How should I invest £15,000 if I'll need to use it in two years' time?

admin
28 July 2014

Q

I have around £15,000 to invest that has come partly from an insurance claim and partly from a pension lump sum. I want to put it somewhere safe for now but in two years' time I need to use this money to pay off my mortgage.What are my options?
From
SM/Aberdeen

A

The first question for me is why don't you just pay off your mortgage now? It may be that your mortgage restricts early repayment, or it could be that you are on an excellent interest rate on the mortgage and can achieve a better net interest rate in cash savings.

However, most mortgage borrowers are likely to pay a higher interest rate on their mortgage than the interest rate they will receive on cash savings, so therefore paying down the mortgage gives a better return.

Assuming there's a good reason for you not repaying your mortgage sooner, if you want a safe place for your money and need it in two years' time you cannot really look any further than cash savings or a cash-equivalent vehicle such as Premium Bonds.

Find the best Cash Isa or savings account for you

New Isas

Now that Isas have become New Isas, you can put away £15,000 in a cash account every year (less anything in a stocks and shares Nisa). Given this increased allowance (from just £5,940 at the beginning of the 2014/15 tax year), banks are competing a bit harder for people's Nisa contributions, so it is up to you to shop around.

Depending on how much access you are likely to need to the £15,000, you could go for anything from an instant-access Nisa account to a two-year fixed rate. A fixed rate should pay a bit more interest but it is just a case of looking at the best-buy tables and deciding whether you are comfortable that the extra interest is compensating you sufficiently for the reduced flexibility, as you will pay a penalty for early withdrawals.

At the time of writing, the best deals from Moneywise.co.uk/compare were 1.95% from the Post Office for a fixed-rate cash Nisa for two years, and 1.5% from National Savings and Investments (NS&I) for an instant-access account.

Jason Witcombe is an independent financial adviser at Evolve Financial Planning

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