Having £30,000 to invest is a nice problem to face, but with the diversity of options on offer the best way to invest £30k in the UK can seem overwhelming.
Stocks, shares, bonds, ISAs, P2P, income funds… where do you start?
The options and opportunities available for a £30k investment will depend on an honest analysis of your personal circumstances and attitudes.
By figuring out what you need, you can discover what you want from your investment.
Top 10 Investments for a £30k Lump Sum in 2018
Decide on the Purpose of your £30k Investment
People who have an investment goal in mind tend to make better decisions about their money.
Does it need to be long-term or short-term?
If you’re saving for a deposit on a house, then you may not have much control over when you will need your money – finding the perfect property can happen at almost any time.
Saving for predictable events is simpler – you know roughly when you’ll retire, or when you’ll pay school fees, which means that you can consider investments with a lock-in period, or which mature after a fixed amount of time.
Your other assets are important too.
If £30k is the entirety of your life savings, you should have a different appetite for risk than if your £30k investment is your annual bonus and you’ve already paid off your mortgage.
Diversity is a good thing for investors who can’t afford to take risks with their capital.
It’s also a good idea to think about tax before investing.
For higher rate or additional rate taxpayers, an investment which mostly generates income will be less effective than one which grows your capital.
However, for higher rate taxpayers, the Personal Savings Allowance means that the first £500 of income from interest is tax-free.
1. Invest Some of the Lump Sum in a Fixed-Rate ISA or Bonds
The 2017/2018 allowance for ISAs is £20,000 which means that you should consider putting the first part of your £30k into one or more products with a tax-free ISA wrapper before the end of the financial year.
If you have used all of your ISA allowance, you could also invest the whole £30k in a fixed-rate bond. Unlike an ISA, a bond would be subject to tax on any interest generated if this exceeds your personal savings allowance.
There are several ISA categories, but the main ones to consider are the Cash ISA (for savings), Stocks and Shares ISA (for equities, bonds and funds) and the Innovative Finance ISA for things such as Peer to Peer (P2P) lending.
Current Top Rate Fixed-Rate IFISA:
- 8.00% AER
- 3 Year Term
- Interest paid Quarterly
- Tax-free Interest
- Not covered by FSCS – Higher risk than a cash ISA
- Used your ISA allowance? Also available as a bond for the full £30k
- Website: londoncapitalandfinance.co.uk
A newly launched product which has a high rate of tax-free interest from being held in the innovative finance ISA wrapper. All IFISA accounts are not subject to the same FSCS protection like Cash ISAs, so due diligence is needed.
Could be useful as a fixed-income part of a diversified portfolio for sophisticated investors.
2. Deposit the £30k in a Savings Account
Cash investments are usually the least risky of investments but provide lower rewards.
With interest rates remaining at historic lows, fewer and fewer people have been putting their money into savings accounts.
However, with signs that the Bank of England may raise interest rates further, there is likely to be more focus on savings accounts in the medium term, with more attractive products available.
This has fed into a growth in longer-term savings options with interest rates closer to the current rate of inflation. Fixed rate bonds with terms of four or five years can usually offer better interest rates than an ISA.
Higher fixed-rates are available with corporate bonds and also P2P, but of course these options do carry greater risk. However, risk can be mitigated by diversifying your £30k portfolio.
- Safety: Cash Investments in a Bank will be protected by the FSCS up to £75,000.
- Flexibility: Cash savings can be very flexible, so useful if you think you’ll need the funds in the short term, such as moving costs, home repairs, a car or for a holiday.
- Emergency Savings: It’s always recommended to have a cushion incase of loss of earnings or urgent repairs to cars or property.
- Inflation: Most savings account rates do not beat inflation, so it is not recommended to keep all investments in cash over the long term – your money will not be growing in real terms.
2. Investing £30k in Investment bonds
With low-interest rates, debt has been the main consideration for many serious investors over the past few years, and bonds are the mechanism for these investments.
Bonds are debt securities – governments and companies will offer bonds for sale for a fixed term, often five years, owing a debt to the investors who buy them.
They pay a rate of interest that has been usually higher than savings investments – the level of interest depends to a great extent on the quality of the government or corporation which is offering the bond.
Bonds can become more complex, including things like consumer debt, which are packaged up with a variety of other debts as Asset-Backed Securities.
Financial services companies will create funds which offer a fixed rate of interest over a period of time, usually at least two years.
3. P2P – Peer-to-Peer Lending and Investment
The internet has enabled all kinds of peer-to-peer transactions, and lending is one of the latest forms of this.
Peer-to-peer lenders assemble groups of investors and borrowers and act as a go-between, offering borrowers access to capital at rates lower than most banks, while paying lenders an attractive rate of interest.
An investment is usually spread across several borrowers to reduce the risk of default.
Compare Best Investment Bonds for £30000
Other Ways to Invest £30k
It’s possible to invest your £30k directly in the equity of a company, but while this can be lucrative, all of your capital is at risk if the company folds – many shareholders were crunched during the global financial crisis in 2008.
Mutual funds are often a more attractive option as they spread the risk across sectors.
In theory, the fund manager will pick the best stocks and you’ll see capital growth – however, ‘beating the market’ is art, not science and many funds do worse than the stock market index.
Pensions should also not be overlooked. These can be highly tax efficient ways of investing, as you can make use of tax relief options not available for other types of investment.
Of course, this can be a very long term investment for younger investors, so is not ideal for anyone who might need to use some of their £30k before retirement.
Top 10 Options for £30,000 Investment
|Type of Investment||Range of Interest Rates||Interest Payments||Limits||Additional Info|
|Corporate Bond||4-10% Depends on provider and term length||Fixed income. Can be monthly, quarterly or yearly.||Could invest full £30k. Sometimes have higher minimum limits and are restricted to certain types of investors.||Not covered by FSCS. Risk varies by product. No withdrawals allowed during term. Mini bonds are not transferable. Bonds listed on the ORB are.|
|Fixed Rate Bond Deposit Account||1%-2.5% - Depends on provider and term length||Monthly or Yearly.||Varies by product. Most will although full £30k.||Covered by FSCS up to £85,000 per person, per institution. No withdrawals allowed during term.|
|P2P Investment||5%-12% Depends on provider and risk of loans defaulting.||Monthly||Could invest full £30k.||Investments are not covered by FSCS. Capital at risk. Investment interest will liable to tax.|
|Savings Account||0.01-0.5 Depends on provider||Monthly or Yearly.||Varies by product. Most will although full £30k||Covered by FSCS up to £85,000 per person, per institution. Withdrawals allowed any time.|
|Innovative Finance ISA||4%-6% Depends on provider and risk.||Monthly or yearly||£20k Maximum per year unless a transfer from existing ISA.||Some fixed rate ifisas are becoming available.|
|Stocks and Shares ISA||0-15% - Depends on investment performance and could also lose money.||Varies by investment||£20k Maximum per year. Can transfer in larger amounts from existing ISA.||Long - term investment for 5 years+. Needs understanding of where to invest funds. Robo advisors are also an option. Watch out for fee costs.|
|Fixed Rate ISA||1%-1.5% - Depends on provider and term length||Monthly or Annually.||£20k Maximum unless a transfer from existing ISA.||Covered by FSCS up to £85,000 per person, per institution. No withdrawals allowed during term. Tax free interest|
|Easy Access ISA||0.1-0.5||Monthly or Yearly.||£20k Maximum per year. Can transfer in larger amounts from existing ISA.||Covered by FSCS up to £85,000 per person, per institution. Withdrawals allowed any time. Tax free interest.|
|Current Account||Can get rates of up to 3%, but only on smaller amounts up to around £5k.||Monthly or Yearly||Varies by product. Most will allow full £30k with no issue.||Covered by FSCS up to £85,000 per person, per institution. Withdrawals allowed any time.|
|Pension||Interest depends on dividend payments as well as share value. Providers and investment choices vary.||Shares pay dividends based on company performance into the pension.||The yearly allowance for tax relief is based on earnings and is currently £40,000 per annum.||Long term investment, can be accessed in retirement.|
Investing £30k: In Summary
- Seek independent financial advice if you are not confident in your decision.
- What is the purpose of your investment? Long-term return or Short-term saving?
- Assess whether you’d need any of this money in times of crisis – Do you need it to be easily accessible as part of an emergency provision fund?
- Assess your appetite to risk, which could mean looking at your financial situation and age.
- Understand the diversification of your existing investment portfolio. You may have too much exposure in one asset class. This could be either risky, or not geared for the best returns.
- Understand the tax implications of each investment. You may have used your ISA allowance in the current financial year, or exceeded your personal savings allowance.
- Don’t forget, you can always invest into your own property, or indeed your own skills or experiences.