Coming into some money - what to do with it?

[Strawberryfields1756]

Hi, advice needed please. I’m going to be coming into some money about £15-£20k and I have no idea what to do with it. We don’t own our home and that is the dream eventually but seems so out of reach at the moment. We privately rent and have 2 young children. Money is tight. I originally was thinking to put it in a Lifetime ISA towards first home, but I don’t know whether I should be investing it and if so into what? Any advice would be much appreciated :)

do you manage to sae any money presently?
If your dream is to own your own home have you got a monthly budget?
Do you have any debts?

As an off the cuff for a safe easy place to put the money

id go for a plum or trading 212 ISA - they both pay some of the best interest rates

with a trading 212 account you'll see a return of £1.30 a day on £10,000so for £20,00 thats double. So approx £78 per month income from £20,000 depending on the days in the month - February will obviosuly be less

If you can't quite reach the dream of owning your own home atm - but £78 a month savings into a pot atm might be helpful

How much would it cost to buy a flat/house where you live?
Within how many years would you hope to do it?

Returns on stocks and shares are not guaranteed even if you use an ISA and you can risk losing money so be careful on that one!

If you have no other savings I would indeed start a LISA. You can't get the full government bonus if you drop it in all at once though I believe- the gov bonus is paid for on regular monthly contributions so you will need another account for it to sit in whilst you have a standing order set up to transfer £x per month.

Beyond that I would use Money Saving Expert, the Martin Lewis site to find what account gives you the best rate to hold the money in other wise. I do use a stocks and shares ISA but if you're not confident the high interest rates at the moment do have some benefit and that is that there are some accounts around paying you 4-5% on cash and that's a lot more consistent than a stocks and Shares ISA. With a stocks and shares, if you need to remove the money at a certain point you may not benefit from the best benefits for example if a war starts and the markets take a hit. For example we saved our house deposit in a stocks and shares ISA. The Ukraine war wiped £1k off the pot in a single week. Cash ISA isn't affected by that stuff and would pay a regular amount on an account with a decent rate. On £15k it wouldn't be too shabby at all.

Start a LISA but you can only put in £4K per year. If you do that then the government gives you £1K per year. This is the best way to get you out of private renting. Put most of the rest into fixed term savings accounts or ISA’s that accommodate you taking out £4K every year to add into your LISA - they average 4.8% interest - and put some, maybe £1K, into an easy access account for emergencies.

Pay off any debts
start an emergency fund of 3/6 months expenses in instant access high savings
do the LISA and add to it

Because share investments can go down as well as up, it's generally advised that if you are likely to want the money within 5 years you are safer keeping your money in cash accounts. This does depend on your attitude to risk.

If you are looking to buy a house within that timeframe, then a LISA is a good idea. Invest £4k a year and the government will add another £1k a year, plus you will earn interest. There are restrictions with a LISA so make sure you understand these. Money saving expert is a good place to start. www.moneysavingexpert.com/savings/lifetime-isas/

For the rest, a standard ISA will currently pay around 4-5%. Choose the highest interest rate that will allow you to make the £4k a year withdrawal to put in the LISA, plus maybe a couple of 'emergency' withdrawals should you need them.

I would also keep £1-2k in an instant access account that you can access at any time as an emergency fund.

Money saving expert is a really good website to look at for advice, including on types of savings accounts, current rates, and how your money is protected.

www.moneysavingexpert.com/savings/

I agree with Skykidsspy, go through making yourselves secure.

Pay off consumer debt (if any).
Have 6 months of expenses in a savings account easily accessible as your emergency fund.

Be contributing to workplace pensions, at least to the amount that gets you employer pension contribution. If you are self employed, aim for 8% of profits going into pension.

Cash LISA if intending to buy within the next 5 years. However be aware of the limitations. £450k max home value won't buy much in London but will buy in other places.