What can you do with a lump sum of money?
At some point you might find yourself figuring out what's best to do with a lump sum of money. This could be because you've sold your house or you've had your money in a fixed rate bond which is due to mature soon. Either way, it's important to consider all the options when it comes to what you should do with it.
You can put a lump sum of money in a savings account
Finding a savings account where your money can earn interest is the best place to start. It's always important to compare the Annual Equivalent Rate (AER) when choosing which savings account is best for you. You can also try Money Saving Expert's lump sum savings calculator, to see how much interest saving your money could earn you.
There are four main types of savings accounts, but here are the most popular savings accounts for lump sums of money:
A fixed rate savings account or fixed rate bond
If you're looking to put away your money for a set period of time, a fixed rate savings account or fixed rate bond could be best for you.
Your money is locked away for a certain period and the interest rate is fixed. A fixed rate account usually earns you more interest than an easy access account. Return is guaranteed but withdrawals aren't usually allowed so this doesn't always suit everyone.
The best fixed rate savings account for you will depend on how long you want to leave your money untouched for. The longer you can leave your money, the higher the interest rate you earn will be!
An easy access savings account
An easy access savings account is useful if you're considering moving money into longer-term investments or if you're looking to be more flexible with the money you have. You have the flexibility to withdraw money when you need to.
A cash ISA
If you're a big saver, you might find that putting a lump sum amount into a cash ISA is the most effective way to manage your money.
A cash ISA is a savings account where interest isn't taxed. If you're over the age of 16 in the UK, you can put up to £20,000 in an ISA each year and once it's in it stays tax-free. You can now get tax-free savings through your Monzo account too. To find out more, read about getting an ISA with Monzo here.
You can also take money out of a fixed rate cash ISA, although there might be penalties which means you lose interest.
You can invest a lump sum of money
Some people decide to invest their money depending on how they feel about risk. Investing into the stock market means that your money can potentially see high growth. But your lump sum would also be exposed to any potential downward movements too!
How to make sure your lump sum of money is safe
Whether you're a first-timer or an experienced saver, you should always make sure your money is safe. If your money is in a bank or building society regulated in the UK, your money will be protected under the Financial Services Compensation Scheme (FSCS). The FSCS guarantees protection of up to £85,000 per financial institution and per person.
If your lump sum of money is more than £85,000, make sure you split it between different bank accounts so that you're fully protected for all of it. Read more about how Monzo protects your money here.