Saving a Lump Sum
While winning the lottery or the Grand National might seem unlikely, there are many more realistic situations in life where you may receive a sudden boost to your finances. For example, you might have:
- Inherited money following a bereavement
- Sold your property
- Received a large gift
- Got a bonus or promotion at work
- Taken a tax-free lump sum from your pension
Just as there is no one way to receive a financial windfall, there likely isn’t a singular best way to save a lump sum of money. Regardless of how the windfall arose, what are the various ways you can save money from an inheritance or other lump sum?
Lump sum saving options
Before you think about savings, remember that paying off any unsecured debts, and making sure you’ve got enough for the mortgage or rent, should be the priority. But if your finances are sound, here are some ideas for what to do with a lump sum of money
Save for the future
Putting your lump sum into a savings account means you can be paid interest and this may help make your money go further. But what savings accounts should you consider?
- A Fixed Rate Cash ISA, with no withdrawals permitted, can help savers achieve a good long-term return on their lump sum.
- Fixed rate bonds are another option for lump sum savings, which can pay some of the highest interest rates if you lock away your money for longer.
A regular savings account can be more suited to smaller payments over a longer period. Depending on the size of your lump sum, you could also consider whether the amount of interest paid from an Easy Access Savings account would be higher than an ISA.
The Stock Market
Buying shares can be financially rewarding, in the long-term, with the important caveat that you can also lose all your money. While we would not claim to offer advice on the subject, some people will choose to spend their money in this way as an alternative to opening a savings account with a lump sum.
The stock market is an organised trading exchange where you can buy or sell shares, also known as stocks, in publicly listed companies. If you believe a company’s value will grow, you can invest your own money to effectively own a piece of that business and become a shareholder. Potentially, this is a profitable way of spending your inheritance money, as your share price in a company can rise over time, giving you a return on your investment.
However, you’ll need to do your homework, as you run the risk of losing everything. You might want to seek advice from an independent financial adviser before you invest anything. Or you could also consider a Stocks & Shares ISA, currently not offered by YBS.
UK house prices have risen dramatically over recent decades, and many people choose to put their lump sum savings into a deposit for a home. While the property market can fluctuate, investing in bricks and mortar gives you a tangible asset, and - unless you have an interest only mortgage - with each mortgage payment you’re one step closer to owning the home outright. However, as with any investment there is no guarantee you will make a return, and you could end up in negative equity, where the property is worth less than the outstanding mortgage.
Will I pay tax on my inheritance?
While we’re not here to offer you tax advice, it’s certainly the case that anyone who receives money from an inheritance will want to know how much tax, if any, they owe. Check the Gov.UK website to find out if you’re likely to pay tax on the amount of inheritance you are receiving.