Redundancy is a short, sharp shock that many people are going to face over the coming year as the economic outlook worsens. With con- ­servative estimates putting another 100,000 people out of work over the next 12 months, many people will find themselves with a lump sum payment for investment.

If you are unfortunate enough to be made redundant, you are entitled to a tax-free minimum payment of two weeks' gross pay for every year of service, regardless of age, and one further week's pay.

Where an employer provides a lump sum payment in excess of these basic requirements, the first €10,160, plus €765 for each year of service over and above the statutory minimum, is tax-free. An increased exemption for another €10,000 is available in certain circumstances, including for those who have not received a tax-free lump sum in the previous ten years.

For many people, their redundancy payment will keep them going while they search for a new job. Some, however, will be lucky enough to find alternative employment quickly and, in that case, it is wise to get your lump sum working for you as soon as possible.

Financial adviser Liam Ferguson of Ferguson and Associates says the first thing to do is consider paying off at least some of your unsecured debt. Interest rates on credit cards, personal loans and overdrafts can be considerably higher than any favourable rate you will receive on a deposit account.

"Certainly, if you are carrying any balance on your credit cards, pay that down before you put money on deposit because, to an extent, if you do that, you knock interest on the head and if push comes to shove you have access to that money again," says Ferguson.

Volatility on the stock markets and the severe property downturn make for limited options. Unless you have a strong heart, the best option right now may be playing it safe and placing your money on deposit.

"For somebody whose requirement is a fairly-low risk lump-sum investment, then for the time being, deposits are the only option. Anything which would have the potential to offer a greater return does so with a corresponding increased risk," says Ferguson.

While confidence in banking is at a low, deposits in Irish banks are made safe by the government guarantee. The market is looking favourably on customers who leave lump sums on deposit, with interest rates on offer exceeding the current rate of inflation of 4.3% – essential if you want your money to hold its value. Also important is flexibility: some products allow withdrawals immediately, others on a limited basis and others insist that the capital sum be untouched.

Those who need immediate access to their money could consider Anglo Irish Bank's premium demand deposit account, which offers an annual earning rate (AER) of 5.5% with a minimum guarantee of the European Central Bank rate plus a half percent until 1 January.

With First Active's E-Savings Plus account customers can expect an AER of 5% with a half percent bonus for the first six months.

Bank of Ireland is offering an 18-month fixed rate deposit and a 5.26% return (equivalent earning rate) with a minimum deposit of €3,000 and access to one-fifth of your money over the term.

Both Anglo Irish Bank and Irish Nationwide offer a year-long fixed rate of 6% AER with minimum deposits of €1,000 and €20,000 respectively. Shorter-term fixed rates are widely available with, for instance, EBS offering 5% AER over three months on €20,000.

You may also consider using your lump sum to pay off the capital sum of your mortgage. Doing so will reduce your interest but whether it is a wise option will depend on the kind of mortgage you have.

"Someone who has a mortgage which offers a redraw facility can pay a lump sum off their mortgage and reduce their interest by doing so with the option to take that money back on request. Or if you have an offset mortgage which operates on the same principle that you retain access to the funds, then, it would be a good place to go," says Ferguson.

However, paying a lump sum into a mortgage that does not have a redraw facility will mean that, if you need access to that money again, you will have to apply for a top-up mortgage, which may be difficult in the current climate. Similarly, those carrying negative equity should give serious consideration to their future plans before pumping a lump sum into their mortgage.

"If your mortgage is greater than your house value, then while a lump sum may help to get you out of negative equity, it is really only of relevance to you if you move. Negative equity is sadly misunderstood in the sense that, while this year and next year there will be a lot of people in Ireland in negative equity, if they are keeping up their mortgage payments, there is not going to be a huge restriction on them other than they will not be able to move," says Ferguson.