Hiding places for pounds 1,000

You don't have to put your share windfall in a bank or building society account. Neil Baker looks at options for the more adventurous investor

It's the sort of problem everyone would love to have: what to do with a free gift worth pounds 1,000 or more? It's a question 15 million people will have to answer this year. Some will want to spend the lot, many will want to pay off debts - but what are the best options if you want to make the money work for you over the long term?

There is a variety of options depending on whether you want to keep the shares or sell them to reinvest the money.

Anyone who held on to theshares Alliance & Leicester gave away last month is already sitting on a tidy profit. But that doesn't mean the shares will stay high in the future or that other converting mutuals will do as well. Stock markets are, by their nature, unpredictable.

You need to be able to cope with short-term ups and downs and give your money time to grow. If you want to hold on to your shares, it is worth considering holding them inside a personal equity plan, so that both dividends and capital growth will be tax-free. But as Abigail Montrose reports on page 29, you have to consider whether the tax savings will offset the charges.

Do not choose a PEP on the basis of special offers. Look at the company's track record for investment over five years or more, not simply the past 12 months.

If you do not want to risk a PEP but can tie up your money for five years, good rates of return are available from tax-exempt special savings accounts (Tessas).

These pay interest tax-free as long as you do not withdraw any of your capital and not more than 75 per cent of the interest until the end of the five-year term. You can still get your money if you really need it, but you lose the tax benefits and may have to pay a penalty.

You can invest up to pounds 3,000 in a Tessa in the first year and up to pounds 1,800 in each of the subsequent four years to a maximum of pounds 9,000. Some Tessas offer a feeder option which allows you to put the maximum into a regular account which feeds into your Tessa in line with tax limits. These offer the best rates and are tax-free, whereas other accounts are normally quoted gross.

If you already have a Tessa, it might be worth considering National Savings Certificates or traded endowment policies, available from market makers such as Policy Portfolio.

National Savings Certificates pay 2.5 per cent tax-free above the rate of inflation when held for five years. The minimum investment is pounds 100. You need to give eight days' notice to get your money back and you lose your interest or index-linking if you want your money back in the first year.

Traded endowments are second-hand policies which are no longer wanted by their original owners. For example, someone with an endowment mortgage who moves to a capital and interest repayment loan may sell the policy rather than surrender it for a nominal amount.

You can look for maturity dates to meet your personal timetable but remember that the payout on maturity will depend on the bonuses from the insurance company concerned.

A simpler option could be a fixed-rate bond which repays your capital plus a fixed amount of interest at the end of a set period or at the end of each year.

If you prefer a simple savings account, banks and building societies are competing hard to attract some of the windfall cash sloshing around, so shop around for a good deal.