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Best home for cash?

Saving | Savings Accounts Helpful? 14

Asked by HUGHES, submitted 30 June 2011.

Open Quote Can you please give me some advice on the best place to deposit some cash which I will receive as part of a lump sum payment. I would like to spread the amount over a few providers. The total amount is circa £90,000.

I would also consider part of this sum for a low risk investment - any ideas would also be helpful.
End Quote

Answered by Justin on 07 July 2011

In the current climate, low risk means cash - so I'd focus on a selection of 'best buy' savings accounts.

You can use websites like moneyfacts to view the latest rates on offer, but at the time of writing the following accounts look pretty competitive (all rates shown before tax):

Coventry BS Poppy Online Saver - 3.10%
Nationwide MySave Online Plus - 3.05%
Birmingham Midshires e-save 2 - 2.78%

Cash ISAs look even more appealing thanks to interest being tax-free and generally higher rates. You can save up to £5,340 within a cash ISA this tax (runs until 5 April 2012). Current best buys include:

AA Instant Access ISA - 3.35%
Santander Flexible ISA 3 - 3.30%

The trouble with the above accounts are that rates are variable and often include a temporary bonus for the first year or so. This is fine provided you make a note to shop around for better deals when rates start to decline and become less competitive, but many people don't which is why banks and building societies continue to operate this sharp practice.

If you don't mind tying money up for a year or more then the best fixed rates look quite appealing if you believe the Bank of England will keep its base rate low for quite a while yet (I do). Rates on offer include:

Yorkshire BS - 3.50% fixed for 1 year
Kent Reliance BS - 5.00% fixed for 5 years

Another option is NS&I Index-Linked Certificates, which provide a tax-free return linked to inflation for investments of up to £15,000. Good news if inflation remains high, less so if it declines or even becomes negative ('deflation'). The certificates run for a 5 year term, but the penalty for withdrawing anytime after the first year is not excessive. Rather than cover in depth here, take a look at my recent article covering the latest issue of these certificates.

While you could also consider fixed interest investments such as gilts and corporate bonds, current yields don't look that appealing versus cash and I can't see that much scope for capital growth either, hence I'd be inclined to stick for cash forthe moment in your position. Not very exciting, but better than losing money shorter term.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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