Where do I put my inheritance money?

[sleeplessinmumsville]

I’m in the very fortunate position of inheriting around £120k shortly. I plan to make an overpayment on my mortgage before the end of the year and then potentially overpay again next year (making these payments within the 10% yearly overpayment allowance). The majority though I’d like to keep accessible for savings, home repairs etc but need to give myself time to decide what to do long term.

I’ve never had anything like this amount of money before and feeling quite anxious about having it sitting in my bank account while I decide what to do with it. I have fairly limited financial knowledge which doesn’t help with the anxiety around this sum of money.

My main question is, where is the safest place to put the money in the short term while I decide on long term plans? Should I be spread it across different accounts?

Any advice would be appreciated.

ns&i easy saver and premium bonds easy to set up and easy to retrieve

For the purposes of holding it while you decide how to best use it in the future, you want it to be low risk but also getting at least some return.

If it were me, I would open the best % instant access cash isa and put £20k in there for this years allowance, you can then put another £20k in April 2026 if you wish. This is assuming you haven't used any of this years £20k allowance.

For the rest of it you could put £50 into premium bonds, you may get a better or worse return than a savings account, but any winnings each month are tax free.

Anything left just find the best paying savings account you can.

If you have any expensive debts such as credit cards or personal loans I'd make sure they are cleared before saving.

Good news! There are some easy things you can do.

Most banks/building societies are insured up to £120k per person so make sure any you choose is part of the FSCS.

While the cash ISA limit is still £20k, search for one with a good interest rate and stash £20k there for 1 year (depending on the interest rate offer). The interest you earn will be tax free and after a year, you'll be free to move your money into a different ISA.

Longer term stocks & shares ISAs do give better returns but you'll want to learn about them first so you can choose the right one for you.

After you have overpaid your mortgage, look to put any remainder in a higher interest rate savings account (Money saving expert is a reliable website). Compare rates for N S & I (as per PP) and MN loves the premium bonds.

I would not keep a large amount in your current account since that is probably not interest bearing.

If you want to reduce the term on your mortgage over pay by 10% each month. If you want to reduce your payments each month then overpay in a lump sum. We wanted to reduce the term and have paid it off 5 years earlier than we would have

3-6 months living expenses ( as emergency fund)in the highest interest account you can find Martin Lewis money saving expert has a list his newsletter every Wednesday updates this. Set aside enough money also for the 10%overpayment. Historically the average yield on stock market is 8%per year over decades. A cash ISA will if you are lucky keep pace with inflation for really growth you needs something in shares stocks etc but you need advice .

Currently the banks guarantee upto 130k per institution so you'll need 2 beware they are not in same group as tsb is in same group as Lloyds etc

Also check your pension provision any missing years etc

Your bank will be happy to help you, most of them have an investment advisor who will talk you through the options.

I overpaid my mortgage above the 10% allowed as the fee wasn't actually that bad. Take a look at the terms as if your in a position to clear it that might still be the wisest choice. It took me just 4 years to resave the value of the mortgage I'd paid off.

Although it seems counterintuitive the best financial decision would be to pay into your pension rather than over pay your mortgage.

The government tops up your contribution by 25 or 40% depending on your income tax band.
This is an unbeatable ‘rate of return’. Also at present - when you reach at 55/57 you can pull out your 25% tax free lump sum and use some of that to pay off your mortgage.

It always ‘feels’ better to pay off a mortgage early but it’s not the best financial decision if you have the opportunity to contribute to a pension.

Thank you all, your replies are really helpful. I’m going to look further in to these suggestions (NS&I, premium bonds, instant ISA’s). Feeling prepared helps with the financial anxiety for sure.

Reassuring to know the banks guaranteed amount has gone up too, I didn’t know about that.