For some people, savings accounts aren't necessarily the preferred place to keep spare money as it could be worth more when invested elsewhere.
Interest rates are currently extremely low, and for savers this means a small return on their investments. According to Moneyfacts.co.uk, the average savings accounts pay 0.61% interest. This is a much smaller rate than many other investment options, however savings accounts do have the benefit of relative security, ease of accessing funds and requires very little financial knowledge. For those that don’t mind the extra risk when investing, The Guardian runs through some of the other options that can yield higher returns.
As interest rates are so low, bonds have become popular in recent times. Fixed rate bonds often come with higher levels of interest rates depending on how long the bond term is. A bond of 5 years will have a high rate of interest than a 1 year bond for example. Once invested, any money in the bond will not able to be withdrawn until the term is complete, and you are not able to put more cash into the bond as you can with a savings account. The benefit of bonds is that typically you can earn more interest, however, should interest rates increase during your bond term, your savings will not benefit, as the rates are fixed for the full term.
Stocks and Shares
Stocks and shares are a high risk way of earning money on your savings. Shares represent a part ownership of a company, and depending on the success of a company, your shares can grow or shrink in value over time. Share prices can fluctuate greatly, which is why they are risky, however if you are prepared to invest over a long period of time, you stand to make more money than savings accounts and bonds. This is because you can wait for prices to reach a level at which you are happy to cash them in.
Buying houses for the purpose of letting them out to tenants has attracted its share of negative press recently. While being one of the most successful ways of investing, it is also pointed to as the reason that many young people aren't able to buy their first property.
According to leading estate agents:
“The average landlord in England and Wales earned rental income of £8,394 and capital growth of £13,594 in the year to January, giving a total return of £21,988”
As of this April however, the return on investment will be curbed as new investors must pay a 3% stamp duty surcharge. This means that the charge on a £300,000 property will rise from £5,000 to £14,000. The higher rate tax relief on mortgage interest payments will be phased out from April 2017 and wear and tear allowances will also be cut.
The Guardian details other investment methods including investing in gold and alternative investment methods. If you would like to discuss your savings and investment options, please get in touch.