Growing your wealth almost always means investment. But successful investing means locking your money away for years. As a minimum we usually suggest a 5-year investment term to let you ride out the ups and downs in the market and let underlying growth work its magic.
But what about cash that is doing nothing now, but which you have earmarked for the near future, for that big holiday or a home deposit?
At Continuum we are looking at ways to make short term savings rewarding.
Is saving worthwhile again?
The savings market is actually buoyant with a rush of enticing offers as savings providers compete for your cash. The Bank of England’s attempts to control inflation have meant a rising bank rate – which means in turn that interest on savings has rocketed over the past year.
But those savings rates have not all rocketed enough – and some types of savings are more rewarding than others.
Instant access accounts
Instant access accounts are simple to use. You can pay in as you like and draw out as you like. Your money will earn interest when it is on deposit, but it will not earn as much as it would in other types of savings. A return of around 5% would be considered good for an instant access account.
Regular savers accounts
Regular savers accounts can be among the best paying high street accounts, which should prove positive as inflation falls. You need to commit to regular monthly saving with a minimum amount usually starting around £25, but you can withdraw money when you need to.
Fixed term accounts
As a rule of thumb, the longer your bank is allowed to hold onto your money, the more interest they are willing to pay for it. Fixed term accounts can offer the best returns on the high street If you’re happy to lock money away for two or five year periods. With the most you can get your money out in an emergency, but you will lose any interest you have made on it.
Cash ISAs have a big advantage over other savings accounts because any interest earned in them is tax free.
This is especially important if you are a higher rate taxpayer, who will have a reduced savings allowance, meaning you will pay tax as soon as you make more than £500 in interest in a savings account.
You can save up to £20,000 into a cash ISAs each tax year and protect it all from the taxman. If you have children, you can also open a Junior Cash ISA, where the annual limit is £9,000. A couple with two children effectively has an allowance of £58,000 each year.
For an alternative approach, you might want to consider NS&I’s Premium Bonds. The Government-backed savings institution offers a unique way of investing your cash – unlike other saving accounts, where you earn regular interest, you are instead entered into a monthly prize draw where you can earn between £25 and £1m tax free.
The odds of winning are known as the effective “prize rate”, this rate describes the average payout. This now stands at 3.3% and can be seen as the equivalent of 4.15% if you take basic rate income tax into account, and even higher if you are higher rate taxpayer.
Of course, there is no guarantee of winning anything – but not only is your money as safe as the government itself you can get it out in three working days.
Get some help
To get an expert view on short term savings, call us at Continuum. We can identify the accounts with the best rates, and help you plan the best way to get your money working for you.
The Financial Conduct Authority does not regulate deposit accounts.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable savings strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.