Where to 'park' a house deposit?

[MyNameIsUrl]

A relative is planning to buy a house sometime in the next few months, and is thinking about the best place to keep the deposit.

Currently it's partially in a cash isa, partially in a Bond fund (Vanguard U.K. Investment Grade Bond Index Fund GBP), in a stocks and shares isa.

Does this seem a sensible way of holding money for a relatively short time? Might selling the bond fund be more prudent, leaving the cash in the s&s isa at 0%?

[Hariseldon58]

In the normal course of events, with a large sum to be spent in a few months, then security, liquidity, a stable value, no chance of loss, are all of primary importance, return in an era of low interest rates is of less importance.

Sounds like NS&I would be much better, income bonds @ 1.16% and/or premium bonds, if you want the chance of gain ( albeit small, with certainty that the principal is safe)

The present choices are sub optimal, investment grade bonds are exposed to interest rate risk and credit risk, neither are desirable for a short period of time.

[daveh]

And isn't there a problem with using the ISA in that once you take it back out you lose that ISA allowance. As per previous post I would go for NS&I income bonds or premium bonds for the lack of risk.

[EthicsGradient]

Since premium bonds have to be held over a full calendar month to enter the prize draw, I'd say they're probably not worth the extra nominal interest they give (maybe a seventh more than NS&I Income Bonds) over just a few months. You probably won't be able to sell the fund quick enough this month to get the proceeds and move them in by 30th June (talk to the relative, normally wait 4 working days for the fund sale proceeds to be available in the ISA, move them to a bank account, move them to NS&I ...).

[johnhemming]

And isn't there a problem with using the ISA in that once you take it back out you lose that ISA allowance. As per previous post I would go for NS&I income bonds or premium bonds for the lack of risk.

With a "flexible" ISA as long as you put it back in during the same tax year the allowance is not lost.

[yorkshirelad1]

A relative is planning to buy a house sometime in the next few months, and is thinking about the best place to keep the deposit.

Currently it's partially in a cash isa, partially in a Bond fund (Vanguard U.K. Investment Grade Bond Index Fund GBP), in a stocks and shares isa.

Does this seem a sensible way of holding money for a relatively short time? Might selling the bond fund be more prudent, leaving the cash in the s&s isa at 0%?

And don't forget that money held short term in a bank account e.g. re a house sale is protected by (over and above) the FSCS £85k limit
https://www.fscs.org.uk/news/protection ... -balances/

[swill453]

And don't forget that money held short term in a bank account e.g. re a house sale is protected by (over and above) the FSCS £85k limit
https://www.fscs.org.uk/news/protection ... -balances/

Yes I thought about that, but I don't think it will apply in circumstances like this. It applies for up to six months after you're credited with a "temporary high balance". Not really applicable for a saved deposit for a house, it would apply to the proceeds of the sale of a house for example.

https://www.fscs.org.uk/how-we-work/tem ... -balances/

Scott.

[GoSeigen]

A relative is planning to buy a house sometime in the next few months, and is thinking about the best place to keep the deposit.

Currently it's partially in a cash isa, partially in a Bond fund (Vanguard U.K. Investment Grade Bond Index Fund GBP), in a stocks and shares isa.

Does this seem a sensible way of holding money for a relatively short time? Might selling the bond fund be more prudent, leaving the cash in the s&s isa at 0%?

Good grief, I can't believe the answers here, it's like no-one has read the question!

The funds are already in an ISA. Definitely leave them in there.

[The only variation might be to move the cash funds to a flexible cash ISA ASAP, if there is sufficient time. Then your relative has the opportunity of replacing some or all of his ISA funds at the end of the tax year. However, unless he is a very high earner or gets lucky inheriting or winning the lottery this is a minor consideration.]

There's no need to move his funds out of the ISA yet. What if his plans change? What if he comes into some cash? Then the funds are still there in the ISA.

As for the Index Fund, this depends on the effective duration of the fund. I've looked it up and it's eight years. That means it might be rather volatile over the short period he wishes to hold it. It could be worth significantly less in a couple of months. So he is well advised to sell most or all of this fund pending the house purchase. He can always buy it back if he needs to.

As for how to hold it, cash in the ISA at 0% is perfectly acceptable. Especially if held by a large and reliable broker.

GS