I have a large amount of cash to invest for less than a year.
If you are investing for less than a year, then you need to avoid taking risk. In finance risk is measured by price volatility, so if you don’t want to take risk you are looking for an investment with very low volatility. Unfortunately return follows risk, so a low risk investment will have a low return.
Here are the top three choices:
Number 1
The number one choice is to pay off any debt – you will get a tax free return. A really good way of doing this is by getting an offset mortgage. An offset mortgage is where your cash balance is set against the loan, so it reduces your interest, but still allows you to access your money if you need to. Let’s take a look at an example:
Here you have a mortgage of 500,000 costing 3% per year – and normally you would pay a total of 15,000 in interest a year.
However, by getting an offset account you temporarily reduce your loan by offsetting the short-term cash balance of 200,000. The result is your net mortgage is only 300,000 and the actual interest payment will be 9,000. A saving of 6,000 per year.
Offset mortgage providers in the UK:
Coventry building society
Barclays
Scottish Widows
Beverley Building Society
Number 2
Invest in a money market fund. Money market funds are like bond funds, but typically have a maturity of less than one year. They are designed to be super safe and spread your investment across multiple issuers. You will get a very low interest rate, but your money is at very low risk.
Vanguard is a good place to start for money market funds.
Number 3
Put your money on deposit at a bank. You will get very little interest as the bank will be limited on what they can invest your money on if it’s classified as a flight deposit – one that can we withdrawn at short notice.
However, your deposit is guaranteed up to £85,000 by the FCA. So if you have more than £85,000 to invest split it between two or more banks as the guarantee is only limited to the deposit you have at each institution.