Question: "I have recently inherited £100,000, which is sitting in my Lloyds current account until I decide where the best place is to put it. I constantly hear worrying stories about banks in the news and I am concerned how much of my savings are protected or would be at risk if something happened to my bank, could you give me any advice?"
Financial Service Compensation Scheme
The first port of call for yourself in this situation is to ensure that the full amount of your inheritance is protected under the Financial Service Compensation Scheme (FSCS). The FSCS will cover up to £85,000 per person per banking license, if in a joint account, the amount would be £170,000. If an institution was to find itself in a troublesome state and was to ‘go under’ you would be paid out your deposits which fall within the FSCS limit within 7 days.
One of the common pitfalls people make with their savings is that they spread their savings between different institutions, but do not research into these institutions to ensure that they are not on the same license to another institution that they are currently using. If you click HERE you will find our tool which will inform you of all UK banking licenses and who is linked to who.
When choosing how to spread your funds, a key aspect is to ensure that the accounts you choose to use will suit yourself at the current time and in the future. Below is a brief explanation of how the different account types could suit you.
Varieties of Savings Accounts
Easy Access Accounts – These will suit you if you are requiring access to the funds in the short term. These accounts do generally have the lower interest rates, however pay interest on a much larger sum that a current account. Accounts are generally variable, therefore rates can go up and well as down.
Notice Accounts – This type of account should give you an improved return compared to an easy access account. However, your funds are not quite as accessible and to gain access you will need to give notice for the time specified on the account. If you do require the funds in a shorter time than the notice period, some account charge a penalty, but many simply don’t allow access without giving the required notice. Organised planning is needed when using these accounts. Like Easy Access accounts rates are generally variable, so are subject to change.
Fixed Rate Bonds – These account offer some of the best returns on traditional savings, however you generally lose access to your funds for the term of the bond. These accounts are best used when you do not require a portion of your savings and are willing to lose access for an improved return compared to accessible savings accounts.
Variable Rate Cash ISA – In the tax year 2014-15 you are allowed to pay £15,000 into an ISA. The benefit of a variable rate cash ISA is having the tax free interest on your funds, however rates are subject to change. Most variable rate ISAs allow access to the funds, so can be moved into a more competitive account if and when one arises, subject to the account conditions. The key is to ensure you only subscribe to one cash ISA per tax year and never withdraw money unless you have to. Once withdrawn the funds cannot be replaced to maintain the tax free status.
Fixed Rate Cash ISA – The use of a fixed rate cash ISA is most beneficial when you have no requirement for the use of the funds in the short term. Also, in much the same way as fixed rate bonds, you should get a larger return on your deposit the longer you tie the funds up for, while not having to pay tax on the interest, whilst held in the tax free wrapper.
Where to Research Accounts to use
The next stage in the process is researching savings accounts to use. It is essential that the best buys tables you use are independent and unbiased where accounts are placed in the tables on their merits, not for the financial benefit of the publishers.
The Best Buys tables on our website are completely unbiased and very clear, so that you are able to find the best accounts on the market at the current time.
Similarly you can call our MoneyLine team for free on 0800 321 3581 and speak to one of our advisers who would be very happy to help you. We do not charge for this service.
Building a Balanced Portfolio
This brings us to the subject of how you are going to build a balanced portfolio, to ensure you do get the best returns on your savings, whilst ensuring you have access to enough of your funds to be able to meet your requirements.
I have provided a case study below for reference on how best to build a balanced savings portfolio.
Client A inherited £110,000 and enquired with us in regards to our Concierge Savings Advice Service.
Using this service each client is built a bespoke personalised savings portfolio to ensure that they will earn the best interest rates possible in the best accounts to suit their needs. This service is so valuable as the recommendations we offer are completely independent and unbiased allowing us to be able to pick from all available accounts within the UK Savings Market.
Client A wanted to keep a buffer fund of £40,000 easily accessible for their day to day expenses and for emergencies. They had not used their ISA allowance for the current tax year, but would like to and were willing to tie their ISA up for a maximum of 3 years. With their remaining funds, they had set a maximum period of 3 years for their funds to be tied up and would not require access to more money as they were working for the foreseeable future.
The recommendations made to Client A display a balanced portfolio, where they are achieving the most competitive rates in the types of accounts we have recommended to use. We are also ensuring that they are not exceeding the FSCS limit, therefore spreading their funds and removing risk.
The Concierge service has been proven that for our private clients they will receive an additional £915 per annum for every £100,000 of cash held. If you would like further information on the Concierge Managed Savings Service and the value of our advice click Here.
Monitoring your Accounts
Setting up your savings accounts is just the first stage of managing your savings. Monitoring your accounts is essential to ensure that you are getting the best rate on the market all the time and making your savings work as hard as they can for you.
I would recommend using our Rate Tracker Service. To use this you would enter the names of accounts you use and it will alert you if your interest rate is reduced or bonus expires or if a more competitive account became available. This will help you ensure you are always on top of managing your savings.
It is essential that you ensure that your savings are fully covered by the FSCS and not to rely upon the name of an institution or reputation when holding funds in excess of the compensation scheme limit.
Managing your savings is also important to ensure you get the best value from your savings and not allow the banks to pay you poor returns!
If you need any guidance on where is the best place to start with managing your savings, please feel free to contact us to help kick start your savings portfolio!
Many thanks for your question,
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