Making the most of a lump sum
Recently come into some money and not sure what to do with it? Our guide to saving a lump sum could help.
What to do with a lump sum?
There are a few things you can do to make the most of a lump sum, including:
Pay off existing debts
Using a lump sum to pay off existing debt can be a sensible option – especially if the interest rate is high. It’s typically best to clear debt from short-term borrowing options, like credit cards, store cards, and overdrafts as quickly as you can. Be sure to check the terms and conditions of your agreement to see if there are any early repayment fees.
Pay off your mortgage
Paying off your mortgage earlier than planned can reduce how much interest you pay, save you money, and take you closer to being mortgage-free.
Be sure to check if your mortgage has an annual overpayment allowance. Staying within in this limit can avoid early repayment charges.
Put it into a savings account or pension
There are plenty of savings accounts which can help you grow your lump sum. Which type of account you choose should depend on how soon you want to be able to access the money and your risk appetite.
Alternatively, paying it into your pension is another way you can help boost your savings for retirement.
Think about investing
If you're prepared to take some risk, investing could earn you a greater return on your money compared to savings. Just remember that the value of investments can go down as well as up, and you could get back less than you invest. Ideally, aim to invest for at least 5 years to give your money time to potentially grow and recover from any dips in the market.
Saving a lump sum: pros and cons
If you're unsure whether saving a lump sum is right for you, we've broken down the pros and cons:
Good for you if...
- you want to earn interest on the money you’ve received
- you’re looking for an opportunity to steadily grow your money over time with interest
- you like having options – whether it’s locking your money away with a fixed rate account or keeping things flexible with an instant access account.
Not so good for you if…
- you have existing debts that might be better to pay off first
- the deposit limits don’t work for you – some accounts have minimum or maximum deposit requirements
- you have a higher risk appetite and prefer to invest.
Types of savings accounts for a lump sum
Fixed rate
If you’re confident you won’t need access to your money for a while, a fixed rate savings account could be a smart choice. You can lock your money away at a favourable interest rate for a set period, helping it to grow steadily. The interest rate also stays the same until the term ends.
Easy access
If you’d like to save your money but might need to dip into it for things like a holiday or unexpected car repairs, an easy access account is a good option. While the interest rates are usually a little lower than fixed rate accounts, you’ll be able to withdraw your money whenever you need it.
Cash ISAs
With a cash ISA you can deposit up to £20,000* per tax year into your account, and any interest you earn is free from UK income tax. There are different types, including both fixed rate and easy access.
*This information is correct for the tax year 25/26. ISA limits can change so be sure to check the gov.uk Opens an overlay [Will show a security message first] website for the most up to date information.
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