A lump sum is a payment that’s made all at once, usually involving a large amount of cash. It’s different to instalments, where you receive or pay out smaller chunks of money over time.
As you go through life, there are plenty of moments when you might receive lump sums. For example:
Lump sums may come from unexpected windfalls too. Here are just a few examples:
You could also build up a lump sum by gradually making savings. For example, by putting a bit of money aside each payday.
There are lots of ways you could use a lump sum, whether you’ve been handed a one-off payment, or have saved money over time:
Decided to save a lump sum? Comparing different savings accounts could help you find the right fit for your needs.
Individual account eligibility criteria apply.
With these accounts, you can lock your lump sum away for a fixed time. For instance, leaving it untouched for one or two years.
In exchange, you’ll be given a guaranteed interest rate. This won’t change till the term ends. It may give you a clearer idea of what your money will earn.
Also known as easy access accounts, these can let you pay in money as and when you want to. It could be a large, one-off lump sum, or a series of smaller payments.
You can also take your cash out whenever you need it.
But the interest rate might not be as high as on fixed term savings accounts.
A cash ISA works like a normal savings account, except your interest should be tax-free.
You’ll just need to stay within a £20,000 annual allowance.
With instant access and fixed cash ISAs available, you’ll find different options for saving lump sums.
Pros
Cons
Before paying a lump sum into a savings account, it’s useful to double-check whether the interest rate is fixed or variable.
A fixed rate will stay the same for a set time. On the other hand, a variable rate may rise or fall. For example, if the Bank of England changes its base rate.
You may also see different types of interest rate. A gross rate displays the interest before any tax deductions are made.
Meanwhile, an Annual Equivalent Rate (AER) shows the interest you might earn over a year once compounding is factored in. Compounding refers to interest that’s earned on previous interest payments.
