How to make your money work for you

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It’s hard to remember a time in recent decades where there has been so much ongoing uncertainty. For those who love politics, it’s probably been a breathlessly-entertaining last few years. But it’s hard to shake the feeling that there is a lot up in the air at the moment, and the future of our generation – and our children’s – doesn’t feel all that secure.

From a financial perspective, all we can do is try and take care of things at home, live within our means, save for a rainy day and plan for retirement. But even that has become a challenge, given that interest rates are at record lows, and inflation is on the rise. The returns on savings offered across the board are tumbling too, which is a bit of a double blow – aside from the fact that it means your money is losing value in real terms, it also dis-incentivises people to save in the first place.

So, what’s the best way forward?

NS&I savings bond

A few weeks ago, a new alternative was launched via the NS&I whereby you can put your money into a three-year bond which pays an AER of 2.2 per cent. As guaranteed savings rates go, it’s about as good as you’ll get at the moment, and if it is something you would consider, you’ll need to move quickly as stocks are limited. However, it is worth first noting that there are some limitations.

Firstly, the maximum you can put into it is £3,000, which, depending on your personal situation, may not be enough to make a massive difference. Also, as mentioned, stocks are limited to a cumulative total of £7 billion, and the product is only in the offing for 12 months anyway. Finally, inflation has now crept up to 2.3 per cent, and is set to rise even higher in the coming months. Even if interest rates do rise, this is a fixed-rate bond, meaning there won’t be any benefit, so it’s actually likely to be a loser in real terms.

That said, there is no doubt that this savings product does represent a decent alternative, especially when you consider how many pennies and pounds must be sitting in current accounts at the moment earning next to nothing.

Savings accounts

Locking money away in a bond might not appeal to everyone, but in terms of easy-access savings accounts, the pickings are pretty slim. The Santander 123 account used to be a standout exception, previously offering a return of 3 per cent on amounts up to £20,000. However, that all changed at the end of last year, as this offering was unceremoniously cut in half!

Such is the state of the savings market that the new 1.5 per cent headline rate is still one of the market leaders. In terms of others, the 3 per cent rate offered by Tesco effectively applies to the first £6,000 you put in (if you open two accounts), while Nationwide offers an impressive 5 per cent (for 12 months only) on the first £2,500 you put into its FlexDirect account. Other than that, you can get between 1-1.2 per cent from the likes of Sainsbury’s, Yorkshire Building Society and the Co-operative Bank.

ISAs

Unfortunately, the once-popular Cash ISA has declined into near oblivion, which is a shame given that the ISA allowance for the year has now soared to £20,000. Currently the only places you’ll even be able to achieve 1 per cent is with the Post Office, RBS and Coventry Building Society.

That said, the ISA market has become quite diverse. The Help-to-Buy ISA offers a 25 per cent bonus on all savings (maximum bonus is £3,000) for first-time buyers, while the new Lifetime ISA offers a similar 25 per cent bonus, albeit with a higher maximum (bear in mind though that this is more geared towards retirement, and withdrawals before the age of 60 will generally see the bonus forfeited and penalties incurred).

Further up the risk spectrum is the new ISA geared towards peer-to-peer lending. It’s important to note that, unlike Cash ISAs, capital and returns from peer-to-peer lending aren’t guaranteed as it is effectively an investment. However, with returns of around 5 per cent – tax-free via the ISA (known as an ‘Innovative Finance ISA’ – there is clear appeal there.

Otherwise for those with a higher risk appetite, there is always the option of Stocks and Shares ISAs.

Final thoughts

Bottom line, there aren’t exactly a bunch of silver bullets to choose from. But it is during this period of particular uncertainty that it becomes ever-more important to do a bit of research, and ensure that any savings you do have are not siting idle. The time to secure the financial future of you and your family is now.

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