Low interest? Time you made a tactical withdrawal
Fed up earning nothing on your savings? Vicky Shaw suggests some alternative ways to stash your cash and turn a profit
Living costs are continuing to rise, tightening the squeeze on households. The Consumer Price Index (CPI) measure of inflation rose to 2.7% in April – the highest level in nearly four years.
With many standard accounts paying little or even zero interest, rising living costs make it even harder for savers to find somewhere for their money to show real growth.
According to calculations by M&G Investments, £5,000 saved in an average instant access savings account could lose £127.50 in real terms after the effects of inflation, over the next year.
While it’s important to keep a rainy-day savings buffer you can access quickly if you need to, perhaps it’s time to also consider other places to put your cash. Here are some ideas: Get a new current account Many current accounts pay higher interest rates than you might get from a standard savings account. You could also get paid to pay your bills. For example, Santander’s 123 current account pays monthly cashback on selected household bills, while with TSB’s Classic Plus account, you can earn £5 cashback every month for having two direct debits. Those considering switching will need to weigh up how they use their account to work out which deal may best suit their needs.
People could be about £92 per year better off typically by switching to a more suitable deal, according to a recent report from the Competition and Markets Authority. Consider the stock market Investors must be aware of any fund management charges and keep in mind the value of their pots can go down as well as up, according to Rachel Springall, a finance expert at Moneyfacts.co.uk.
She adds: “However, the growth potential may well persuade some to consider this option, particularly as the average stocks and shares Isa has returned growth of 16.5% over the past year. But it’s worth remembering that past performance is no guarantee of the future.
“In comparison, the average return on cash Isas over the past year was just 0.97%, which means the difference in return on a £10,000 investment is approximately £1,553.”
Springall suggests customers concerned about the risks, or confused by the thousands of funds on offer, should consider seeking advice and ensure they are happy with their risk portfolio before they invest. Property investment While recent tax changes may have affected landlords’ profits, property investment could still be an attractive option.
Research from Rightmove in January suggested locations in Lancashire and Merseyside could be particularly good for landlords looking to maximise their profits. It found landlords could potentially achieve yields of more than 7% in these areas if they buy the right property.
Swansea and Glasgow also offered particularly attractive yields, the research found.
The yield is the annual rental income a landlord can expect to achieve as a percentage of the property’s value. Peer-to-peer lending Peer-to-peer lenders act like middlemen, matching people who have cash to invest with those who want to borrow money.
The potential returns can be much higher than you would get with a standard savings account. But there are risks to consider as savers’ money is not protected by the UK’s Financial Services Compensation Scheme (FSCS) in the same way as with savings held in a bank or building society. Top up your workplace pension With a workplace pension, savers get “free” contributions from their employer and through tax relief.
Isas can help with particular savings goals
Some Isas help savers achieve particular goals, such as the Lifetime Isa and the Help to Buy Isa, which both offer a cash bonus.
Both these types of Isa will help someone save for their first home, while the Lifetime Isa will also help someone save for retirement.
HOW TO... IMPROVE YOUR FINANCIAL ATTRACTIVENESS TO LENDERS
If you’re applying for a loan such as a mortgage in the near
future, a good credit score will be a key indicator to lenders of what sort of deal they should offer you.
Here are some tips from broker service, the Mortgage Advice Bureau: Register to vote. The electoral roll provides proof of your address and not being registered could increase the likelihood of an application being flagged as fraudulent.
Having a landline telephone number could signify stability to a lender, especially combined with other factors, such as time at current address.
Proving you have a good history when it comes to managing your finances is important. Having a history of bank accounts, such as a current account, savings account, Isa and a credit card, will give your lender an indication of your credit history.
Make sure all of your bills are registered to your current address with your correct name. This way, everything is easy to trace back to you and confirms your identity.
Keep a good amount of available credit. Available credit is the difference between what your outstanding balance is and your total credit limit. If your available credit is low, this could indicate you’re struggling to keep control of your finances.
Always make repayments. Missing repayments could suggest you can’t manage your finances well, which isn’t great if you’re trying to get a mortgage.