With interest rates so low, savings accounts are not giving the return they used to so where are the best places to invest your money this year? Here are our top 5 suggestions.
1 – Use your ISA allowance
An ISA is tax free and whilst there is a limit on the amount you can invest in an ISA it’s certainly a good option to save money.
You can go for a cash ISA, safe but lower rate of interest, or a stocks and shares ISA, more risky as your capital is at risk if share prices fall.
Currently the ISA limit is £5,640 for the 2012/13 tax year.
2. Consider a fixed rate bond or a fixed rate savings account
These are effectively savings accounts into which you place a sum of money for a fixed period of time. As you are tying up your money for a while the interest rates are generally better than on an instant or easy access savings account.
As an example, as at 2 May 2012, Cahoot are offering their cahoot 1 year fixed rate bond (issue 3) with an interest rate of 3.6% AER or Allied Irish Bank (GB) Savings Direct 2 year fixed rate bond has an interest rate (AER) of 3.8%.
3. Get an easy access savings account
Whilst these may not pay as much as a fixed rate bond, the plus is that you can get a competitive interest rate on an easy access savings account and be able to access your funds without penalty should you need them.
Take note of the bonus element of the interest rate as you assess the best savings account. The bonus can be a significant part of the interest paid and therefore you need to be aware of when this applies. You may want to consider moving your savings account when the bonus period finishes.
For example, Nationwide currently has their MySave Online Plus offering an interest rate of 3.17% with a bonus after the first 12 months.
4. Invest in shares through an index-tracker fund
Any investments in stocks and shares of course has an element of risk and may not be for you. However, index trackers may be something to consider. These funds basically follow the performance of an index, the FTSE 100 fro example. This means that if the index goes up by 5% so too broadly does the value of your fund. Remember though if the index goes down by 5%, your fund goes down 5%.
There are a number of different index trackers available, including from HSBC and Santander.
5. Switch to a better current account
Some current accounts offer better interest rates than others, particularly in the first year – basically an attractive offer to win your business.
Usually though the interest rate will only be paid on a certain balance and to qualify for these higher interest current accounts you’ll need to pay in a certain minimum amount each month.
These are just our top suggestions on where to invest your money. You need to make your own assessment of what is best for your needs and if appropriate seek independent financial advice.