Where can you save a large sum?

piggy bankWorking out where to save a large sum of money is, of course, a very nice problem to have. But it isn't just the preserve of the rich.

There are numerous reasons why the not-so-well-off could also have a big sum to save, even if it's only for a short period of time.

In the money
Perhaps you have received a large redundancy pay-out or an inheritance, or if you're lucky a big work bonus. In recent years the sale of property has also boosted many people's savings pots. For example, you might sell your home and temporarily move into rented accommodation in order to break the property chain, before planning to buy again.

You might not consider yourself wealthy but for the interim period when you are renting you could have a large sum of money in your bank – all the equity from selling your home. Of course, you'll need to use it as a deposit again at some point but, for now, you should focus on getting a good return.

However, with savings rates having been slashed in recent years it is very hard to find a home for your money that pays a level of interest equal to inflation, let alone helps your money grow.

Bleak picture
According to financial information provider Moneyfacts there are 861 standard savings accounts in the market, but only one non-ISA and six cash ISAs currently beat inflation (2.4%) for basic rate taxpayers.

Sylvia Waycot, editor at Moneyfacts.co.uk, said: "Savers need to get angry. They have been ignored for too long. Taking into account the taxman's share and the cost of living, savers need an account paying a hefty 3% before they earn a real rate of return and yet the average no notice savings account only pays a paltry 0.72%."

If you have a large sum to save you may find you have a slight advantage as some savings accounts use tiered rates of interest that get higher the more you deposit. But even these rates are pretty poor.

Plus, remember that the Financial Services Compensation Scheme only protects the first £85,000 saved with one financial organisation so, if you have more than that, ensure you split it between different companies to protect yourself should any of them go under.

So where do you start if you want to find a decent return on a large lump sum?

Looking for somewhere to stash your money? Check the latest savings rates

When do you need it?
The first thing you should ask yourself is when you will realistically need access to your money. If you don't have a pressing need for the money you may be willing to tie it up for a bit longer, and this could mean you achieve a higher rate of interest, as five-year savings bonds pay higher rates of interest than one-year deals for example.

Below are some of leading fixed term accounts, based on a large lump sum of £50,000 to £100,000, according to Moneyfacts:
1-year fixed rate2.00% (Julian Hodge Bank)
2-year fixed rate2.25% (State Bank of India)
3-year fixed rate2.50% (State Bank of India)
4-year fixed rate2.55% (Shawbrook Bank)
5-year fixed rate3.00% (Virgin Money)

What if you need access?
If you can live with having to wait for a short while to get your hands on your money, a notice account might appeal, and United Bank UK has a 90-day notice account paying 2.25%.

But if you literally need instant access to your money the achievable rate drops significantly to just 1.70% (available from Nationwide and Derbyshire BS).

Tax-free savings
By sheltering your cash in a tax-free ISA you can protect your interest from the taxman, and achieve a higher return – but there are annual limits to the amount you can save in cash – £5,760 for this tax year. Cheshire Building Society offers a tax-free interest rate of 2.3% for example, with instant access, and it will also allow you to transfer existing ISAs into the account.

Because you can build your ISA pot by using your allowance each year, it's possible to have tens of thousands of pounds protected from the taxman – and you can choose from fixed term ISAs or instant-access deals.

Could you earn more interest on your money by lending it out?

Think outside the box
Let's face it, savings rates are disappointingly low, so some people have resorted to alternative ways of getting a return. One option is to put your savings into a high interest earning current account. This might sound a little strange but some current accounts offer higher rates of interest than you can achieve on savings – for example you can earn up to 3% with Santander, Lloyds TSB and Bank of Scotland on specific current accounts.

However you will have to jump through a few hoops by managing your account like a current account – setting up direct debits and putting a minimum sum into the account each month. So there's a bit of work involved but for those who are serious about achieving the maximum return on their money, it's worth checking out.

Finally, there is a growing interest in peer-to-peer lending, where those with cash lend it to borrowers for an agreed rate of interest. The achievable rates of return can be much higher than with traditional deposits, but your money is not protected by the FSCS and there is a risk that the person you lend your money to may not pay it back at all.

Sadly, it doesn't matter if you have £100 or £100,000 to save, your options for an inflation-busting return are limited. While the Government continues to lend cheap funds to banks and building societies through its Funding for Lending Scheme, there is no incentive for them to compete for deposits from savers. So it doesn't look like things will improve any time soon. All you can do is make the most of your money to ensure its value isn't eroded by inflation.

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