What to do with £35k house deposit for ~3 years

Question

I recently sold my house due to its inconvenient location relative to my new place if work and other lifestyle changes. From my initial £20k deposit over 2 years it has increased to £35k.

My eventual plan is to buy a new house in ~3 years but rent until then, and I am unsure what can usefully be done with the deposit money until then, short of sticking it in an ISA.

Is there a better form of protecting from inflation while at the same time having little (or ideally zero) risk? I am unsure whether thay amount can usefully be made to do anything or what sort of returns I could expect to see compared to an ISA

Answer 1

If you want zero risk, then that would involve staying in cash, in a bank that has FSCS protection. Now perversely, current accounts offer some of the best interest rates for moderate balances. So generally, the first thing is to ensure that some of your balance is in a current account with a decent interest rate, and (if you can be bothered), more than one.

For the balance of your sum, remember than the personal savings allowance makes cash ISAs much less attractive for most people. If you are basic rate taxpayer, you have a £1000 allowance, so are probably not paying any tax on £35k. You are likely better shopping around for deposit accounts than ISAs: you'll get roughly 1.5% on a 95day notice account, 2% on a fixed two-year bond. You have to work out how certain you are of future plans to lock up your money to decide how to spread it.