🔔 #AskAnna: How can I earn as much as possible with short term cash

I was recently asked to answer the following question in The Times...

Q: My wife and I are due to complete our house sale next month but are yet to find another property to buy, so are moving in with my brother to break the chain. It means that we will have an awful lot of money — about £370,000 — in cash while we search for and complete our own purchase, which could be as soon as three months.

Anna says:

It makes so much sense to want to get a return on your money while you are looking for your new home and as you are going to need access to it in the short term, cash savings is a sensible place to put it.

The good news is that even though the Bank of England base rate was cut to 5% at the beginning of August this year, there are still interest rates of 5% or even more available. The tough decision is what sort of account to choose.

The top paying 3-month fixed term bond is with a bank called Mizrahi Tefahot Bank Ltd paying 5.12% AER – which is available exclusively via the Flagstone cash platform. However, as with most fixed rate bonds, there is no access before maturity, so if you need the cash before the term ends, you’d need to find an alternative source.  On a deposit of £370,000, you could earn approximately £4,736 over the three months. This would take you both well over your Personal Savings Allowances (PSA) so you’ll need to remember that there will be tax to pay.

If there is a possibility that you may need earlier access, the top easy access account is with the Cahoot Simple Saver account, which is currently paying 4.85% AER.

You could also consider a notice account – an account that requires you to give a certain number of days’ notice before the funds will be released. The top 90-day notice account is currently being offered by Investec Bank and is paying 5.25% AER – but to be on the safe side, you’d need to consider giving the required notice as soon as, or shortly after you open the account if you want to know you can get hold of the money three months later.

Of course, both easy access and notice accounts have variable rates, so the interest rate could be cut at any time, however if you’re not sure about what access you’ll actually need, these could be the most cost-effective routes to take.

One other concern of having such a large lump sum of cash to deposit, would often be the protection of the money. The Financial Services Compensation Scheme (FSCS) protects up to £85,000 per person, per banking licence. However, the FSCS also protects ‘temporary high balances’ of up to £1 million for six months from the date you are credited with the money, although this only applies to funds received from certain life events such as redundancy, divorce, personal injury amongst other things – but also on the sale of your main residence.

So that’s one less thing to worry about. Now you just need to find the best savings account that pays you the best interest with the access you might need. Keep an eye on the best rates on our Best Buy tables.