any advice what to do with 50k savings?

[ricecookie]

I just got a small inheritance from a relative and we now have around 50k in savings (and new one for us at the grand old age of 40). Never really had any so not sure what is best to do with the cash? Our jobs are semi-secure so probably do need is as a cushion just in case one of us loses our job. But do we just keep it in the bank? Put it in a savings account which seems to have really low-interest rates. Any advice would be really appreciated as I have literally no idea.

That's great that you got that kind of money op. Check out Dave Ramsey's 7 baby steps, he teaches about financial peace. Do you have any debts, I would clear those and make sure you are debt free, save 6 months of expenses in an emergency fund (normal savings acc). Pay some to your house or retirement account. Make sure you enjoy some🥰

Do you have a mortgage? or any debts?

Pay off any debts. Consider overpaying your mortgage but check the interest rate. Some mortgage rates are very low (under 1%) so its barely worth it, especially if you'd prefer to keep the money accessible as you can't normally take back overpayments if you need the money later.

Do either or your pensions need topping up? That would attract tax relief but would tie the money up until at least age 55.

If you don't already have any premium bonds, £50k is the maximum holding allowed, completely safe and you can get the money back within a few days. At that amount, you should win prizes that average close to the payout rate of 1%, so likely to match or even beat the best instant access accounts, which are now down to about 0.6%. You can get slightly more if you tie the money up in a notice account, but not much.

Another thing to consider is if you might need to make large purchases such as home improvements or car replacement. That would be a good use of the money. With that sort of money, especially if low/no mortgage and secure-ish job, I might consider buying or leasing an electric car if I could get a deal that looked good value.

no debts but we do have a mortgage which we overpay but will still have when we're 60 and pay into a pension. We try and save a bit every month and put aside a bit for DC but other than that no savings (other than pensions).

Do you need a new car or anything? Or want to move house?
Otherwise I'd put a big chunk on your mortgage.
Please do enjoy some of it, really lovely holiday perhaps, post pandemic?
Few hundred to a worthwhile charity if you're feeling generous?

will check all these things out.

I feel completely financially illiterate. For example, if we put aside 6months' worth of living expenses do people usually keep those in a savings account or somewhere else?

So really it's what to do with 20k or so. Not enough to make a dent in our mortgage but also dont want it to be eaten up by inflation

I would put it into your mortgage. Its pointless putting into a savings account getting 1% at best, when you are paying say 4% interest on a mortgage.

Chuck it into premium bonds while you think. Longer term, look into pension contribution-there is /was some government incentive whereby they added 20/40% to anything you put in. Someone with more knowledge may advise but if you put it in there, you could perhaps access enough of the lump sum at 55 to pay off the remaining mortgage and, in the meantime, it should have earned more than paying off the mortgage now will earn, iyswim. Definitely get proper advice though as mine is based on a half-understood mishmash!

The trouble is that you don't have a lot of options for savings at the moment. Interest rates are virtually zero, but investment products carry a risk, especially now with the impact of covid and Brexit.

What you don't want is needing to access the money at a time that the market is low, which could be the case if you're made redundant due to widespread poor economic conditions.

On the plus side, inflation is very low, and if you do have savings, you'll still have most of them if you need them, even if they don't have quite the purchasing power they do now.

As for what people do with their savings, lots of people just let them languish in accounts that pay pretty much no interest. Don't be one of them. Simply moving your money to the best paying instant access account will get you over £100 a year in interest. That will go a little towards keeping up with inflation if nothing else.

See moneysavingexpert for the current best buy, also a good website to look at if you feel generally ill informed about money management - information about everything you could imagine on there and a weekly email with lots of tips so you learn good money management over time.

I would put it into your mortgage. Its pointless putting into a savings account getting 1% at best, when you are paying say 4% interest on a mortgage

If you're paying 4% interest on your mortgage, you want to change products, that's an awful rate these days.

I'd put the money in premium bonds for now while you decide.

Have a look at a mortgage overpayment calculator. You might be surprised how much of a dent you can make

You could look into getting an offset mortgage.

This means that you have a mortgage which has a savings account attached to it. You don't technically receive interest on the savings account. However, when you have money in the savings account, it reduces the amount of interest you pay on your mortgage.

For example, if you have a mortgage of £100,000 and pay 3% interest on it, then normally you pay £3000 interest per year. However, if it's an offset mortgage and you have £50,000 in the linked savings account, then the amount of mortgage which you pay interest on is reduced by that £50,000. So (in this example) the amount of interest you pay is halved, to £1500 per year. Obviously this is a very simplified example, but you can see how it works.

The advantages are similar to the advantages of overpaying your mortgage, except that you can get the money out of the offset savings account easily whenever you want. So if you suddenly need cash, it's available.

It also has advantages over having a separate interest-paying savings account, because you would probably have to pay tax on the interest you received from a separate savings account, whereas there is no tax to pay on the offset savings account (because it doesn't technically pay you any interest, it just reduces the interest you pay on your mortgage.) Plus most high interest savings accounts require you to leave your money in there for at least 2 years without touching it, so it's not so flexible.

Of course you have to weigh up what interest rate you would pay on an offset mortgage, versus what interest rate you would receive on a savings account. And it is a pain in the arse to organise remortgaging to an offset mortgage. But remortgaging is usually a good financial move anyway, if you don't want to get stuck in a high interest rate mortgage. Most people don't bother and end up paying over the odds.

I'd be tempted to pay a large lump off the mortgage and reduce your term rather than your monthly payments if you're going to be paying it into your 60s at the moment. This would give you a little more security at least, and should save you some money in interest too!

If you have any left, I'd personally put it in Premium Bonds. It's not the best but there's always a chance you'll win something, and it's pretty much instant access, which is good if you're not sure what you want to do yet.

lots of great ideas! will check them out.

out of interest - how much does everyone put into their pension per month? we are on about £400 each per month. No idea whether that's enough, whether we should top it up etc or is this fine?

We don't have any DC.

We have 24k in savings to tide us over with basic expenses- 1k mortgage, 1k bills and food. So now we are overpaying £600-700 every month for our mortgage. Hoping to increase this to £1k.

For yourself, i would either get an offset mortgage; OR keep 20-30k safety money (adjust according to usual expenses) and use the rest to overpay mortgage or pensionj.

I would keep 10k and then pay £40k into my mortgage.

OP, if you haven't done so already, do look at this mortgage overpayment calculator: www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/
I don't know how big your mortgage is but I do agree with others who suggest paying off a lump sum as to be mortgage-free earlier is an inestimable benefit. Worth too setting aside £5K/10K in Premium Bonds as your rainy day fund as it's easily accessible and any wins you get should recompense for erosion of value by inflation. The Pensions Advice Service gives some really helpful pointers on their website but the general rule of thumb is that if you have a pension provided by your job, you should try and maximise the amounts you pay into that as normally the employer will increase their contributions too. However you will need to check this with your pay-roll staff or HR.

Usually for retirement you could contribute 15% then throw the rest at your mortgage, 15 year term is better on a mortgage.

@Alexandernevermind

I would put it into your mortgage. Its pointless putting into a savings account getting 1% at best, when you are paying say 4% interest on a mortgage.

This.

It will mean that more of your repayments will clear the outstanding debt as you will pay less interest, and your mortgage will be paid off quite a bit earlier.

What's your mortgage rate, OP?
I would stick £10k in premium bonds as my emergency fund and £20k each in a stocks and shares isa (vanguard 80% equities via the fidelity platform is what I use, it's an index tracker so don't need to worry about it!)
The S&S ISA can then be used as supplementary income in retirement with a 3-4% withdrawal rate.

I know everyone advocates premium bonds on here but if you never win then it would be better in savings. At the end of the day it s a gamble. Savings, you know you ll get a bit of interest.

Speak to an independent financial advisor. They have access to products with far better interest rates.

If your jobs are not safe, and who’s are, then I’d put £50k off my mortgage (check penalty with lender) that way it would reduce my monthly outgoings and I could manage on a much lower wage if I got another job. Obviously if I didn’t lose my job I could continue to overpay the mortgage

In these uncertain times I’d be wanting to secure my future with or without employment