Readers' Lives: Good rates and easy access - the pounds 20,000 question

I AM about to realise a capital gain of around pounds 20,000 (after capital gains tax) which I need to use over the next two or three years to retrain for a new career. What is the best way to invest this, bearing in mind that I will need to make frequent withdrawals of varying amounts over the period?

TF, London

There really is little choice. Most advisers would consider two or three years a short investment period. Equity-based investments (shares and unit trusts) have to be ruled out because you could actually lose money over the short term. Fixed interest investments such as gilts are also unsuitable because their market value can fluctuate like shares. That leaves what the investment world calls "cash", deposit accounts at banks, building societies and National Savings.

Basically, you want the highest paying account, not forgetting to take into account the confidence you have in the stability of an institution. Over the years, some of the highest payers have been relatively little- known banks. Unfortunately, a few have gone under, though there is no way of knowing in advance which small banks could be in trouble and the investors' protection scheme only guarantees 90 per cent of your money back.

The best paying account for you depends on your balance. You'll need to find out what rates are available on balances of pounds 20,000. Instant access accounts have the advantage that you can switch from one institution to another fairly easily if an account you choose subsequently slips down the interest rate league table. But notice accounts, where you have to give, say, 30, 60 or 90 days notice of withdrawals, will pay more. A notice account may suit you if you know you can give enough advance notice of your withdrawals.

It is advisable to check the precise rules on withdrawals for any potentially suitable account. For example, some savings accounts restrict the number of penalty-free withdrawals you can have each year. Don't consider long- term fixed-rate bonds for money to which you may want early access. You can have big early encashment penalties and may not able to get at your money at all before the fixed term is finished.

You may be able to find a suitable account in our "Best savings rates" table on page 16. The information for this table is supplied by a company called MoneyFacts, which monitors savings and borrowing rates. You can obtain a complimentary copy of the MoneyFacts monthly bulletin, which includes a comprehensive listing of deposit-type investments: telephone 01692 500677.

q Write to the personal finance editor, 'Independent on Sunday', 1 Canada Square, Canary Wharf, London E14 5DL, and include your telephone number, or fax 0171-293 2096. Do not enclose SAEs or any documents that you wish to be returned to you. We cannot give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given.