Where should I save the money from my endowment policy?

admin
12 October 2015

Q

I have an endowment policy that matures later this year that is intended to repay my mortgage in April 2016. I expect to receive around £27,300. I’d like advice on the best place to safely put the money for a few months until my mortgage is due to be repaid. Hopefully, I can gain some interest, too.
From
SH/London

A

As you will need this money in the short term, your best bet is to keep the payout in cash. Secure at Savings Champion Trust Bank is currently offering a 183-day notice account, which is paying 2.07% AER – but this does mean that you will need to give six months’ notice in order to have access to the funds. If this notice period is too long, it also has a four-month notice account offering 1.98% AER.

If you need access more immediately, currently the best rate on an easy-access savings account is 1.60% AER with BM Savings. There is a slightly better rate from RCI Bank of 1.65% AER but this is a French bank and your money is not protected under the UK Financial Services Compensation Scheme (FSCS). Instead, it is covered by the French equivalent and the pan-European Deposit Guaranteed Scheme of €100,000 (£73,800). However, the FSCS is being brought into line with this from January.

The other option to consider is a little fiddlier. You could use high interest-paying current accounts. Santander’s 123 account pays 3% AER on balances of up to £20,000, while Nationwide and Tesco offer 5% AER but on much lower balances of £2,500 and £2,000 respectively. But there are lots of terms and conditions that must be adhered to, otherwise not only might you not earn the interest you expect but you could end up with fees and charges, which could more than wipe out the higher interest offered.

For example, these accounts need regular amounts to be deposited and some may insist on direct debits being set up. There may also be monthly fees to be taken into account.

Anna Bowes is a founder and director at Savings Champion.