Savers Question
I have recently divorced and received over £500,000 from the settlement. I have never had a sum of money like this before and don’t know what I should do. Can you help?
Anna's Reply
When you receive a lump sum from a divorce settlement, it is often at a time when you are emotional and vulnerable.
And you’ll want to do the very best with the funds, as suddenly there are many new practical and financial things to consider, such as buying another property and how the divorce might affect your retirement wealth, as well as all the other emotional issues. But it’s not the ideal time to try making unfamiliar and difficult financial decisions.
If you leave it in cash savings at least initially, this can be a safe place to hold your money while you decide what to do next.
The good news is that you could benefit from the UK Financial Services Compensation Scheme Temporary High Balance protection for life events such as a divorce or inheritance, which means that up to £1m can be deposited safely with each provider per banking licence for up to six months from when you initially receive the funds, in addition to the usual £85,000.
> Read our Guide to the Temporary High Balances protection for more details
This gives you some breathing space and the only decision you need to make immediately is whether you leave the funds with your bank, often earning minimal interest, or move it into a best buy account, which can make a meaningful difference to the interest you earn.
However, if you switched to the best paying easy access account, which is currently the AA Easy Saver – Issue 6, which is paying 1.32pc, you would earn £6,600 gross in interest per year, equivalent to £550 per month – although this account does not pay out monthly interest. If you specifically needed monthly interest, Post Office Money is paying 1.29% monthly gross/1.30% AER – which would produce approximately £537.50 gross per month.
Remember, however, that you will need to split the funds after six months to ensure your savings are protected, as once Temporary High Balance protection finishes, only deposits up to £85,000 per person per banking licence are protected.
That means to ensure all your funds are safe, you would need to spread them across a range of different providers, so that you don’t have more than £85,000 held with any one institution.
Incidentally, both AA and Post Office are now part of the same banking licence, so it’s important to check this, especially when you are looking to split the funds after six months. Our FSCS Guide can help.
It’s worth noting that some accounts may not offer the same Temporary High Balance protection if they are not part of the UK FSCS.
For example, RCI Bank is part of the French Deposit Scheme, which compensates savers up to €100,000 per person, per institution, when a banking institution fails.
Savers can also make claims for temporary high balances received by the bank in the last three months, but only up to the value of an extra €500,000 each.
The main thing to remember is that you could regret making a rash decision – so take your time, but make your money work in the meantime.
And it’s probably sensible to consider taking proper independent financial advice, to make sure that you are making the right decisions in the long term.
Call us on 0800 011 9705, so that we can help you to speak to the right person for your circumstances.
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