Mad Rich

Three Ways to Save for the Future 

Most of are considerate enough of our futures to put away a little money every month. Whether you’re saving for a holiday, trying to put your kids through university or planning for retirement, there are a variety of different ways that you can save and get the most out of your money. It’s not always about the best interest rates, and when you’re saving for the long time you might want to forget about the savings account altogether and head to the stock market. If you’re doing a bit of personal financial planning, then take a read of this article for an introduction to various ways of saving. 

Savings Accounts

Every bank has some kind of saving product. Normally this comes in the form of a fairly simple savings account which you can add or withdraw from and which comes at a higher rate of interest than your current account. If you’re thinking about getting a savings account then do your research. Don’t take the first account you see or just take the one offered by your current account provider because it’s convenient. Instead, get on the Internet or the back of the money section of the Sunday papers and see what the most competitive rates are. Currently there are some foreign banks, such as ICICI, Kaupthing Edge and Icesave, all offering UK customers rates of more than 6.5%, which is excellent. In the current climate, you shouldn’t really be tempted to get a rate lower than 6%, but this may change if the Bank of England cuts interest rates. If you’re thinking of saving less than £3600 a year, then a cash ISA (as offered by Legal & General for instance) is always worth a look because it will be tax-free. 

Fixed Term Accounts and Bonds

With this type of savings product you take a lump sum of cash, put it away for a period of time (6 months to a few years or more) and then scoop off a fixed interest payment at the end of the term. It’s great if you’ve built up a lump sum and you don’t need to use it for a period, because you can get high rates of fixed interest (they won’t fall if the Bank of England cuts rates). However, you’ve got to be careful because very few of these products offer you the chance to withdraw without a penalty – usually a substantial loss of your interest payment. When shopping for these, think about how much money you’ll be able to say goodbye to and for how long. The rewards can often be very substantial, particularly in periods where interest rates are likely to go down.  

Stocks and Shares

Stocks and shares flummox a lot of people. While advanced investing can be technically complicated, you can invest in stocks very simply and still get very high returns in the long term. Stocks and shares are not recommended if you want the money you put away within five years – their value can go up as well as down - but the long term they nearly always outperform cash. A simple way to invest in shares is to set up a shares ISA with your bank and then regularly buy iShares, the value of which mirrors the performance of the FTSE 100. You might think that’s mad considering the current climate, but the FTSE has grown some 600% since it opened in the 80s – you will never get such a return from cash. You can also consider the managed fund option, where you pay money every month to a professional manager who picks stocks with the aim of a good return. If you’re interested in the second option, take a look at the investments available with Legal and General.