The Best Way to Invest £10k

Updated: December 11th, 2018

With interest rates remaining relatively low, making the most of your £10,000 lump sum has never been more important.

This guide will explain some of the choices currently available to UK investors, to help you choose the best way to invest £10k.

Best place to invest £10k

Investing Vs Saving £10,000

Rather than relying on income and a tiny growth from cash savings, many are now turning to  a number of alternative ways to invest their money, including bonds, stocks and shares ISAs and peer-to-peer investments.

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Whether you have £10,000 or £100,000, investing your money could make a huge difference in the long run.

The idea is that your money is working harder, but there could be compromises. This may be in the form of additional risk,  longer investment horizons, and of course, ease of access.

So you’ll need to ask yourself the following questions to get a true picture:

  • Do I need to access these funds in the near future?
  • Do I want to invest for growth or to generate regular income?
  • Do I want to make monthly payments or just one lump sum investment?
  • Do I have emergency savings already?
  • Do I have a diverse portfolio of investments?
  • Have I used all of my annual ISA allowance?

A general comparison of investment and saving options can be found in the table below, but you’ll need to compare specific providers and ensure you understand their terms and conditions to assess these options in detail.

Investing £10,000: A Comparison Table of Options

A summary of different types of investment available in the UK for a lump sum of £10,000.
InvestmentAboutWithdrawal AccessRiskTaxableAverage Rates
Mini Bond (A form of corporate bond)For sophisticated and high net worth investors. Fixed rate income over a stated term length. Restricted until term length is finished and investments can not be transferred or sold. High – depends on company remaining solvent. Some have own protection schemes or insurance.Yes3.5-15%
P2PUsually, money is invested into peer-to-peer loans. Could involve loans to businesses, individuals or to partially fund properties. Varies by platform, but usually there is a delay in selling the investment. High – Capital is at risk of borrowers defaulting. Some have their own protection schemes. Yes4-15%
Innovative Finance ISAsCan hold Peer to peer loans, crowdfunding debentures and cash. Medium. May lose annual tax-free allowance. If fixed rate may be locked in for a set time. Investments may take time to sell. High. Provider may have a protection scheme or an emergency fund in place. No4-12%
Stocks and Shares ISACan choose and control investments. Investment value may go down as well as up. Considered a long-term investment. Usually have management charges. Medium. Loses allowance. Medium-High. Capital is at risk and depends on investments made, which can go down as well as up. No3-15%
Pension - Self Invested Pension Plan (SIPP)Long-term investment for retirement. Self-managed, can choose investments. Usually have management charges.Hard - Can take a lump sum at 55. Medium. Investments can go up or down. Risk depends on investments made.25% can be withdrawn tax-free from age 55. 3-15%
Lifetime ISAUseful for first time buyers due to Government’s 25% bonus. Can also be used for retirement from age 60 as a tax-free lump sum. Max Investment £4k per year. Hard. Must be used as a first time buyer or when 60. Low-Med. There are investment LISAs available as well as fixed rate accounts available.No2-4%
Fixed Rate Savings BondUsually higher rates than cash ISA over a fixed term length. From 1-5 years is common. Usually there is a penalty of Interest earned or funds are locked until end of term. Very low, FSCS protected. Yes1.5-3.5%
Fixed Rate Cash ISAInterest rates are fixed over a set term length of 1-5 years. Usually there is a penalty of Interest earned.Very low, FSCS protected. No1.3-2%
Current AccountSome accounts pay reasonably high interest rates up to a certain balance amount. Each has restrictions. Easy. Very low, FSCS protected. Yes0-3%
Easy Access Cash ISACan usually start saving from £1. Easy. Can transfer to other ISA or withdraw the money. Very low, FSCS protected. No0.1-1.16%
Instant Access Savings AccountCan usually start saving from £1. Easy & InstantVery low. FSCS protected. Yes0.25-1.3%

What is a bond?

In simple terms, a bond is a debt security.

Essentially, when you are purchasing a bond you are lending money to an entity known as an issuer. The ‘issuer’ could be the government, a corporation or a federal agency.

In return for this money, the issuer promises to pay you back in full with regular interest payments. A bond can have a variable interest rate, but more commonly they have a fixed-rate.

There are many types of bonds, and most savers would be most familiar with a fixed-rate savings bond, which are issued by banks. These usually pay a fixed rate of interest over a set term length, usually between one to five years.

The initial investment is paid back to the saver at the end of the term. These accounts, like cash ISAs, are covered by the FSCS up to £85,000.

However, there’s a few different types of bonds which are open to different investors:

  • Retail Bonds
  • Corporate Bonds
  • Gilt-Edged Bonds
  • Mini-Bonds
  • Premium Bonds
  • Offshore Bonds

Read more about the different types of investment bonds.

Where Should You Save £10k? ISA vs. Bonds

Although rates on bonds can differ, fixed-rate bonds provide a guaranteed rate of income for a set period. Generally, investment bonds allow you to make huge deposits, whereas ISAs have an annual deposit limit.

For the 2018/19 tax year, the annual ISA limit is £20,000. There is also no limit on the number of bonds you can open.

However, it is worth knowing that you don’t have to pay any tax on the interest you earn in an ISA, as well as the fact that you can transfer your existing ISA balance to a new ISA – this does not count as using the annual allowance.

It is not a given that a fixed-rate bond will result in being taxed. For an investment of £10,000, a savings bond with a high-rate of 2.66% will only net £269.27 in interest in a year, which is within the personal savings allowance.

Due to the PSA, most savers would need to earn over £1,000 in interest before being taxed. Although standard rate taxpayers have an annual allowance of £1,000, higher rate taxpayers receive an allowance of £500 and additional rate taxpayers do not receive any allowance

A fixed-rate savings bond may have a slightly higher rate than a fixed-rate cash ISA, even from the same provider, so you may find the former a better place for your £10,000. Of course, it all depends on your current income and existing investments whether this is the case.

Top Fixed-Rate Innovative Finance ISA

Top Fixed-Rate Cash ISA

Shawbrook 5 Year Fixed Rate Cash ISA BondShawbrook Fixed Rate Cash ISA

  • 2.30% AER Fixed Rate Cash ISA
  • Covered by FSCS up to £85,000
  • Minimum £5,000 investment
  • Tax-Free ISA Wrapper
  • Fixed Rate Cash ISA Bond
  • Online only application

Long-term Investment Options

These are not the only investment opportunities available. One alternative is an equity investment, which generally means buying and holding shares of a firm or stock market. Investors will recover their money once they sell their share or when the assets of the firm are liquidated.

Pension plans are another viable alternative. They are investments that help you build up a pot of money for your retirement. A pension plan is also a tax efficient way to invest.

If you are wanting to invest 10k, there are a lot of options for you to consider.

Always seek financial advice before making your decision if you are not sure on where to place your money.

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how to invest 10k

Courtney Lucas
Last updated: December 11th, 2018