20k savings..what would you do?

[mikado1]

I have a lump sum in my current account. It was once savings but the bank closed down so I now don't officially save and I'm making nothing on it (and I'm probably spending more than I should because it's there). I have no loans or debt, bar mortgage. I'd like to get some interest on it or maybe invest but I am clueless. What would you do?

You should make sure you have an emergency fund for loss of income, any large purchases (car? home improvements?) the amount depends on the stability of your income and whether you expect to buy a car/new windows or whatever in the next couple of years or so. Get the most interest you can, while maintaining access.

Then you could consider overpaying your mortgage but check for any penalties and also check the rate. If you can beat it with savings, do that instead. Check for tax rules on interest earned.

Think about whether it is worth topping up your pension and whether they are any advantages of doing that - in the UK we get tax relief which makes it a no brainer for many.

I don't know what options you have available in Ireland.
I would suggest you try to find information from those in Ireland.

One podcast I know is Informed Decisions which is more about retirement planning in Ireland but you may find some episodes useful if you are looking to invest the money.

overcast.fm/+HLIvswXuY

No one can advise you what to do as you haven't given any information to go on.

How old are you? Do you have any other cash savings or investments? How is you pension planning looking? How secure is your employment?

You have to ignore anything anyone has said above with knowing your wider situation.

sorry but its your advice which isn't great. If you have a low mortgage rate then put the money in an account that pays a higher % than the mortgage and then when you come to remortgage, if the remortgage rate equals or higher than your savings rate you can pay off some of the mortgage then.

Any overpayments reduce the interest. And any amount not paid on interest is a good amount.
Even if you overpay by £50 a month, it does make a difference.
And when it comes to remortgaging, you can use the savings to pay a chunk.

not if you get paid more interest on keeping that money in savings account than the mortgage interest rate. If your mortgage is 1.5% and you get 3% on savings then you are netting 1.5% more than overpaying the mortgage.

Cash ISA, the rates are quite good at the moment especially the longer you can leave it.

I would not pay off my mortgage with £20k in savings. Thats the really the amount you should be keeping as a rainy day fund in case of unemployment for any reason, or for unexpected home repairs etc. Put it in a high interest savings account.

Thanks again for all input. To fill in some info - I'm mid 40s with 100k left to pay on a now 350k house. No car loans or debts. Old but reliable car. Permanent, pensionable job with no concern re security. Two dependent DC. No other cash savings or investments bar a fledgling college fund of about 3k. Public sector pension with a small private pension that I no longer pay into.

No it isn’t?

my mortgage rate is under 2% fixed for another 2 years.

my savings are earning 5%.

why should I use my savings to pay the mortgage?

a lump sum will make a “dent in the core” whatever the mortgage rate is.

I would pay off £10k off mortgage. That will reduce mortgage left to £90k.
Kept monthly Mortgage payments the same as before as you will pay it off x amount of months/ years earlier. Then helping of children are then at uni age as mortgage gone

Not quite. 1.5% on £100,000 is more than 3% on £20,000. It’s £1500 vs £600.

Prizebonds aren't good value at the moment - unlike Premium bonds, they haven't upped the return on the prizepool so it's rubbish in comparison to savings accounts.

Could you up your workplace pension and use these savings to cover the resulting salary shortfall?

How much are you prepared to lock away and for how long?

This would work if the amount you have in savings is exactly the same as your mortgage. But my bet is that your debt (mortgage) amount is higher than what you have in savings.
So yes, you only pay 2%interest, but on a much larger amount, and get the higher interest on a comparatively smaller amount.
Overpaying your mortgage makes a dent in the interest the bank pockets.

Not quite. 1.5% on £100,000 is more than 3% on £20,000. It’s £1500 vs £600.

Right.. but that's not the comparison is it - it's 1.5% of 20k - the amount she could potentially pay off her mortgage...

Now, personally, for that tiny level of difference in interest, I'd pay off the mortgage - nothing feels as good as watching the time left on your mortgage go down, but it's not the best return necessarily - depending on what tax you end up paying on the savings - my credit union account for instance, once I've paid DIRT (Irish tax on interest) was basically nothing. I may as well have stashed it in wads of cash under the bed.

Can I hold UK Premium Bonds in Ireland?
Yes. But you'll need a UK bank or building society account (or an NS&I Direct Saver or Investment Account) that can receive BACS transfers. We add your interest without deducting any tax. However, the interest is taxable so it will count towards your Personal Savings Allowance in the tax year that your Bond matures.

Put it in an investment fund. Ask Paul is a good source of Irish based financial information.
There is nothing in Ireland similar to a U.K. ISA investment.

You're comparing the wrong figures. The interest on a £100k mortgage at 1.5% is £1500. If the OP puts £20k in savings it earns £600, so the net interest paid is £1500-£600 = £900.

If the OP pays £20k off her mortgage today and is charged 1.5% on the remaining £80k, that's £1200 interest pa, so she's £300 worse off.

Wouldn't that also put you at risk of currency fluctuations, which could be beneficial to an Irish person, but could also work out expensive if the pound strengthens.

(Apologies for my last post in pounds, but obviously the numbers work just the same in Euro).

That sum is what we call our cloudy day fund, which differs from the it is lashing it down fund.

I would stick 10k in the college fund, takes the pressure off somewhat, and 10k for emergencies. Not to be touched.

Vanguard/stocks and shares ISA

I get it now, thank you :)

Look at Raisin.co.uk. They are currently offering 5.85% on both 1 & 2 year fixed rate bonds with Tandem

www.raisin.co.uk/term-deposit/tan001-tandem-1-year/?#bank-product-details

@mikado1

living in Ireland. Independent financial advisor or I find https://www.askaboutmoney.com/ a really useful forum for this kind of thing.

No. You’re comparing the entire mortgage to a lower amount in savings.

say my mortgage is 100k. I pay 2% interest which is 2000 per year.

I have 20k in savings. At 5% I earn 1000 per year.

so overall I am only paying 1k interest.

now if I use that 20k to pay off my mortgage, I will pay 2% on the remaining 80k- £1600.

so paying off my mortgage I am worse off by £600

follow?