? i am going to need to use my redundancy to live off until such a time that i start work again - prob 3 years or so if im lucky so i am going to need to 'salary' myself to cover my share of bills etc. i reckon (hope) £700 a month should be enough.

so what do i do with my money? i cant lock it into an ISA as i will need to draw on it every month. am thinking of putting it into premuim bonds initially while i sort myself out. also do i need to tell the bank that i am no longer working - will they take my debit card off me? as i would still like to be able to buy the occasional thing for the kids or myslef, although i do realise that this will be few and far between in the future. i have phoned the tax credit people as we currently get £35 a month child tax credit between our 2 DCs which was due to stop in april anyway due to all the changes. i am not sure what effect the redundancy will have on that or if we would have to pay anything back - and they didnt really know either.

am finding it all a struggle not working to be honest and i am thinking i have made a huge mistake. and it was supposed to make our family life easier

would be grateful for any advice

You don't mention the total. However, I'd suggest the following.

1. Yes, pay off the CC because CCs are high interest. Then look at how much interest you're paying on your student loan. If it's less than the interest on a savings account, keep paying the loan. If the interest is higher than a savings account, pay off the loan.

1. Put as much as you can of what's left in an instant access Cash ISA (£5340 maximum per tax year) with the emphasis on instant access without penalties so that you can withdraw money when you need it. If you have more than £5340, put £5340 in before April 5th (2010/11 allowance) and another £5340 after April 5th (2011/12 tax allowance). This is worth doing because the interest is not taxed at source. www.moneysupermarket.com isn't a bad place to compare terms and conditions.

1. Once you've used up your Cash ISA allowances for 2010/11 and 2011/12, if you still have some left, you could consider a longer-term savings option such as a bond. As you want your money to last 3 years you could put Year #2 and Year #3's money away.

1. You do not have to tell your bank of your change in circumstances if there will be no real difference to the usage of your accounts. As long as you are in credit they are really not bothered where your income comes from. The exception would be if you had some special 'Premium' account with conditions like a minimum monthly deposit.

1. If your total household gross income has reduced, run your new circumstances through an Online Benefits Checker such as this one to understand what you may be entitled to claim. It should give you a reasonably accurate calculation of your new Tax Credit entitlement.

Good luck

Sorry, just re-read that it's an overdraft from your student days and not a student loan. As overdrafts are very expensive (unlike student loans), pay that off at the same time as your CCs.

the above advise is fab

my only tweek would be to not to use an instant access ISA if you can get more interest without instant access for the 2011/2012 account, and think about the same for 2012/2013 if you can do what the poster suggest in 3) for the ISA as well as the bond.

Not knowing the sum involved and how much you will need make it more guess work.

Also remember to check with an ISA if you can take the interest out of the account without any penalties if the money is locked away - as this may assist you if you want to live on part capital part interest

you don't mention whether you have a mortgage or rent - but if the former then think about paying of part of your mortgage with the sum. You will have to take into account how much interest you are paying on the mortgage and how much your cash can make you in interest and the differential.

If you don't already have any regular savings accounts with first direct and HSBC then open then - you can put a maximum of £300 and £250 each month and the interest rate is 8%. The accounts are only for 12 months so you need to open another account in a years time and I think you may need to have another account with the bank in order to have access to these accounts. If you do this then you will get about £150 in interest at the end of the 12 months for each account - not bad for the amount being saved each month.

oh and forgot to mention - if you are struggling with not working you could look for volunteer work?

If you are not having a significant income next year I would shop around for high-interest normal account as your tax-saving benefit of ISA is not relevant - you won't pay tax on interest from normal account if you are below the personal allowance threshold (if the bank withholds the interest at 20% you can get it back from HMRC).

yeah, this 8% first direct is brill. otherwise look for other deals on moneysavingexpert site.

but the tax savings benifit of an ISA in 2011/2012 will be relevant in three years time (possibly if the OP returns to work) and that will be the same with a 2012/2013 ISA two years after that - unless she is going to clear each account to a zero balance.

You can still claim money back from HMRC on other accounts interest if the tax is paid

I thought the OP plans to live off this money and in this case getting higher interest is more important (8% is not available on ISA for example).

thank you lots to read and ponder there and to discuss later with DH.

i do have an HSBC account and so i will look into the first direct account, as well as the possibility of locking away an amount for three years.

i have 2 DC 4 and 1 and so while im not working i am kept very busy! it was to spend more time with them whilst they are small that i took the decision to leave. just didnt think that it would be so hard and that i would lose who I am, but thats another thread altogether!

bemybebe - can you link to the 8% account please that will take a lump sum of money?

not a lump sum, it is 300£/mo for a year in first direct.

for lump sum deals it is worth keeping an eye for inflation-linked bonds (like NSAI or Postoffice), but they are not available at the moment -those were v good

not available AFAIK

so you don't get 8% for the whole year you get 8% on 300 for one year and then 600 for 11 months and 900 for 9 month and so on - whereas with an ISA you can put in roughly 5300 for a whole year and get the interest for a whole 12 month on the full amount

£3,754.17 total after one year regular saver at 8%
£154.17 interest

if she puts the full ISA amount in to an account then in one years time she will have £185 at 3.5 % interest

good point and i am nor arguing with the mathematics of this particular example, but for a non-tax payer to put away ISA amount at 3.5% is a worse deal that to put the same amount (and all the same conditions for withdrawal etc) at 3.8% as the tax-free element is not relevant.

that was my argument.

3.8% was AN EXAMPLE

btw, your calculations are also a bit flawed. it is 300 for 12 months, then 300 for 11 months, 300 for 10 etc, there is compounding issue (interest paid monthly or yearly, not sure)

with ISA you use it or lose it and as the interest at the end of the year would be roughly - save a couple of pounds here and there - I would plummet for putting in the full amount for this year - the full amount for next year and if there is any money left over then a regular saver.

at 3.8 % the ISA would be £201

not sure if I can find an ISA at that much the top one I could find was 3.5% but that was at the tail end of last year

sorry the example was flawed but the calculations aren't

ivy again, i am not arguing the principle that ISA is a GOOD thing (I have it myself alongside of an array of other products), what I am arguing is that for a non-taxpayer tax-free element should not be overestimated and ISA products should be considered alongside other products as they (other products) may be better for the aims of OP

nothing controversial really. not sure why you think it is

Um was just trying to point out that at the end of the year the interest difference would be nominal - you seemed to think 8% was far better than the interest on an ISA and I was only trying to show you that in reality it wasn't that different, the ISA only pays a little more.

I don't think its controversial, not sure why you are saying that

the current 8% deal from first direct was an example of what is currently available and the interest difference is indeed nominal.

this is not true for all the deals that come up on the market. one always has to compare and consider all the angles. ISA is not always the best.

If the OP is not very finance-savvy ('rubbish with money' they said originally) the benefit to them of being a non taxpayer when it comes to a regular savings account, taxed at source, could be lost if they don't make the claim to get the tax back.

So that's the nitty-gritty question, I think :) OP... are you happy to leave your 'rubbish with money' days behind you and discover your inner tycoon? Are you prepared to move your money around a little in pursuit of the best rates (as with the HSBC limited period deal)? Would you be OK filling in forms to HMRC claiming back overpaid tax etc? Or are you looking for a quiet life with minimal intervention from yourself?

I think you can sign a form with the bank as a non-tax payer (R85) and it will not deduct tax, so no need to reclaim from HMRC later.
ISA's are great for tax payers, non tax paying, not so much