Savers are having to work a lot harder to get any decent returns on their savings, so it is now more important that ever to consider all of your options.
The thing you need to ask yourself to start is ‘am I prepared to add an element of risk to my investment’. If the answer is yes, how far are you willing to go?
There are many levels of risks involved with different savings account types, from gambling the interest while keeping your savings pot in tact, to upping the potential returns along with the risk factor by investing in stocks and shares.
Fixed Rate Bonds offer higher interest rates than standard savings accounts in exchange for limiting access to your funds. The rate is usually fixed for a period of anything up to 5 years, allowing you to calculate the exact return on your investment.
The risk involved with bonds is that rates could increase during the life of the bond, but as the rate is fixed you will not be able to benefit from any rises. On the other hand rates could also fall, which would leave you on a higher rate that those offered on other similar accounts.
A step up from this is to invest your funds using a share dealing account. Many banks offer these accounts, which allow you to buy, sell and manage shares from a single account. This does of course come with a high amount of risk, but also ups the potential to make some attractive returns.
Whichever account you decide on, it is worth looking into using your annual Individual Savings Account (ISA) allowance. Any returns from an investment or indeed savings accounts must be declared as a form of income, so this means they are subjected to income tax. This can be up to 50% depending on your annual earnings, but there is a way of avoiding this tax.
ISAs allow you to save and invest up to £10,680 per year without declaring any returns from your pot, allowing you to build up a tax free haven. Half of this can be used for a cash ISA, while the rest can be invested; or up to the full amount into stocks & shares for those that prefer to invest.
ISAs can been incorporated into most account types, so whether you’re looking to open an instant access savings account, fixed rate bond or invest with stocks and shares, you can add the ISA wrapper and take 100% of the returns.