A lump sum investment is a significant sum of money that you plan to deposit into savings in one go. This is in contrast to depositing a little bit of your income into a savings account each month to gradually build up a savings pot.
You may come into a lump sum by inheriting money, receiving a bonus or redundancy payout or, if you’re lucky, by winning the Lottery, for example. Alternatively, you may have a lump sum that you’ve accumulated after building up your savings over a number of years.
If you have a lump sum, you may consider different types of savings accounts than someone who was looking to make regular deposits into an account.
It should be quick and straightforward to use our lump sum investment calculator.
You need to fill in the relevant boxes with:
You can then click “Calculate” to see what your money will be worth after the specified period.
This assumes that the interest rate is fixed for the whole period and is paid yearly.
If you have a lump sum to put into savings, the best account for you will depend on your situation. It’s also worth bearing in mind that you can split your lump sum over a combination of accounts instead of putting it all in one account.
Easy access accounts may be a suitable option for some, or all, of your lump sum if you want to be able to withdraw your money at short notice. This could help you to create an emergency fund, if you haven’t got one already.
Alternatively, you could consider a notice account which may pay a higher rate than an easy access account. With these accounts, you need to wait the specified notice period before you can access your money.
However, if you won’t need to access your lump sum for six months or more, it’s worth considering a fixed bond. These pay a guaranteed rate for the agreed period, unlike easy access and notice accounts which pay a variable rate.
When choosing a savings account to deposit your lump sum, bear in mind that the Financial Services Compensation Scheme (FSCS) only covers up to £85,000 with each provider, or multiple providers that share a banking licence. As a result, if you have more than this in savings, it may be worth spreading your money between different providers.
Don’t forget that you may need to pay tax if the interest you earn on your savings breaches your Personal Savings Allowance (PSA).
As a result, it may be worth putting some, or all, of your lump sum into an Individual Savings Account (ISA) which allows you to save up to £20,000 per year tax-free. There are easy access ISAs and fixed-rate ISAs available, depending on your preferences.
As well as depositing your lump sum into savings, you could also consider putting it into your pension or a stocks and shares ISA. However, remember that if you invest your money, its value could go down as well as up.
If you have a mortgage or you’re currently paying off other debts, such as a loan or credit card, you could use your lump sum to pay off some or all of this debt. See our guide on saving or paying off your mortgage.
If you have a lump sum, it’s likely to be better to deposit it as a lump sum instead of depositing a portion of it into savings each month. By depositing it as a lump sum, you can earn more interest than if you gradually built up your savings by making monthly payments into an account.
As a result, regular savings accounts, which typically require a minimum payment each month, are unlikely to be suitable if you have a lump sum you want to deposit into savings.
Bear in mind that some fixed bonds only allow you to make one deposit as a lump sum when you open the account and don’t give you the option of adding to your savings after this point.
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