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If you’re in the fortunate position of having a little spare cash to invest, you may find yourself overwhelmed with the different choices for how you can make it grow. But start by answering a few simple questions about your aims and it won’t take you long to figure out the best options for you.
First of all, you need to consider how long you want your money tied up for. The basic formula is that the longer you can keep the money invested, the higher return you’ll get. Be careful, if you lock your money up in a five year bond and then find you need to access it in a hurry, you could wipe out any gains with the penalty fees you might have to pay for early withdrawal.
The second question you need to consider is the level of risk you’re willing to take on. Again, the rules here are fairly straight forward: the greater the risk, the greater the potential rewards, but also of course, the greater chance of losing money. As an example, if you put your money in the bank, it’s pretty safe, but you’ll only be scraping up a basic interest rate, currently that’s likely to be around just 1%. If on the other hand you want to put all your money in a brand new start-up, you could end up getting 20%, 50%, maybe even doubling your money. Although if the start-up fails, and a lot of them do, you could end up with nothing at all.
Here are a few ideas to get started:
Banks and Building Societies: These are safe but offer the lowest interest rates. It’s well worth shopping around though as there are significant differences and at the moment current accounts from banks can offer higher rates than the savings accounts of most building societies, the 123 account from Santander currently gives one of the better rates for amounts up to £20,000.
Fixed rate bonds: If you can commit your money for the medium to long term, then bonds can offer 2 or 3 times the interest rates you’ll get in most regular savings accounts. Most banks offer them, so check the rates, and you’ll also need to decide whether you want a 3 year, 5 year or 10 year bond.
Stocks and shares ISAs: Putting your money into stocks and shares is one of the best ways of beating inflation and over the medium to long term, you’re likely to see a great return on your money. A managed ISA like this one from Moneyfarm, will mean your savings are tax-efficient too.
Crowdfunding: If you’re willing to take a little more risk, then investing in a crowdfunding scheme could be for you. It’s typically a way for start-ups to get money by offering investment opportunities via online platforms such as Crowdcube. But always remember, the greater the reward the bigger the risk you’ll be taking with your hard-earned money.