Image copyright Getty Images Image caption Savers are piling in to marketable assets at the fastest rate since 1988
Months ago, saving into a savings account may have sounded attractive – but has it become sensible?
It is increasingly more popular to fill your income with marketable assets – and these look set to offer good returns, plus safety.
So let’s take a look at what you can do to make a go of this trend.
Saving in a savings account now looks like a desperate move if you want to earn as much as you could on the stock market.
After a volatile market in the year up to September, the FTSE 100 index is now up 5.6% for the year, with shares in Royal Mail up 9.7% and shares in SMTP up 27%.
Image copyright Getty Images Image caption Then compare your savings with what you can earn in cash
How do you make money from deposits?
Firstly, your money should be in a bank or building society. It pays to have a bank account with a good reputation for reliability.
It’s useful to choose a bank which pays the standard interest rate, around 4% or 5%. You will get what it is offering, but it’s possible to switch to a better deal.
You must also bear in mind the charges that the bank and building society could add. Some fees have started to creep in, while there could be an overdraft cost.
You will be offered a current account with interest on your deposit. Some building societies also pay better interest to their savers than the UK average.
Rates offered by high street banks are also low. HSBC, for example, offers 2.25% on cash savings, with Santander paying 2.5% on some of its easy access savings.
You can avoid all these fees by either going to a better building society – or saving at a payday lender such as Wonga.
You can have a few thousand pounds put away, but would prefer to save on a larger scale so you are not paying upfront fees. If your earnings are small, opening a “homebuilder passbook” can be a good way to save.
You can also often earn “exponential” returns as you hold your investments longer.
Do you need an Isa?
Image copyright Getty Images Image caption Not everyone wants to be tied into investing
With cash savings, you may be better off without an Isa. An Isa lets you invest tax-free – but you must put your money in a property – such as a home – with the aim of eventually selling it and making a profit. You could save tax, but you wouldn’t get your money back.
Most people would rather have a savings account, rather than investing in stocks and shares.
When you pay income to your Isa, you can take it out any time during the tax year, once the amount you have paid has been deducted. If you are repaying your mortgage, for example, you may need to hold off the full Isa allowance every year.
You can also put money into an Isa, but you cannot do it tax-free. You will pay tax on any capital gains or dividends you make from this.
Any mortgage is probably more appropriate, as you get a better interest rate, or free repayment of interest if you are moving to a bigger property.
How much can you save?
Image copyright Getty Images Image caption If you already have a good savings account, you might not want to go to cash
Your savings do not have to stay in one place.
There are huge numbers of online banks offering their own accounts. Some even pay a competitive rate of interest.
You could say goodbye to the accounts where you are often charged for opening an account or the high fixed rate interest.
That is unless you have been ripped off – as you could find in a leaked investigation by this newspaper, where a recent adviser told readers a higher rate of interest should be paid on accounts to “keep the door open”.
Are you more likely to open a cash account to get extra cash back?
Image copyright Getty Images Image caption Or would you rather opt for an Isa to get tax-free returns?
Your old high street bank might consider using an Isa account to give you extra cash at the end of the tax year.
Many savings accounts now also offer you flexibility so you can withdraw money and use it where it might be better for you to put it, rather than wait until the tax year is over to send money in.
Are you less likely to open an account if you are trying to save money for a home deposit?
Image copyright Getty Images Image caption You might choose the Isa because you are trying to save for a home deposit