What should we do with £70,000?

admin
27 May 2014

Q

I recently left the Army and have a lump sum of around £70,000 in my joint account and I am unsure what to do with it. My husband and I are deciding on whether we should use the money as a deposit for a house and I am planning on taking a couple of years away from work to look after our children. I earn a monthly pension of around £1,000 and would like the money well away from our joint account as I will spend it easily. My husband is a higher-rate taxpayer and we haven't used our Isa allowances for this year. What should we do?
From
ME/Bristol

A

With any investment decision, it makes sense to try to work out in your own mind what the money is for.

This can then give you an idea of what the timescale for that investment is, which in turn can help you to decide how much or how little risk to take.

You have stated that you may like to use the money as a deposit for a house in the near future. This would suggest that keeping the money in cash savings would probably seem most logical.

My view is that risky investments, such as stockmarket investment, should only be considered if the intention is that these will be held for the long term.

When the Isa rules change, you will both have a £15,000 allowance and this can all go into a cash Isa if you like. If you repeat this process after 6 April 2015, you could shelter £60,000 of the £70,000 from tax. You should shop around for the best Isa interest rates but probably look at instant-access accounts if you might need to money for a house deposit.

From a tax point of view, it makes sense for the lump sum to be in your name rather than joint names as interest will be taxed at 20% rather than 30% (your half at 20% and his at 40%).

If you set up an instant-access savings account, it removes the lump sum from your joint account and, if only psychologically, makes it that little bit more difficult for you to access and spend.

Find the best Cash Isa or savings account for you

What is your attitude towards risk?

The first thing to do when you have decided to invest is work out exactly how much risk you can afford and want to take.

The danger of paying money into an investment that could lose money can be daunting but this needs to be balanced out by the risk of leaving your cash in a savings account where it is highly likely to be eroded by inflation.

If you are too cautious, not taking enough risk is likely to see you miss out on you financial goals while those who aren't risk adverse at all may need to calm their strategy in the final years, shifting their focus from capital growth to capital appreciation.

No investment is without risk, and depending on what time of person - and investor - you are, you will need to think about what you are trying to achieve with your investment strategy and how much time you have before you want to get your hands on the cash.

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