Consumers who have suddenly found themselves with a lump sum of money, whether it is due to a redundancy payout, pension drawdown or through deciding to release equity from their home, will have been disappointed to see that savings rates have been falling since the start of the Coronavirus pandemic in March.
To make getting a good return on the lump sum even more challenging, at times of economic uncertainty many savers will want to be able to access their funds, which means that the top-paying long-term accounts are often not a suitable option.
As well as this, those who have taken out an equity release or pension drawdown will unlikely want to risk putting their money into a stocks and shares ISA. This is also not usually an option for those who have received a redundancy payout, as they will normally need to be able to access their money at short notice.
Fortunately, there are some options still available to savers who have a lump sum they want to invest. Below, we have outlined the best rates and some of the options available to these savers.
For those who have gained a substantial lump sum, for example through pension drawdown or equity release, and who do not need to access the money immediately or in the short-term, a long-term fixed rate account could be a good option.
For example, Bank of London and The Middle East (BLME) currently has the top-paying five year fixed rate bond, which pays an expected profit rate of 1.50% gross on anniversary on its Premier Deposit Account. If a lump sum was deposited into this account, it would earn an expected profit of £1,800 per year (profit on this account has to be paid away). Over the five years, this would result in an expected profit of £9,000. Savers should be aware that this would take them over the Personal Savings Allowance tax-free threshold – more information about savings tax can be found on our guide How are my Savings taxed?.
Alternatively, those who want to invest a lump sum but who want to be able to access their money could consider a notice account. The top-paying notice account, which at the time of writing has not stated it will reduce rates, comes from BLME, which pays an expected profit rate of 1.10% gross quarterly on its 90 Day Notice Account (Issue 3). Depositing £120,000 into this account would result in an expected profit of £1,320 per year. This account, however, would allow savers to access their funds as long as 90 days’ notice is given. As well as this, savers can make further additions anytime they like into this account.
Keep in mind that only balances of up to £85,000 are protected under the Depositor Protection Scheme. As such, it might be wiser to only deposit up to £85,000 in one account and the remaining £35,000 into an account with a different provider. For more information about the scheme, read our guide Deposit protection schemes: what would happen if a bank goes bust?.
For those with a smaller lump sum of £15,000, having access to their money is likely to be more important and, as such, a short-term fixed rate account or an easy access account could be the best option. The top-paying one year fixed rate account is currently being offered by QIB (UK), which pays an expected profit rate of 1.20% gross on maturity on its Raisin UK – 1 Year Fixed Term Deposit. Depositing £15,000 into this account would result in £180.00 profit over the one-year period.
Alternatively, the top-paying easy access account currently beats the top-paying fixed rate account, with National Savings & Investments (NS&I) paying 1.15% gross monthly on its Income Bonds. Savers should be aware that easy access accounts can reduce rates at any time, while the fixed rate account will remain fixed for the term of the bond. A sum of £15,000 deposited into NS&I’s Income Bond over a one-year period will gain £172.50 in interest, as long as the interest rate remains at 1.15% gross.
For those who have a small lump sum they are looking to invest, for example through a redundancy payout, an easy access account that allows instant access to the funds is likely to be a good option. When looking for the best easy access account, it is important to keep in mind that easy access savings account rates are variable, which means that they can be reduced or increased at any time. As such, it is important to always be aware of the rate on the easy access account and to transfer savings to a different account if the rate is reduced and there are better options available.
In addition to this, before opening the account, it is important to ensure that it will allow the type of withdrawals needed, for example some easy access accounts have restrictions on how money can be withdrawn and/or the number of withdrawals that are allowed.
For those with a smaller lump sum and who do not need to have instant access to their funds, a short-term notice account could provide a more attractive rate. The best rate on a 30-day notice account is currently being offered by Secure Trust Bank, which pays 0.60% gross quarterly on its 30 Day Notice Account. This account allows unlimited further additions but restricts withdrawals to four interest withdrawals per year and three capital withdrawals per year subject to 30 days’ notice.
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