Categories
BLOG

can you put lottery winnings in a bank

What do you do if you win £170m on the EuroMillions?

Follow the author of this article

Follow the topics within this article

A so-far anonymous British ticket-holder has won a record £170m Euromillions jackpot, following the longest ever series of rollovers.

It follows on from another anonymous win in June, when one lucky individual scooped £123m.

Lottery winnings are tax-exempt, so every penny is put into the winner’s pocket, but with such a substantial gain, knowing what to do with the cash once it is in your hands can be difficult.

Britain’s most recent multi-millionaire will now meet Andy Carter, Camelot’s senior winners’ adviser, who will present them with a panel of financial advisers and private banks from which to choose.

Once selected, for a sum of this size, the private bank will take over, with the lottery transferring the entire lump sum in one go, typically within 48 hours.

Whether you’ve received a windfall of £100m, or smaller company bonus or inheritance of, say, £10,000, sensible financial planning is crucial.

So what exactly should you do with your winnings?

For the largest winnings many will be advised to let the private bank handle their affairs. But for those who prefer a more hands on approach, here is a checklist of essentials to consider.

The first priority should be to pay off any debts, such as mortgages, credit cards and loans, according to Andrew Merricks, head of investments at financial planning firm Skerritts Wealth Management.

“Get yourself in the black. It takes the pressure off and ensures that money is for you and your family rather than for the debtors,” he said.

A fter this, the key is to not rush into any decisions, said Mr Merricks.

“Park it somewhere, such as a bank account, until you know what you want to do with it.” This way you can draw a small amount of interest while working on a financial plan.

One trap that many people who become suddenly wealthy fall into is to buy the big, expensive house of their dreams.

W hile property can be a rewarding investment, tieing up large sums in a lavish new house may not be a prudent way to spend it. Mr Merricks warned that running costs are disproportionately high on large houses and advised investing extra capital instead.

Boring but safe savings accounts, government bonds, known as “gilts”, or NS&I accounts will provide a small amount of income and can be used for the money you can’t afford to lose.

NS&I accounts can also be used to safely hold lump sums, as they are 100pc safe and back by the Treasury.

Most other accounts only guarantee to protect 100pc of your cash up to a limit of £85,000 – the compensation threshold for the Financial Services Compensation Scheme, a lifeboat fund.

M ore risky investments such as stocks and shares can be attractive as well but it is easy to get carried away when investing such a large amount, Mr Merrick warned.

Ultimately, working out how much money you want to live on, and finding the lowest-risk way to achieve this, should be the goal.

R emember, while the initial lottery winning was tax-free, any gains made through investing the cash is taxable. Money held in Isas and pension accounts grows tax free, though withdrawals from pensions are taxable at your marginal rate of income tax.

You can save £20,000 a year into an Isa and normally a maximum of £40,000 into a pension.

Couples can double up their allowances and you can move investments gradually into tax free structures over the years. You can also invest in funds or shares that grow but don’t produce income and sell them off when in need of cash. This may trigger capital gains tax if above the £12,000 tax-free threshold, but the rates are likely to be lower than your marginal income tax rate.

Some investments in venture capital schemes such as Venture Capital Trusts (VCTs) or the Enterprise Investment Scheme (EIS) can help you to limit your tax exposure, but are inherently high risk as they invest in typically small and new start-up firms.

B oth allow you to claim 30pc income tax relief, while VCTs will provide you with tax-free dividends.

EIS investments can be passed on free of inheritance tax.

A so-far anonymous British ticket-holder has won a record £170m Euromillions jackpot, following the longest ever series of rollovers.

How does a big lottery winner cash his huge check risk-free?

You’ve just won $20 million in the lottery. Until you figure out what do do with the cash, you want to move it to the safest place you know: US Treasury account(s). But the lottery (per the California winners’ handbook) won’t do anything more than hand you a paper check. How do you get your check into the Treasury without exposing it to some intermediate bank, thereby risking the money getting tied up or disappearing due to bank failure during the (however brief) time the bank has the cash?

3 Answers 3

If the funds are deposited into a noninterest-bearing account, they will be covered by FDIC insurance regardless of the amount (However, this extended coverage may not be valid after Dec. 31, 2012):

On November 9, 2010, the FDIC issued a Final Rule implementing section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance coverage of noninterest-bearing transaction accounts. Beginning December 31, 2010, through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions.

You have a few options:

  • You can cash the check at a “too big to fail” bank with an implicit Federal guarantee, such as Bank of America or JP Morgan.
  • You can look at capitalization ratings such as the BankRate.com Safe & Sound rating, and use a large, stable bank.

Personally, I would cash the check at my broker and buy a mixture of US Government and New York Tax-Exempt securities until I figured out what to do with it.

You cant! There is the risk that between the time you get the check and the time you get to the bank that you will be murdered, have a heart attack, stroke, or aneurysm too. And they are probably more likely than the bank going out of business between the time you deposit the money and get access to it.

Prior to accepting the check I would do the following:

Get a lawyer that specializes in finance and tax law. There are some steps you can take to minimize your tax exposure. There is little you can do about the immediate tax on the winnings but there are things you can do to maximize the return of your money. You will want to do what you can to protect that money for yourself and your family. Also create or revise your will. This is a lot of money and if something happens to you people from your family and “friends” will come out of the woodwork trying to claim your money. Make sure your money goes where you want it to in the event something happens to you.

Get a financial planner. This money can either make you or break you. If you plan for success you will succeed. If you trust yourself to make good decisions with out a plan, in a few years you will be broke and wondering what happened to your money. Even at 1% at 20million dollars that is 200k a year in interest. a pretty good income by itself. You do not have to save every penny but you can plan for a nice lifestyle that will last, if you plan and stick to your plan.

Do research and know what bank you are going to deposit the money in. Talk to the bank let them know of your plans so they can be ready for it. It is not every day that they get a 20 million dollar deposit. They will need to make plans to handle it. If you are going to spread the money out among several banks they can prepare for that too.

When choosing that bank I would look for one where their holdings are significantly more than you are depositing. I would not really go with one of the banks that was rescued. They have already shown that they can not handle large sums of money and assuming they will not screw it up with my money is not something I would be comfortable with. There were some nice sized banks that did not need a bail out. I would choose one of them.

How does a big lottery winner cash his huge check risk-free? You’ve just won $20 million in the lottery. Until you figure out what do do with the cash, you want to move it to the safest place you