I have £x, what should I do with with it?

It can be quite daunting if you’ve suddenly come into a large sum of money, whether from an inheritance, selling shares or winning the lottery.

It’s understandable that you want to make the most of this opportunity, but rushing to make decisions you haven’t fully considered is one of the biggest risks you face.

Stop, take a breath 🛑

It’s likely that your windfall has been accompanied by an emotional roller-coaster; potentially grief from the loss of a loved one, or joy at having sold a company you built from scratch. Either way, it’s important to give yourself time to adjust to your new financial situation, and approach your decisions in a calm and considered way.

Make sure the money is an account (or accounts) where it is guaranteed to be held safely, and then leave it alone whilst you take time to plan your next steps. Be prepared to spend a long time on this – long enough to get used to having the money and to research everything you need to. Depending on the size of the windfall and your existing familiarity with personal finances topics, this will probably be some weeks or months.

While you do your reading, leave the money intact. Don’t start buying cars, telling friends and relatives about your money, or investing in whatever catches your eye thinking you are going to be the next Warren Buffett!

Equally, don’t be pressured by deadlines such as the tax year ending or FOMO to make decisions quickly. Take your time.

Where to safely store large sums of money 🏦

The most important first step is to ensure your money is held safely. You can then plan your next steps without feeling anxious that something might happen to it.

Money held in a bank account is protected by the FSCS guarantee for up to £85,000 per institution. And in certain circumstances, a temporary high balance (up to £1m) will also be covered.

If you are not covered for a temporary high balance, and have over £85,000 to deposit, you can split your savings up across multiple institutions to benefit from the FSCS protection for each. Moneysavingexpert have a useful tool to ensure each account is covered by a separate FSCS guarantee, as some banks function separately at the high street level but share one FSCS guarantee between them.

NS&I Premium bonds are another popular choice, as NS&I are the government’s bank and your money is fully guaranteed by HM Treasury. You can deposit up to £50,000 in premium bonds per person, and you can of course combine this with bank accounts to store more than £50,000 safely. Another option for very large balances is to open a Direct Saver account with NS&I, which has a limit of £2m. As with Premium Bonds, any money deposited with NS&I is 100% guaranteed by HM Treasury.

Have you seen the flowchart? ⬇️

In order to decide what to do with this lump sum, you will need a good understanding of your current financial situation and future goals.

Our flowchart provides a step by step guide to organising your budget and spending decisions, savings goals, and retirement planning. As boring as it sounds, all this windfall will do is accelerate your progress along the flowchart.

Thinking about your goals is often the hardest step. But it’s important to understand that there is no single correct way to ‘make the most of’ a lump sum. It completely depends on what you want to do with the money.

Try to flip the question round from “I have £x, what should I do with it?” to “I want x out of life, how do use the capital and income I have to best try and achieve this?”.

While some goals are so common it’s assumed everyone shares them (e.g. housing and retirement), many others are more personal. You may want to take a year off work, financially assist children or other family members, do a graduate course, retire early, support a cause you care about, or any number of things that only you can know about.

Take your time to think about it and try to articulate some of these values and goals for yourself, and then progress to putting some estimated costs and dates against them.

For short term goals: find the best savings accounts

For any goals within the next 5 years, the safest option is to keep the money in risk-free savings accounts.

Our guide to savings accounts explains how to find the highest interest rates, taking tax into account.

For long term goals: consider investing

Once your short term goals are covered, then you will likely be looking to invest money for any longer term goals.

If this the the first time you are going to be investing, make sure you take some time to educate yourself first. Check out:

Take as much time as you need to learn the terminology and concepts.

If you already invest, then remember investing a lump sum should be no different to your normal investing strategy. However it can certainly be more daunting! You may feel more comfortable slowly moving your money into your investments by pound cost averaging. This protects you from the possibility of a sharp drop in the market the day after you’ve invested. Although you are statistically likelier to see a higher return by making a lump sum investment, the lower risk approach of pound cost averaging may help you sleep easy at night.

Uncertain about your goals?

It’s undeniably easier to make decisions about what to do with your money when you know what you want to use it for and when. Without this, it’s like trying to pack for a holiday without knowing where you’re travelling to or how long for.

However, you may find that you’re not in a position to plan yet. You may not know if you’ll want to buy a house within the next few years or not for a decade, or how much you will earn, where you will live, whether you’ll be planning alone or with a partner, etc.

In this situation you have some options:

  • Give it time: Keep your savings in cash while you wait for your plans to firm up. This is especially helpful if you think you’re likely to be able to make some decisions within the next year or so.
  • Make an educated guess: Even without a firm financial plan, you can make some interim decisions about cash vs investments, and accessible accounts vs LISA/pension, then review and adjust as things change.

It’s important to accept that any choice you make has a potential downside. Investing involves ‘capital risk’ – you may get back less than you put in, especially if you end up withdrawing after only a short time. Meanwhile money you keep as cash is likely to miss out on returns, especially if held over a long term. Pension tax relief can be significant, but it locks your money away until pension access age.

Ultimately you know your situation and your preferences best. Do your best to assess how likely it is you’ll need money soon/not for a long time, and which downside you’re more comfortable taking on. Don’t expect perfection – you can only work with the information you have. Even people with firm plans can find things change unexpectedly!

Should I repay some/all of my mortgage? 🏡

Repaying a mortgage can carry a big psychological benefit, and also provide a tax-free return equivalent to the interest rate you will no longer pay.

We have an article about overpaying your mortgage vs investing. Whilst it is aimed at regular overpayments, the thought process is the same for lump-sums.

Note that your mortgage may have limits on how much you can overpay without paying a fee known as an Early Repayment Charge. This fee only applies during your fixed rate period. It is almost always better to avoid paying an ERC by staying within the overpayment limits during your fixed period, and then making any further overpayments after your fix ends.

Should I buy a rental property? 🏘️

This is often one of the first ideas people think of for using a lump sum, but it’s not necessarily the best use of your money. See our page on buy to let for some of the factors you should consider.

Should I pay off my student loan? 🎓

See our student loans page.

Professional help 👩‍🏫

You may not have the confidence, time, or inclination to manage your own financial planning or investments. We have a page on Financial Advice that will help you decide whether you should use an adviser, and how to find one if you decide you would like some professional help.