Where should I save my money?

The simple answer would be: “The place with the lowest risk and highest return”. But there are so many other factors involved; you could try ISA’s, Peer to Peer lending, Property investing, Retail or a big biscuit tin!! It depends what you want and how much risk you can take.

Savings

I’ve recently read “Rich Dad Poor Dad” by Robert T. Kiyosaki , and yes, I do realise that I’m a bit late to the party on this one. It’s a fantastic book though defiantly not bite sized and of course heavily biased towards the American system. One of the key pieces of advice provided by rich dad was that saving is for losers. Quite insightful especially since this advice was given decades ago, way before most savings rates in the UK went below 1%.

Using (where possible) PRE tax funds to INVEST every available penny that you have as wisely as possible is basically the key premise of this and many other get rich orientated books. Paying yourself first means providing for your own future before anything else by making your money work from day one.

Saving money AFTER you have been taxed and at traditionally tiny or non-existent growth rates is a massive waste in the long run.

Standard saving rates at the moment in the UK, even in “high interest” ISA’s are really low and will not earn you hardly anything. Even worse than that, if you are just saving your capital by putting cash in a jar or the equivalent no interest account, you are literally throwing money away, especially if you have expensive debt at the same time.

I am by no means a seasoned investor so my advice here will be limited and it’s just my experience to date so please take it for what it is. There are so many books available on investing, if you are at this stage in your financial development, then please see the BIG links page for some more appropriate material. It may also be time to invest in a qualified and registered advisor.

If however you have “a bit” put away and get totally disheartened at the pathetic trickle of interest that you get from your current saving vehicle(s), then maybe I can assist a little.

Just to reiterate that if you are considering saving before you have moved your BAD expensive debt to somewhere that it’s not costing you, please don’t. Have a long hard think about how much money you are giving away to a not so worthy cause EVERY MONTH that you don’t need to and come back to this when it’s all gone or been magically transformed into good debt.

However, if you have managed to get all your credit onto 0% with nice long terms and small transfer fees AND your mortgage is at a nice low % then you might want to look at either

  • A new (extra) current account
  • A long term savings account
  • Investments?!
  • ISA’s
  • Peer to peer lending
  • A regular saver account
  • And probably loads more that I have yet to discover

Current accounts

Quite a few current accounts now offer some decent rates on positive balances. I recently got a TSB current account that I use for all my debt direct debits and rental income. I leave a minimum balance of £2.5k in it and I get 5% annual return paid monthly.

Ok, so it’s not earth shattering but it’s a passive income (Ah….the holy grail!!) of £125 per year. I have another current account that provides something similar though both of these are short term introductory offers that drop down in the second year, but hey, its money I didn’t have and I hardly do anything for it.

If you’re in a couple, you can both do this and if you want to get creative you can move the money between you so that you are “depositing” the minimum amount into all your accounts at different times of the month if you need to.

Normal Savings

Most bank and building societies offer regular saver type accounts that allow a maximum monthly deposit. I have one with the nationwide that gives me 5% and matures after 1 year so you have to take your capital and the interest you’ve earned and start again but it’s still money you didn’t have right?!

If you spend some time clicking through the links in Chapter 8 I’m sure you will happen upon the latest offerings in this space. MSE has even started to change his rather dower opinion on ISA’s of late in response to some new more reasonable offerings that are now reaching the open market.

ISA’s

Not my area of expertise at all but it is my impression that that their value is heavily dependent on your circumstances. They are especially of use if you are a high rate tax payer and have maxed out all your tax free allowances in normal savings.

Please never assume that any one savings or investment vehicle is inherently good or bad. Always do your research and take it on balance based on your own unique set of circumstances, it’s not a one size fits all.

ISA’s are really just another investment vehicle with their own set of benefits and down sides, so just like any other place you are thinking of putting your money, just check it out first!

If this is all too much, click through the links and chapter 8 and / or get a financial advisor. If you have enough money to invest that makes an ISA worthwhile, getting one might literally pay dividends towards your future wealth.

For most of these traditional vehicles, it’s worth using a few comparison websites to see what available to you in your particular circumstances. Some of these have worked well for me in the past but be aware that there is no one size fits all and as far as i know there isn’t a single place that will give you a truly comprehensive view.

There are of course many more but Don’t forget to look at TopCashBack first to see if you can get some money back, just for doing the comparison!

Peer to peer lending

Personally I’ve been investing in funding circle for a number of years both with my business money and my personal money, I have consistently averaged about 5% per year but this is NOT without risk and should be thoroughly researched before you do anything.

That said, it’s been working for me for a while now and I’ve put some links in the last chapter for you to check out to see if it might work for you too.

There are now loads of P2P investment vehicles to choose from and you don’t just have to choose one. In fact one of the risks (it’s very low though) with this type of investing is that the platform itself might dissolve, so spreading the love [money] over a few options is good risk diversification.

Basically the peer to peer lending organisations act like a bank; they take your money and lend it to other people BUT they don’t charge massive fees so you get most of the money they make on lending your money to other people. Some specialise in small business lending, some in property and others in personal finance. You can usually choose how “risky” you want your investment to be, so if you’re super cautious, you might choose to only lend your money to “A” rated lenders. This means that your rate of return would be less but you have a much better chance of them NOT defaulting on the loan.

All your money is generally not lent to one organisation or person (unless you chose otherwise), usually your money will be split so that you are not too heavily “exposed” to any single loan. This means that if one person fails to pay, you only lose a tiny % of your investment and over a year or so you won’t even notice.

This is why you get more money from this type of investment than from a bank; you are taking on more risk.

One of the best blogs I’ve read on the subject can be found HERE and is well worth 10 mins of your time if you are interested.

Some sites you might want to look at as I either use them or have heard good things (from people I trust!)

With a view to getting even more money out of the system, look at this P2P cashback site before you invest for a bit of a deal sweetener!

Key Takeaways:

  • Spread the love, spread the risk – use a few options (eggs and baskets etc!)
  • Overall low risk investments (but not zero)
  • Choose better rated business to lend to within the platform; Funding circle. Ratesetter, Zopa etc. This generates a lower return but it’s also lower risk.

 

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