Fed up with earning low returns from your assets? These five tips could help perk up your portfolio.
THIS ARTICLE INCLUDES AN EXCLUSIVE OFFER FROM ASSETZ CAPITAL FOR LOVEMONEY READERS
With interest rates stuck at record lows and not expected to rise until the Bank of England raises its base rate, times are terrifically tough for UK savers and investors.
Of course, even when rates are low, it's still vital to monitor and manage your portfolio of savings and investments to ensure that your money is working hard. Here are five ideas that could help to improve the returns your portfolio generates.
1. Don't be loyal, shop around
When it comes to financial products, loyalty is for dogs. In fact, many financial institutions reward new customers with their best deals, leaving faithful existing customers to lose out. This is particularly the case when it comes to savings accounts, of which financial researchers MoneyFacts lists a mind-boggling 1,610 different varieties.
These days, everyday savings rates can be really awful. For instance, MoneyFacts found that almost half (48%) of easy-access savings accounts pay yearly rates of 0.50% or less. The Best Buy account in this category almost triples this average rate to 1.45% a year, showing it really does pay to shop around.
In short, never leave your money gathering dust in third-rate accounts. Instead, shop around online to maximise the rates that your everyday savings earn.
Assetz Capital promotion: earn an extra 3% cashback on balances for a year
2. Lock away your savings
If you don’t need instant access to your money, then you can improve your returns by tucking it away in notice accounts. Notice accounts require you to lock away your cash for an agreed term, in return for higher interest rates (plus penalties for early access).
For example, squirreling away your cash for, say, one, three or five years in fixed-rate savings bonds can deliver market-beating returns ranging from 1.90% to 2.45% to 2.90% a year, respectively. However, never put cash that you may shortly have need of into notice accounts, as you might face steep penalties for withdrawals.
3. Save monthly for a year
One way to earn tip-top rates is through regular-savings accounts, which require you to make monthly deposits for 12 months or more (or face various penalties). Although several of these accounts pay rates below 3% a year, the Best Buys offer rates ranging from 3.5% to 6% a year.
Regular-savings accounts are great for well-organised savers, but they usually come with limits on monthly deposits, permitted withdrawals and so on, or require you to open a linked account. Therefore, don't put money into regular-savings accounts that you can't afford to go without for at least one year.
4. Avoid paying tax
If you don't shelter your savings from tax, then HM Revenue & Customs (HMRC) may take a slice of your interest at tax rates ranging from 20% to 45%. The simplest way to avoid tax on your interest is to save inside a tax-free ISA (Individual Savings Account).
In the current tax year (2016/17), UK savers aged 16+ can save up to £15,240 into a Cash ISA, with this limit leaping to £20,000 in 2017/18. With such high savings limits for tax-free ISAs, it's no wonder that around 13 million Brits opened new ISAs in the 2014/15-tax year.
Assetz Capital promotion: earn an extra 3% cashback on balances for a year
5. Consider Peer-to-peer (P2P) investing
With savings rates dropping to record lows in 2016, some Brits are swapping some of their cash savings for investments. For example, an increasing number of savers are looking to peer-to-peer (P2P) lending to boost the returns generated by their spare cash.
This high-tech form of investing involves lending to businesses (via secured or unsecured loans) and/or individuals (via unsecured loans). P2P-lending returns typically range from 3.5% to 7.5% a year, before tax and any loan losses not covered by provision funds. Generally speaking, the higher the returns on offer, the riskier P2P loans are.
P2P lending is not saving and your money is not 100% safe (see the 'Risk Warning' below), because it is not covered by the Financial Services Compensation Scheme (the government-backed safety-net that protects 100% of the first £75,000 of cash on deposit per person per UK institution).
Nevertheless, following the launch of the new Innovative Finance ISA (IF ISA) on 6 April, more investors are aiming to try P2P lending inside this revolutionary new tax-free wrapper.
This easy-access P2P account pays 4.25% a year and 3% cashback
In an exclusive offer for readers, loveMONEY has joined forces with a leading P2P platform to give you enhanced interest rates from a P2P-lending account.
Since Assetz Capital launched its Quick Access Account (QAA) in September 2015, P2P investors have invested over £30 million into it, showing the QAA's widespread popularity. Even better, thanks to loveMONEY's exclusive deal with Assetz Capital, you can earn an even higher return from the QAA, plus 3% cashback to boot.
Ten key features and benefits of the Quick Access Account
1. You earn an enhanced lender interest rate of 4.25% a year* (monthly equivalent) during April, before tax and any loan losses not covered by Assetz Capital’s loss-provision fund. That's 0.5% a year more than the normal QAA rate, but this offer must end on 30 April.
2. You get a special bonus of 3% cashback on all QAA investments made by 15 May. Cashback is paid after 12 months.
3. You pay no lender fees, so the rate you see is the rate you get (before tax or any loan losses not covered by Assetz Capital’s loss-provision fund).
4. The minimum investment is £1 and the maximum direct investment is £100,000. You can also sweep up to £25,000 more into your QAA from other Assetz Capital accounts.
5. You have easy access to your cash when you need it, in normal market conditions, as withdrawals from your QAA should take less than a second. Also, deposits into your QAA using 'Faster Payments' appear almost immediately.
6. All QAA business loans are secured against tangible, realisable assets (such as property, land or other assets), with additional safety margins on top.
7. To minimise predicted loan losses for investors, the QAA includes a discretionary, ring-fenced loss-provision fund.
8. The QAA automatically diversifies your investment to reduce risk by spreading it across a range of loans to different British businesses.
9. You will be able to own and hold QAA investments inside an Innovative Finance ISA (IF ISA), once launched, thus making your interest income (and capital repayments) tax-free.
10. Instead of withdrawing your QAA interest and capital repayments, you can choose to reinvest these sums into yet more P2P loans. You can do this by adjusting the settings found on your personal Loan Dashboard.
Start investing today
Stuart Law, co-founder and CEO of Assetz Capital, says: "We've come up with a great deal for loveMONEY readers, including extra interest of 0.5% a year (monthly equivalent) during April and 3% cashback for all Quick Access Account investments. If you want easy access to your cash (in normal market conditions), a fair rate and bonus cashback, then the QAA could be just the account for you. What's more, you don't need to be a billionaire to try it, because the QAA's minimum investment is only £1!"
Assetz Capital promotion: earn an extra 3% cashback on balances for a year
* Rates quoted are before deducting tax and any loan losses above and beyond what may be covered by the QAA's discretionary provision fund.
RISK WARNING: "As with most forms of investment, peer-to-peer lending carries a degree of risk to your capital; in this case, if borrowers were unable to repay their loans. At Assetz Capital, we seek to reduce this risk to our investors by taking asset security on every loan, with the added benefit of a discretionary Provision Fund for some of our investment accounts."
Liked what you read? Try this article next:
Promotion: highest savings rates can match peer-to-peer returns