I have £400k in savings. What now?

Several factors may guide how you save or invest your money, such as the risk and reward profiles of different financial products and your personal objectives. For a large sum like £400k in savings, you may consider a diversified portfolio to balance these factors while contributing to various financial goals (e.g., saving for retirement and growing annual income).

There’s no catch-all “right” choice for what you do with your money. In this article, we'll set out a high-level overview of some of the available options and also key considerations that may help drive your choice:

• 6 considerations when deciding how to invest or save your £400,000
• A breakdown of popular savings and investment products, and their risks and rewards. We also discuss the importance of diversified portfolios

Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial, investment, or professional advice. Insignis is not authorised to offer financial advice, and the information shared should not be relied upon when making financial decisions. For guidance tailored to your personal circumstances, please consult a qualified financial adviser.

5 considerations when deciding how to save or invest £400k

I have £400k in savings. What savings and investment products might I consider?

Here’s an overview of different products you might consider investing £400k in, each with different levels of risk and potential returns.

Keeping some of your £400k savings in a cash savings account is technically the safest option because your capital isn’t at risk. However, the interest rates for these accounts usually don’t keep up with inflation, meaning your money may lose its value over time. You can mitigate this devaluation by securing better interest rates.

Here are three common types of savings accounts:

• ‍Easy access or instant access savings accounts let you withdraw money when you need it, usually without penalties or charges (although this depends on your provider). However, these accounts typically offer lower interest rates than notice and fixed-rate accounts (discussed below). The interest rates for these accounts can also be variable, meaning they go up and down, making returns unpredictable.
• Notice savings accounts offer less flexibility than easy access ones; you can still withdraw money, but you’ll need to give notice (usually between 30-90 days, sometimes longer) before the withdrawal. Notice accounts with longer notice periods tend to offer higher interest rates.
• Fixed-rate savings accounts guarantee a fixed interest rate for a specified time period. Interest rates are usually higher than those of easy access and notice accounts. Providers typically offer a range of products with different terms (e.g., 1, 2, or 3 years) and guarantee a rate accordingly. However, during the term, you can’t add to the savings pot, and you’ll usually be charged an early withdrawal fee if you try to access the cash.

Additionally, if your Personal Allowance (a tax-relief allowance provided by the UK government that applies to income) is used up by another of your income streams, you may owe tax on any earned savings income (read more about how much money you can have in savings before paying tax and tax relief you might qualify for).

Individual Savings Accounts, or ISAs, shelter your money from taxes. You don’t owe income tax on any interest or dividends earned within an ISA, and any profits you make by investing money from the ISAs aren’t subject to capital gains tax.

The four main types of ISAs are:

• Cash ISAs: A low-risk saving option, similar to traditional savings accounts. They also offer lower interest rates.
• Stocks and Shares ISAs: A riskier option with the potential for higher returns.
• Innovating Finance ISAs: These invest your money in peer-to-peer lending projects. They’re typically risky investments because, if the borrower defaults, there are limited protections in place for lenders.
• Lifetime ISAs (or LISAs): These are designed to help people save for their first home or for later in life.

The government limits how much money someone can deposit into ISAs each tax year. You can currently put up to £20,000 annually in ISAs, with the exception of LISAs, which have a £4,000 annual cap. However, if you deposit £4,000 LISA, you can still invest another £16,000 in one or more other types of ISAs that year.

A stock represents partial ownership in a company, while a share is one “unit” of stock. Purchasing shares means buying a stake in a business and becoming a shareholder. Your share’s value can increase or decrease depending on the company’s performance, and you can also earn a dividend income (which depends on the business’s earnings and profits). 

You can invest in stocks in one of two ways: 1) directly, by purchasing shares directly from the company, or 2) indirectly, by investing in a professional fund overseen by an investment manager. 

Investing in stocks and shares can potentially generate higher returns, and your investment can outperform inflation. However, it’s also considered a riskier investment option—your share’s price can change suddenly and drastically due to various factors, including the market and economic factors. 

That’s why many investors include stocks and shares as part of a diversified investment portfolio to mitigate the overall risk. Additionally, you can often choose the level of risk for a managed investment fund. For example, you could invest in a fund with various products of different risk levels.

Investment bonds are a means of potentially growing your money over time. You typically purchase a lump-sum policy from a life insurance or wealth management firm, which invests in a range of underlying funds on your behalf.

Investment bonds are considered less risky than stocks and shares, while offering potentially higher returns than cash savings. However, returns aren’t guaranteed, and the value of your investment could decrease or increase over time.

You’ll also typically have limited access to your investment for a specified period—you usually can’t take out all the money for around at least five years and sometimes up to 10. Additionally, withdrawals are taxed as income, and you can be penalised for accessing the money early.

Thus, investment bonds are a good medium-risk asset to consider if you’re comfortable locking some of your money away for 5-10 years.

Pension funds invest your money in various assets, including shares and bonds, over a long period to grow your investment. Your pension provider should offer different funds for you to choose from. For each fund, they’ll cover how your capital will be invested, its historical performance and risk level (high, medium, or low), and any management fees you’ll be required to pay.

The Lifetime Allowance, which capped the total amount of pension savings a person could accumulate over their lifetime (without incurring additional taxes), was abolished last year, removing the ceiling on pension savings. 

The amount you can deposit into your pension each year is capped at either 100% of your earnings or £60,000, whichever is lower. This means you can’t put more than £60,000 of your £400k into a pension pot each year. Additionally, the money you pay into a pension is locked away until you’re 55 (or 57 if you were born after 1971). 

The UK government provides tax relief (depending on your tax bracket) on contributions you make into a pension. You can learn about HMRC’s annual allowance limits for private pensions in this guide. 

Diversify your cash holdings with Insignis’ help

Spreading a large sum like £400k across different financial products can help you balance risk, returns, and access to your savings pot. For example, you might invest some money into low-risk, easily accessible savings products and a portion into high-risk, high-reward investments. 

‍Insignis can help diversify your cash holdings to reduce risk and optimise FSCS coverage, while accessing exclusive interest rates offered across the more than 3,500 products by the 50 banks and building societies on our platform.

Get cash clever today. Ask your financial adviser about Insignis.