Alternatives To A Savings Account That Will Grow Your Money Faster

Lots of people worry about their long-term financial security. We all know that there are options out there, but if you don’t have any past experience then it’s hard to know where to begin beyond the plain old savings account. However, there are alternatives to an ISA, many of which offer a better rate of return.

Bonds

There are various types of bonds that you can invest your money in. They all work in subtly different ways but are built on the same fundamental principles. For example, a corporate bond functions as a loan. The business from whom you buy the bond will then repay your loan with interest on top at an agreed-upon later date.

Of course, this is assuming that the business is going to survive and be profitable enough to repay all its debts with interest. The less certain it is that a business will survive until the date at which the bond is repaid, the greater the risk for an investor.

There are other types of bonds that function as loans to the UK government rather than a private business. You can be about as certain as it is possible to be in the world of investing that a government bond will produce a return and that the nation backing the bond is not going to experience economic calamity. However, it should be noted that such events are technically possible and do represent a risk to investors.

There is a whole host of different asset classes that are reflected in the bonds market. Before you decide on a particular type of bond to buy, you first need to familiarise yourself with the specifics of each one. Like a savings account, bonds allow you to grow your money passively; you don’t need to take any actions yourself. However, it is still a good idea to understand the thing that you are buying.

Self-Invested Personal Pensions

A self-invested personal pension – commonly known as a SIPP – is what is known as a ‘wrapper’. The SIPP holds – or wraps – its owners’ investment until they reach retirement age and begin to draw on the funds for their retirement income. When you sign up for a standard pension scheme, the funds that you contribute are invested for you. However, with a SIPP, you can control the investments yourself.

Alternatively, you can set up a SIPP and then hire an investment manager to handle the investments for you and make informed decisions about the money you have invested. SIPPs are aimed at those who want the benefits of a pension scheme but with the ability to direct investments for themselves, thereby maximising returns.

The SIPP is a popular alternative to an ISA for people who want to set aside money to grow over a number of years. This SIPP offered by Willis Owen illustrates why many savers are turning to a SIPP to secure their financial security in retirement. Customers can open a Willis Owen SIPP with as little as £25. The income generated through a SIPP is exempt from income tax and capital gains tax, meaning you get to keep more of the money that you invest.

For most investors who only have a basic knowledge and understanding of the complex UK financial system, a savings account has been the go-to option for keeping their money safe while being able to grow its value. However, not everyone is enticed by the low-risk low-return nature of a savings account. For these savers, the alternatives outlined above can produce greater returns. Just remember that there are no guarantees when it comes to investing and make sure to carefully research any investment before you proceed.

Peer-To-Peer Investing

Many investors find the available interest on cash deposits made into a savings account to be uninspiring. If you are looking to grow your money at a faster rate than a savings account will allow, then peer to peer lending could be the solution for you. Usually, when you deposit your money into a savings account, the bank then adds that money to its investment pool and invests it in other people via loans. The money that the bank pays its customers as interest is taken from the profits they make from these loans.

Of course, this is an oversimplification of the banking system, but for the purposes of this explanation, peer to peer lending is essentially cutting the middle-man out in the above process. With peer to peer lending, you simply lend your money directly to borrowers, meaning that you are able to charge a higher interest rate.

It is important to be aware that peer to peer lending is not currently covered by the financial services compensation scheme. This is a scheme that provides some degree of protection to savers and investors. However, there is growing support from the UK government for the burgeoning peer to peer lending industry.

In fact, the UK government has already introduced a £1,000 allowance for interest-free peer to peer lending.

 

Comments are closed.