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 forget about it 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 start investing in whatever catches your eye thinking you are going to be the next Warren Buffett!

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. Premium Bonds offer a monthly prize draw which provides an average return similar to a bank’s interest rate (although as prizes are allocated randomly, your actual results could be lower or higher).

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 Master’s degree, 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.

How to find the best savings accounts 🪙

For any short term goals (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.

How to invest a lump sum 📈

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 Investing 101 and our recommended resources as a good place to start. 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.

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. Note that this fee only applies during your fixed rate period, so is easy to avoid by waiting for the end of your fix. It is almost always better to avoid paying an ERC by staying within the overpayment limits during your fix, and holding your money in savings until you can overpay for free.

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.