Despite the recent changes to Cash ISAs (Individual Savings Accounts) and relatively low inflation, there are signs some savers are losing patience as they wait for interest rates to rise.
The Bank of England has kept base rate at 0.5% for over five years and the interest rates paid to savers were cut further when the Funding for Lending scheme was introduced. Even now, months after Mark Carney suggested rates could start to rise, savers are left fighting for a return above inflation.
So if you are one of those people impatient for better returns, what are your alternative options? Here are five to consider.
Option #1: Peer to Peer lending
Peer to Peer lending is often promoted as the ideal alternative for savers; a sort of half-way house between saving and investing.
The potential returns are certainly greater than those from a traditional savings account, but then again so is the risk to your capital.
If you’re prepared to accept the risks involved it’s certainly an option to consider. You can find out more about Peer to Peer lending by clicking here.
Option #2: Investing not saving
Savers like the security of knowing that their capital can never fall in value, as well as having the security of the Financial Services Compensation Scheme (FSCS).
The price for this security though is low returns.
Investors on the other hand are prepared to put some or all of their capital at risk by investing in alternative assets, often stocks and shares, in the hope of a better return.
If you are a saver who is prepared to take some risk with your capital then investing could be an option for you.
If you are a first time or inexperienced investor we would of course recommend you take advice before taking the plunge, to ensure that you understand the risks you are taking and the potential downsides.
Option #3: Buy to Let
Over the past 10 years or so we seem to have become obsessed with buy to let investing and the trend shows no sign of stopping.
Buying a property to rent out is not a simple task. Not only do you have to find the right house or flat, you then have to acquire it for the right price, find suitable tenants, arrange the necessary checks and insurances, deal with issues during their tenancy and then find replacements or a buyer when they leave.
In many respects buy to let is more like running a business than an investment. But, if you buy the right property for the right price, it is possible to get an attractive yield whilst the capital value may rise in the future.
On the other hand, house prices could fall and you might find it hard to rent out or indeed have problem tenants.
Buy to let is certainly an alternative to savings, but as always, where there is greater potential reward, there is higher risk.
Option #4: ‘Mini bonds’
Over the past couple of years we’ve seen a greater number of ‘mini bonds’ issued, the latest example being one issued recently by Lancashire County Cricket Club.
‘Mini bonds’ are essentially a loan to a company or organisation, which pays you interest and then returns your capital, assuming all has gone well, at the end of the term.
‘Mini bonds’ generally pay a higher rate of interest than a traditional fixed rate bond. But in return, you guessed it, there’s more risk. If you take out a fixed rate bond with a UK bank or building society, you will have protection up to £85,000. However, this isn’t the case with ‘mini bonds’; if the company issuing it can’t repay the debt at the end of the term, you may lose some or all of your capital and you won’t be able to claim from the compensation scheme.
‘Mini bonds’ do offer an alternative to savings accounts, but you need to do your homework on the organisation issuing them and be prepared to lose some or all of your cash if the worst happens.
Option #5: Dig deep into your reserves of patience
Most experts believe than Bank of England will increase interest rates during 2015. We might even see some banks and building societies push up rates sooner as they run out of money raised under the Funding for Lending scheme.
So, if you would rather remain a saver, perhaps because you don’t like the risk associated with the other options you may have to simply hold tight, and wait for interest rates to rise, no matter how much this will test your patience.
We’re here to help
If you are a saver and would like to investigate the other options we are here to help.
Our team of advisers will listen to your requirements and then produce an individual recommendation for you. All initial conversations are free and without obligation.
Get in touch with us today on 0115 933 8433 or email info@investmentsense.co.uk
