If you have a large proportion of money in the bank, have you ever considered how you could truly make the most of your savings? It is always worthwhile researching, with consideration as to whether your financial goals are either short-term, long-term or both. To work out how much you can save in the near future, you will need to take a look at your current spending habits to determine the best financial options for your personal situation.
If you are looking to make the most of the savings, here are five options you could bear in mind to reap profitable rewards.
1. Be wary of current accounts
Your current account is one in which you can gain access to your money instantly. However, you will only earn a very small percentage on the cash within it. In order to get good returns on this type of account, it is best to shop around, or the bank will essentially be profiting out of your hard-earned cash.
Current accounts very rarely maintain the value of their money, so it wouldn’t be the best method for making a profit, but more just a simple tactic to earn very small returns on the odd occasion. The positive aspect about current accounts is that you don’t need to pay any fees and they also offer you a sense of flexibility, so there is little risk involved.
2. Fixed-rate bonds
Bonds have a far lower risk than shares but are significantly riskier than cash. You could, however, spread the risk over a selection of different corporate bonds to make your money work harder for you and therefore gain higher returns.
A fixed account is an ideal suggestion if you are looking to save for the long-term. The money within the account is locked away for a certain period of time, so you should potentially gain better returns as a result. The general rule of thumb is that the more restriction an account offers, the more interest you are likely to get.
Fixed accounts are the best option for those who are looking to make a profitable investment in the future, but aren’t in desperate need of access to the cash. For example, saving for a wedding, mortgage deposit or even retirement. Bonds can also provide you with a clear idea of how much of a return you are likely to receive once an account matures.
It would, however, be worth having a separate instant access account, as if you wish to withdraw from a bond, you may be faced with a hefty penalty charge in the form of a significant loss of interest.
3. Stocks and shares
Many people consider investing in shares if they have a lump sum of cash saved, but are often cautious about putting their cash into the hands of others. Despite the regular highs and lows of the market, shares offer the most potential for growth in the long-term. It would be an ideal consideration to invest in stocks and shares if you are set to retire in the next few years or have another large financial goal in mind.
Investors usually opt for long-term financial rewards and traders choose to invest their money as a short-term option, the latter of which can have greater benefits. Short-selling is essentially a method used by people who aim to profit from stocks that are falling in price. Now, while that may sound contradictory, it is all based on timing. Shares that are feared to be losing value are borrowed by the broker with the intention of being returned back at a later date. Shares are then sold at the current market value, and upon buying them back, a profit can be gained if they were sold at a higher price. If you believe this is an option you would be interested in, here’s how to find the best stocks to short.
4. Beat inflation
Inflation is a terrifying element of any type of savings, as very few accounts hold the value of your money. However, there are many ways in which you can beat inflation with some simple tactics.
You may decide to build a repertoire of different funds, rather than to put all your eggs in one basket. There are many different strategies to be discovered, but it is essentially all placed under the same basic structure. It would be best to ask for professional advice on where to best place your money in terms of the type of accounts on offer, that works best for your own personal needs.
It is also wise to stay healthy. What does this have to do with inflation you may ask? Well, in the U.S especially, the cost of health care is rising significantly at an even high rate than inflation; both of which could be the ‘silent killer’ of your finances. Ensuring you stay healthy means you can potentially work for longer and therefore won’t have to worry about inflation eating away at your hard-earned savings you have built up throughout your life.
5. P2P lending
By investing in a Peer-to-Peer lending scheme, you could find yourself earning a significant amount on your cash. This type of investment is otherwise known as crowd-lending, in which the intermediary of the bank is cut out, yet the borrower would typically earn a lower rate than if a bank were involved and there is also great deal more risk involved. It is worth noting borrowers are picked out single-handedly with their credit history and risk factor being checked, as a way of determining how much interest they are eligible to receive.
To be considered, you would need to be completely free of debt, be aware of the risk involved and can agree that money will be locked away for an allocated amount of time. If you have any hesitations about this type of investment and are keen to see how much you could potentially lend, it would be worth saving smaller amounts of money to be built up over time to understand what may be expected.