Where should I put my deposit for a house during my divorce?
15 July 2021
Question by Ben
I recently received an inheritance of £50,000. It is currently sat in Premium Bonds as I did not really know what else to do with it. I'm 37 years old and I'm looking to hopefully use the money to put down on a house in the next couple of years. Where is the best place for my money to rest whilst I'm still renting. I'm currently going through a divorce which will not impact the savings, but does affect my ability at the moment to get on the housing market. Is there any way I can make my money work harder for me, yet still ensure I have access to it in a couple of years?
Answered by Helen Howcroft
There are a few things here which need considering.
First of all...
Will the inheritance definitely not be included as a matrimonial asset during your divorce, in relation to your finances?
It would be recommended that you speak to a family lawyer to understand the impact that this inheritance could have on the financial settlement.
Unfortunately due to the timescales involved...
Cash is the only place where you can invest the money and know that it will not fall in value prior to a property purchase.
Cash returns in the UK have steadily fallen since the credit crunch with many paying less than 1% on savings. Some banks do offer higher rates of interest where you are prepared to tie the money up for 12 months however as you are going through a divorce, this may not be appropriate as you may need access to the cash.
Therefore an account that offers instant access could be a better solution. Typically these pay the lowest rates of interest. Banks, such as Marcus, are offering preferential terms to encourage new clients and paying 1.5% over a 12 month period.
It should be remembered that interest from banks accounts is taxed.
You could consider putting the money into Cash ISAs. You have the ability to put £20,000 into your ISAs before 5th April, and a further £20,000 on or after 6th April when the new tax year begins. If you haven’t used your ISA allowance in the current (and next) tax year.
The benefit of a Cash ISA over a traditional bank account, is that the interest earned is not taxed. Again, like a bank account, the rates of interest that these pay are low and again, they typically pay higher rates to you if you agree for the money to be locked away for a year or two.
Premium Bonds, which are backed by the treasury, offer the chance of winning money on a monthly basis. The NS&I quote an indicative interest rate of 1.4%.
The key difference between premium bonds and a traditional bank, are that the returns are not guaranteed. However they do offer you the chance to win much more, with two £1 million prizes each month.
The key question will be how long you need to wait before you are in a position to purchase a property.
Your message indicates that you intend to purchase a property within the next 2 years. If the timescales could be delayed by a few years then there are far wider options for you, including investing, however with all of those the funds have the ability to fall in value.