Everyday savings vehicles versus alternative investments


The Summer Finance Blogoff 2012

Everyday savings vehicles versus alternative investments

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Do you have a chunk of money to save or invest? If so, where’s the best place to stash your cash for a decent return?

You’ll probably be dismayed at the mealy-mouthed, mean amount of interest you can earn on everyday savings and investment accounts these days. BM Savings currently offer 4% on their 3 Year Fixed Rate Bond. The Aldermore 120 Day Notice account is guaranteed to deliver 1.65% over the base rate until March 2013. The Halifax’s Fixed 5 Year ISA Saver comes with a 4.25% interest rate and a Fixed Rate Bond by Vanquis Bank 4.26% (1). And these are some of the current top performers… it’s depressingly easy to find savings vehicles that deliver a lot less.

As a general rule the longer you leave your cash untouched, the better the return. You could always stash it under the floorboards or sew it into the lining of your curtains. You won’t earn interest on it, but at least it’s instantly accessible.

If you go for a more complex investment vehicle, like a pension or a portfolio of stocks and shares, you can easily fall foul of the old ‘investments can go down as well as up’ chestnut. All you have to do is listen to BBC Radio 4’s MoneyBox programme and you’ll hear ordinary investors bemoaning their losses and regretting their feeble returns.

At the same time, the global financial services industry has taken a vicious whipping since the credit crunch and banking crisis kicked off a few years ago. Is it a fundamentally flawed model that is, to all intents and purposes, broken? Or is it a system worth mending? The jury’s out on that one! Some experts feel it’d be best to throw everything out and start fresh. It isn’t exactly a helpful argument for people who want to put their money somewhere safe, sensible and reasonably lucrative for the duration.

Spend time on Google and you soon drum up search results for companies offering 650% investment returns. Quite frankly, they’re almost certainly a load of old cobblers!  So is there a better way to generate a decent amount of return on your investment, one that circumvents the usual financial services industry suspects?

Apparently six million or so Brits have already salted away approximately £486 billion (2) in ‘alternative investments’ as diverse as antique toys, great wines, fine art and old books. Which might, at first glance, seem much more appealing than the usual dry-as-dust financial services fare. But life’s rarely that simple. If you want to make any kind of killing you either need to be an expert in the field, get extraordinarily lucky by sheer coincidence or take expert advice. There are specialists in every field and as you’d expect, they charge for their expertise.

And what about property? Until relatively recently real estate was a foolproof investment, but today’s property market looks distinctly wobbly. If you buy property, can you be certain you’ll be able to afford the commercial mortgage repayments when interest rates eventually rise, or you lose your job?

There are countless get rich quick schemes online, most of which make completely ridiculous claims. Let’s be realistic. If it was that easy to make a fortune online, we’d all be doing it. Dig beneath the surface and they’re almost always thinly disguised pyramid-type schemes selling pretty basic money-making information. If you come across an offer based on the amazing good fortune of an ordinary  chap from the good old US of A who made his fortune in no time by ‘selling information that people genuinely want’, step away from your screen.

It makes sense to remember that most decent investments, whether they’re in property, antique teddy bears or a bog standard investment fund, are designed to deliver good returns on a long term basis, not shower you with pure gold a mere few days, weeks or months after you invested. It’s never simple. It’s always risky. And there are no certainties.

(1)    knowyourmoney.co.uk

(2)    uknetguide.co.uk

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