What should I do with a £20,000 lump sum?

Views & insights

From paying off some of your mortgage to investing in an ISA, find out how to make the most of a £20,000 bonus or inheritance


24 March 2023 | 4 minute read

If you’ve received a bonus or come into an inheritance, it can be tricky to know what to do with it. Although it’s a nice conundrum to have, your decision could make a big difference to your financial wellbeing and future finances.

Spending the cash might be tempting, but while that might make you happy in the short term, it’s unlikely to benefit you in the long run.


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So, if you’ve received £20,000, what could you consider doing with it? Your options may include building up a ‘rainy day’ fund, paying off debts, paying off some of your mortgage, or investing in an ISA or pension. The decision that’s right for you will depend on your individual circumstances, and a financial adviser can help guide you. In the meantime, let’s look at these options in turn.

1. Build a rainy day fund

Building up a rainy day fund is one of the cornerstones of prudent financial planning. Without it, you could be in severe financial difficulties if you suffered a bout of unemployment, needed to carry out repairs to your home, or received a large, unexpected bill. Saving around six months’ worth of essential spending in an easy-access account will help you avoid relying on debts or overdrafts when an emergency arises.

2. Pay off debts

Using your windfall to pay off expensive debts could really improve your financial security. This is because the amount of interest charged by credits cards, store cards and personal loans is likely to be far higher than the interest you’re receiving through your savings account. Paying off these expensive debts could therefore put you in a better overall financial position, although it’s important to check whether you’ll face any penalties for making early repayments.

3. Overpay on your mortgage

Many mortgage lenders let you overpay by 10% of your outstanding mortgage balance each year without an early repayment fee. Doing so could reduce your monthly repayments and / or shorten the length of your mortgage.

If your mortgage feels like a huge burden, then paying it down could be the right emotional decision to make. However, depending on the interest rate on your mortgage, making overpayments might not have the same financial impact as if you invested the money over the same period.

4. Invest in an ISA or pension

Investing your £20,000 in an ISA could give your finances a tax-efficient boost. Money inside an ISA can grow free of capital gains tax and dividend tax, helping more of your money go towards your goals. Cash ISAs are also tax efficient because interest is paid free of tax. However, while rates on cash ISAs look more attractive than a year ago, history shows that over long periods the stock market typically performs more strongly than cash.

If you don’t think you’ll need access to your money, you could consider investing it in a pension (subject to contribution limits). You won’t be able to withdraw the money until you reach age 55 (57 from April 2028), but putting a large lump sum into a pension could make a big difference to your overall pot at retirement.

If you’re able to contribute the full £20,000 into your pension, you would be entitled to at least 20% tax relief, thereby immediately increasing your investment to £25,000. Higher-rate and additional-rate taxpayers can claim extra tax relief of up to 20% or 25%, respectively. 

Next steps

What you do with your money could have a huge impact on your life, both now and in the future. Given the potential implications, this isn’t something you want to get wrong. A financial adviser can guide you through your options and advise on the best course of action for your individual circumstances. Take control of your finances by speaking to one of our financial advisers today.


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The value of investments, and any income from them, can fall and you may get back less than you invested. This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy.

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