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What should we do with the money we will have left after paying off our mortgage?

·2-min read
<span>Photograph: Keith Skingle/Alamy</span>
Photograph: Keith Skingle/Alamy

Q My husband and I are selling our flat to move to a different city. We’ve accepted an offer but there is nothing currently on the market that we want in the area we want to move to, so we’re planning to rent there until we find something. What should we do with the money we will have left after paying off our mortgage (about £500,000)? I’m aware that if a bank collapsed, only £85,000 is protected. Does that mean we should open five bank accounts? I am very risk averse and scared of losing our assets if there was another banking disaster – the world feels very turbulent at the moment.
DL

A For the first six months after selling your flat, you don’t need to worry about losing your money in the unlikely event of another banking disaster. That’s because The £85,000 limit normally set by the Financial Services Compensation Scheme (FSCS) temporarily goes up to £1m for high balances as a result of the sale of your main home and other life events, such as a large inheritance or a payout for voluntary or compulsory redundancy. After that, if you wanted to keep your cash in financial institutions covered by the FSCS, then yes, you would need to spread your cash between several accounts with no more than £85,000 in each of them.

With thanks to the reader who pointed out that I forgot to mention this the last time I covered this issue (on 4 July 2022), the alternative is to put all your money with National Savings and Investments. The reason that NS&I is worth a mention is that, in their words “as we are part of government we can guarantee that 100% of your money is safe – we have the unique backing of the Treasury and that’s something that nobody else can offer”. However, what they can’t guarantee is market-beating interest rates. You can invest up to £2m in NS&I’s Direct Saver account but it pays an underwhelming 1.2% in interest. If you were prepared to invest in several notice accounts you could earn up to 2% but more like 1.5% if you require faster access to your cash.