If you have inherited some money taking a little bit of time to work out how best to use it makes sense.
This page answers some of the questions that people ask when they have received an inheritance.
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, starting to build a 'rainy day' fund is wise.
The Money Advice Service provides sound independent advice on when to save and when to pay off loans and cards in this short video (please see the video on the right top).
Many people's first thought upon receiving an inheritance is to pay off their mortgage. Before you do, it's worth remembering that a mortgage is the cheapest form of loan you can get. Paying it off does not make sense if you have other debts, such as credit cards and personal loans. The higher interest rate on these makes them more expensive in the long run.
The Money Advice Service provides advice about paying off your mortgage early in the short video on the bottom right.
Once you've paid off any debts, putting your inheritance into an easy access savings account 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. Money Saving Expert is a good place to start looking.
If you do not think you will need to access it in the near future, investing it in higher interest accounts makes sense. You may even be able to secure a monthly income from the interest it earns.
Choosing between savings options is easier than it looks. There are hundreds of accounts, but only a few types of account — some for easy access to emergency funds, some for saving regularly and some for growing your money. Take a look at Money Advice Service's Complete Money Fact Find to find out more.
Pensions seem confusing. There are so many products to pick from and there has been so much bad publicity around pensions in recent years that investing your inheritance in one might feel risky. You might feel like it would be safer to put your inheritance in a savings account for when you retire.
If you do this, you'd lose out on the tax reduction you'd get from putting it into a pension.
It is certainly worth exploring options with an Independent Financial Advisor. Before you do though, it is worth exploring ways to boost your pension in the run-up to retirement.
Did you know?
Paying off your mortgage with your inheritance may not be the best idea.