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The changing world of savings and investments

Interest rates on savings accounts have plummeted in recent months, making keeping up with the rising price of everyday essentials more challenging than ever before. The interest rate on savings accounts is closely linked to the Bank of England’s base rate, which hit 0.5 per cent in March 2009 and has remained stuck at that low level ever since. While leading economists are of the belief that the base rate won’t rise until 2014 at the very earliest, this doesn’t mean that you have to endure paltry returns in the coming months. Here’s how to beat the banks and receive a decent return on your investment:

Cash ISAs

Historically, interest rates on ISAs reach their best rates between February and April, as banks seek to attract the swathes of savers who rush to use their ISA allowance before the tax year ends. As the competition is most intense during this time, it makes sense to grab an ISA late in the ISA season, while the going is good.

It’s essential to find a cash ISA that pays out an inflation-beating return. While fixed-rate cash ISAs offer some of the best interest rates overall when you take into account their tax-free status, you must be willing to lock away a limited amount of money each year, which carries a degree of risk. You can’t save more than £5,760 in a cash ISA during the 2013/14 tax year so if you have a more generous sum to put away for a rainy day, a cash ISA may be inadequate for your needs.

Peer-To-Peer Lending

Many savvy savers are starting to discover the value of peer-to-peer savings, where you lend your money directly to others through a peer-to-peer website. While this new method of saving has been in existence since 2005, it has only really begun to gain a critical following in recent months. Your savings pot doesn’t need to be large to contribute to peer-to-peer savings schemes. Even if you only have £1000 to your name, you’ll still be able to benefit from the opportunity to lend to a large number of people and hence, generate a decent return.

Stocks and Shares ISAs

A popular way to boost the return on your savings is to invest your money in stocks and shares. While the volatile nature of the stock market certainly won’t suit everyone, the longer you remain invested in the market, the lower your risk will be. If you’re able to part with your money for at least five years, there’s a strong case for putting some of your money in the stock market.

The easiest way to invest in the stock market is through an index-tracker fund. Your investment in an index-tracker fund will therefore change in line with the index. If you feel confident in making your own investment decisions and wish to create your own portfolio by choosing from a range of funds chosen by investment experts, you may wish to invest your money through a scheme such as the AXA Self Investor service. You can invest a maximum of £5,760 in a stocks and shares ISA in the 2013/14 tax year and any income you make from your investment won’t need to be listed on your tax return. In the changing world of savings, you can’t afford to put your money into a high street savings account and hope for the best. With a little research, it’s more than possible to get a good return on your investment.

This was posted in Bdaily's Members' News section by TAN Media .