Where to stash the cash?

[Myfordman]

I got talking to a friend in the pub last night. He is in the process of moving house and his sale is going through but his purchase has fallen through due to being gazzumped.

He asked me where He could put about £200k safely for around 6 months and yield enough interest to pay rent on a two bed flat for him and his son + dogs - which in our patch is looking like £800 per month.

Even the best BSoc/banks seem to offer no more than 1.5% and not many of those either. He will need about three such unrelated accounts to stay below the £75k protection limit (down from £85k from 1st Jan 16)

Anyone got any ideas - the capital must be 100% protected - he is 64 and only working part time if that makes any difference.

TIA

 

[AJB Temple]

So, he wants to earn £7200 net of tax from £200k in 6 months whilst taking no risk? In an environment where we have bank base rates at 0.5% and more or less zero inflation, depressed global markets and where treasury bond yields are minimal.

To earn that he will need a gross yield of around 12% per annum and is therefore living in dreamland. You can find assets (eg structured products) with a degree of capital protection and potential high yields, but only by locking in for several years and taking some capital risk.

For a short term low value (£200k is not a big investment in the markets) he needs to put his money in the best retail deposit account he can find and accept that he will not cover his rent.

(Disclaimer. I am in the business. I am not giving advice).

 

[Phil Pascoe]

We bought £60,000 of premium bonds for three months - and won about £150. By the bye.

 

[Myfordman]

Thanks AJBT.
I was of a similar opinion but just really needed a sanity check and it is good to have your insight from within the business.
I'm aware of the structured products as well as the risks and have a few % of my investments in those - certainly not appropriate in this case.
I'm also getting 12%pa gross from P2P lending at the moment but that is not entirely risk free (but virtually so) and whilst the secondary market is currently liquid, there is no guarantee that funds could be released at short notice in the future. So I do not feel this route is sensible for my friend.

 

[finneyb]

A problem is the 6 months, if he can go to 12 months there is Castle Trust Fortress Bond @ 2.25% NB NB NB COMPENSATION IS ONLY FOR £50,000

Or their is FIDOR BANK ( a new German entry) 12 months will yield 2% comp is under the German comp scheme which has a comp limit of 100,000 euro roughly equivalent to the UK's £75,000.

I thought there was a facility whereby sale of house money over £75,000 was covered by the compensation scheme for a limited period may be worth checking this out

HTH

Brian

 

[marcros]

I thought there was a facility whereby sale of house money over £75,000 was covered by the compensation scheme for a limited period may be worth checking this out

HTH

Brian

This does ring a bell. Obviously check with an authoritative source, but i do also recall hearing it or reading it somewhere.

 

[Myfordman]

I thought there was a facility whereby sale of house money over £75,000 was covered by the compensation scheme for a limited period may be worth checking this out

HTH

Brian

This does ring a bell. Obviously check with an authoritative source, but i do also recall hearing it or reading it somewhere.

Yes I think Martin Lewis was on about it before Christmas but I can't recall if it was just for safe deposit of property sale derived cash or if it included interest bearing (ie greater risk to the provider/depositor) products.

 

[n0legs]

I know a bloke who knows a bloke, who knows another bloke and he says he can offer a 100% return on the money after the weekend :-$ :lol:

Seriously though, I left a lot of money in my solicitors client account and I got a return on it. It was quite a few years ago and rates were better. It might be an option and the money should be safe.

 

[YorkshireMartin]

He would need to invest this in a developing country to get that kind of return, which is obviously very high risk. i.e. dont do it!

Personally, I would split it over multiple accounts to take advantage of the government guarantee, opening them as savings accounts at whatever rate was best, see Martin Lewis' site for the best rates. Just make doubly sure that the government guarantee applies, because I'm not sure it is applicable to all accounts from all banks.

On the plus side, if it's just for 12 months and he doesn't touch it at all, he can take advantage of the introductory interest rates for the entire period. Potentially on a 90 day notice account or similar, although these dont always offer the best rates anyway.

Keep in mind, he will have to declare the interest and complete a self assessment tax return for the relevant period. It's easiest to have the interest deducted by the bank at source and then obtain a statement of interest from them to use when it's time for his tax return.

EDIT: It just occurred to me. Someone correct me if I am wrong, but if he suddenly has £200k in savings and is receiving any benefits at all, his entitlement could be affected. Obviously this is very important. Even if its the sale of his main residence and completely above board, that might not stop some kind of automatic trigger. If in receipt of any benefits, it would be very wise to speak to the benefits agency and make sure there are no hidden gremlins.

 

[paulm]

I'm also getting 12%pa gross from P2P lending at the moment but that is not entirely risk free (but virtually so)

That's interesting Bob, I would have thought P2P was relatively high risk to be honest, which is also why the returns are high reflecting the risk and liquidity profiles ? Happy to hear more though in case I'm missing something ?

Cheers, Paul

 

[Myfordman]

I'm also getting 12%pa gross from P2P lending at the moment but that is not entirely risk free (but virtually so)

That's interesting Bob, I would have thought P2P was relatively high risk to be honest, which is also why the returns are high reflecting the risk and liquidity profiles ? Happy to hear more though in case I'm missing something ?

Cheers, Paul

Paul, P2P is definitely not for everyone and different models have differing degrees of risk. You (and any other readers) need to make your own assessment of the relative risks and make your own decisions. There is a forum which covers most of the platforms. http://p2pindependentforum.com
I don't feel that it is correct to mention one platform over any other. As well as the model and risk assessment you also need to lurk for a while and decide about the effectiveness of the admin of one platform over another.
If in doubt DONT DO IT!

 

[paulm]

I'm also getting 12%pa gross from P2P lending at the moment but that is not entirely risk free (but virtually so)

That's interesting Bob, I would have thought P2P was relatively high risk to be honest, which is also why the returns are high reflecting the risk and liquidity profiles ? Happy to hear more though in case I'm missing something ?

Cheers, Paul

Paul, P2P is definitely not for everyone and different models have differing degrees of risk. You (and any other readers) need to make your own assessment of the relative risks and make your own decisions. There is a forum which covers most of the platforms. http://p2pindependentforum.com
I don't feel that it is correct to mention one platform over any other. As well as the model and risk assessment you also need to lurk for a while and decide about the effectiveness of the admin of one platform over another.
If in doubt DONT DO IT!

Thanks Bob.

Cheers, Paul

 

[Mike.S]

I hope to have the same problem shortly (if contracts on our sale ever get exchanged!).

As others have said, the yield being sought is unrealistic. As is 100% safety (think Cyprus bank depositors) For safety and flexibility (i.e. withdrawal at short notice) I'd recommend he look at NS&I - their Direct Saver account pays competitive rates; it's a Govt institution (so as safe as anything in the UK and no £75k limit) and is simple to open. Some can also be put into PSB's (with the same online access) for the 'chance' of a yield boost.

 

[Mark-numbers]

My mother in law has just invested in bonds 200k for 2%, has to invest it for a minimum of 12 months.

12% yields are not so possible anymore, unless you invest in foreign markets (no thanks)

 

[AJB Temple]

Such yields are possible with certain types of structured investments, but they are invariably linked to the performance of underlying indices or other instruments and depend on kick out events to release capital from what is otherwise a long term investment. It is not a bet for the unadvised and certainly not with all of your capital. There is no such thing as risk free yield.

P2P is a growing area and risks extend beyond the platform. There is still credit risk and liquidity risk. It is rather early days in this market and we will see failures. Regulation of it is also in its early stages so far. Can be a good bet as part of a balanced investment portfolio or for allocated risk capital. Not suitable in the case of someone who is between houses I would venture to suggest.

Personally I would not be overley worried about FSCS protection on bank deposits if I were placing the funds with globally operating retail bank with good credit rating and CDS levels. For example, I would personally happily deposit this kind of sum with RBC (Royal Bank of Canada). Of course, there is an inevitable trade off between rates and rating....

There is no way I would leave any money in a solicitors client money account. They will get under 0.5% on that and typically pay clients between 0% and 0.1%. They are required to deposit the funds with a deposit taking bank anyway, so why have a middle man in the loop?