Inheritance warning as you could be ‘squandering’ your cash through savings – act now

Inheritance: Expert gives advice on 'good planning'

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An inheritance can be an important form of financial support to help individuals along their life journey. Many people will leave money and assets to their beneficiaries when they die as a final act of love and care. However, upon receipt of an inheritance, it will be important to take action – and Britons are being warned they risk failing to make the most of this cash.

Research from Hargreaves Lansdown has shown almost half of people who have received, or are expecting, an inheritance leave it in a current or savings account.

This was following a study which took place in April 2021, surveying 2,000 people.

But with interest rates at shockingly low levels, Britons could effectively end up losing cash in real terms in the long run through this action.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, commented on the matter.

She said: “When money and emotions collide, you can end up making all sorts of strange decisions, and there are few things in life as emotional as bereavement. 

“We might be perfectly logical about money in every other part of life, but when it comes to an inheritance, we’re so worried about making a mistake with a legacy, that there’s a real risk we end up squandering it through excessive caution.

“Almost half of people who inherit end up leaving at least some of the money in cash: eight percent of those who have received or are expecting an inheritance leave the money in their current account, while 38 percent put it in a savings account.”

As Ms Coles explained, though, there may be a number of reasons this action could be taken.

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Bereavement can be particularly challenging, and so some may not be ready to make major decisions about their finances.

As such, temporarily placing money in a savings account could be a sensible, albeit short-term choice.

Cash could also be suitable for those with short-term goals, or individuals who want to make specific spending decisions in the next five years.

However, there are also risks to bear in mind when leaving money in cash savings.

Although some may associate risk with investment, there could be issues which arise for those opting for savings accounts.

Ms Coles explained: “Leaving a windfall in cash for the long term will subject it to the ravages of inflation.

“With the Consumer Price Index measure of inflation hitting 2.5 percent, and the average easy access savings rate a measly 0.06 percent, beneficiaries will lose some of the spending power of their money by keeping an inheritance in cash.

“Investing the lump sum instead could prove more fruitful, especially over the long term, and using the money to pay off debts or top up a pension may be a much smarter choice.”

Indeed, many people may have significant amounts of cash placed in savings, and this too could prove a risk.

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The Financial Services Compensation Scheme (FSCS) is often considered as an important safety net for those saving with providers.

However if a person has more than £85,000 with one bank or building society – excluding NS&I  – they could be leaving themselves at risk if the institution were to collapse.

This is because the FSCS only covers customers up to this level per person and per institution. 

As a result, then, individuals should be reflective, and ask themselves questions on what will suit their inheritance best.

Perhaps most importantly is the idea of expensive debts, which should be paid off to avoid the matter snowballing.

Next, Hargreaves Lansdown recommends building up a fund for emergency purposes – which should be worth three to six months of essentials.

Some people may choose to put money into their pension or similar investments in order to grow their fund for the future.

Mortgage payments could also be made to avoid the cost growing over a longer period of time.

Finally, individuals may wish to pass their inheritance on, to children, grandchildren or other relatives who may need the money more. 

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