If you have inherited some money, it’s a good idea to take a step back and think about the best way for you to use it. Depending on how much you inherited and your financial circumstances, it might make sense for you to pay off your debts, or even invest it. This guide will help you work out the best place for you to put your money.
- Save or pay off the debts?
- Pay off the mortgage or the other debts?
- Invest it or save?
- Pay into a pension or save it in a bank?
- Use a financial adviser or manage it yourself?
Save or pay off the debts?
If you have credit card or personal loan debts, it’s normally better to use your inheritance to pay these off than save.
The interest that you pay on this outstanding debt is usually a lot higher than any interest you earn on a savings account.
Once you’ve paid off these debts, you’re in a better shape to save.
You could even start building a ‘rainy day’ or emergency fund to protect you even more.
Pay off the mortgage or the other debts?
It’s tempting to use your inheritance to pay off your mortgage. But you might find that means you’re left struggling to pay off your other debts
The higher interest rate on credit cards and personal loans makes these debts more expensive in the long run.
In comparison, mortgage interest rates are usually less than half the APR of a credit card.
Invest it or save?
You could put your inheritance into an easy access savings account.
This is a good idea, especially if you think you might need it in the near future.
You should shop around to find a savings account that best suits you.
Investing might seem risky, but with careful planning, you could create a steady return by investing your inheritance.
Pay into a pension or save it in a bank?
With so many pension products to pick from, it might seem easier to put your inheritance in a savings account for when you retire.
But if you do this, you’d lose out on the tax reduction you’d get from putting it into a pension.
Use a financial adviser or manage it yourself?
Some people use a financial adviser to help them make the most of their inheritance.
Others prefer to manage it on their own.
There is lots of guidance available if you want to learn about managing your inheritance money, or you can employ a financial adviser to help you make the best decisions.
It’s up to you.
This article is provided by the Money Advice Service.