How should I invest £15,000 if I'm not happy with a high-risk product?

admin
3 March 2015

Q

I would like to invest £15,000 in a low- to medium-risk product but am unsure what to do. At the moment I am receiving 1.5% from my Nationwide current account. What options do I have?
From
KC/Lancashire

A

There are a few options for you to consider depending on whether you want access to some or all of your nest egg at short notice.

Firstly, I would point you towards a cash Isa as it is the most efficient as you get to keep all of the interest.

If you have a lump sum that you are able to put away for one or two years without access to the money, then the best rate for a one-year fixed rate Isa (at the time of writing) is from Virgin Money at 1.71%, or if you can put your money away for two years, you may wish to consider Halifax two-year fixed-rate Isa at 2% (minimum £500).

If you like the idea of tax-free savings but prefer to be able to pay in extra or withdraw funds when you like, the Defined Access e-Isa from Virgin Money pays 1.51%.

For non-Isa savings if you've already used your tax-free allowance, you may be interested in the Paragon Bank one-year fixed-rate bond that pays 2.07% AER gross.

Strangely enough, one of the best ways to get a decent return on your cash is via selected current accounts. For example,TSB pays 5% on the first £2,000, Tesco Bank 3% up to £3,000 and the Santander 123 current account pays 3% on balances from £3,000 to £20,000, plus you have instant access to your money whenever you need it.

If you put your £15,000 in to the Santander 123 account at 3%, your net return after basic tax would be 2.40% and thus a better option than fixed rate cash Isa, plus you have the flexibility of being able to access your cash whenever you like without any financial penalty.

If you pay 40% tax, the 3% gross/AER becomes 1.80% net and in this situation the Cash Isa at 1.95% may be a better option depending on how comfortable you are locking your money away to earn that extra 0.15%.

Depending on your own tax situation and need to access your £15,000, it may be that the most suitable option would be a combination of the above suggestions.

Andrew Hagger is founder of personal finance website Moneycomms.co.uk

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