As most people will know, the Bank of England base rate – a figure that was barely discussed before the recession – remains at its historic low and looks set to stay there for at least the next twelve months. Whilst this is good news for homeowners, it’s less good for people looking to save and get a good return on their money.
In response to this, banks like Santander have been looking to increase their range of savings and investments on offer, but how do you pick the right one?
Before looking at products, however, it’s worth considering that due to low interest rates, cheap mortgages, and recent drops in house prices, perhaps the best investment out there can be found in the form of property. If you have the means to get approved for a second mortgage, and are willing to put a little work into development, a second home represents your best option for making a good and steady profit.
If property is a little bit out of your reach, you have several options. The first is a tax-free ISA, these come in two forms: cash, and stocks and shares. Cash ISAs generally offer lower rates, but are extremely cost efficient if you’re a higher rate taxpayer because you don’t have to pay income tax on the interest you earn.
Nonetheless, one of the problems with ISAs at the moment is that the inflation rate is quite high. So even the best paying cash ISAs struggle to beat inflation – unless your investments offer a better return than inflation, your money is actually decreasing in real value regardless of the interest rate. This problem at least looks set to be corrected in the medium term with most experts predicting that inflation will tumble.
The other alternative to cash ISAs are stocks and shares ISAs. There are a huge range of these products around and they can offer great returns. However, all stocks and shares ISAs carry a certain amount of risk with them, and it’s down to the customer to decide what sort of risk they’re willing to take on in the hunt for a profit. You can also pick to invest in certain types of stocks, or certain types of companies, in fact, you can invest in stock in just about any format and protect it within the ‘wrapper’ of a stocks and shares ISA, all of which means you don’t pay for the interest that you earn.
Another option that’s attracted a lot of interest in recent months are bonds. Bonds are the company version of gilts, which is the financial world’s term for government debt. Investing in debt is always risky, but the bonds of the best companies represent a fairly safe bet, and a decent return.
Of course, the problem here is that the best companies to invest in – the safest ones – are the ones that offer the lowest rates of return.
Ultimately, if you’re thinking about investing, the best thing to do is to consult an independent financial advisor, and to see what sort of products are available at your local bank. Usually it all comes to a decision between like return and the risk involved in your investment, and only you can make the final decision – but it’s best to only make that decision after thinking about all the options.