You want to own a property abroad one day. You’ve been working for years, but your savings aren’t growing and your dream isn’t getting any closer. Sound familiar? If you’re looking for a genuinely simple way to save more effectively, now’s the time to think about investing. In the first of a series, Lisa Caplan, Head of Financial Advice at Nutmeg runs through what to think about:
Limits of cash savings
Peace of mind is important when it comes to saving – most of us like knowing that our money is safe and that we can get to it when we need to.
It’s a familiar scenario: you open a cash savings account ‘temporarily’ while working out a better way to save, but life gets in the way and your money stays where it is.
The problem is, depending on how much you’re saving, keeping your money in a cash savings account means it may only grow at a fraction of the speed than if it was invested properly.
This is especially true now, when cash savings are being hurt by falling interest rates – meaning that you’ll make much less money from your savings than you would have a few years ago. And if you’re saving for a long time, then a slow rate of growth could mean that it actually ends up losing value in real terms by the time you come to spend it.
Get an ISA
If you want an easy way to save more straight away, then getting an ISA is a good place to start.
An ISA is a savings account that lets you save tax-free. So, over time, it could help you save much more than if you kept your money in regular cash savings – where you get charged for the interest you earn. The only thing to bear in mind is that the maximum amount you can save per year is £15,240 – though this goes up to £20,000 next tax year.
There are different ISAs to choose from, but two popular ones are Cash ISAs and Stocks and Shares ISAs. Cash ISAs work just like normal savings accounts, but they too have been affected by falling interest rates – so they might not offer the rate of growth you’re looking for, if a house abroad is what you’re after.
Stocks and Shares
If you want for the best chances of a higher return on investment, then a Stocks and Shares ISA could be the ideal choice – especially if you’re confident that you have a chunk of money that you can put away for a few years.
Put simply, a Stocks and Shares ISA allows you to invest your savings in funds, bonds and shares in companies. You’re not completely exempt from tax, but there are some major tax advantages:
- you don’t pay any capital gains tax if the investments within your ISA make a profit;
- you get better tax rates on other benefits like dividends and interest; and
- you can withdraw or transfer your ISA
In short, a Stocks and Shares ISA could increase your chances of making and saving more money – and help you make quicker progress towards getting that deposit.
Of course, it’s important to keep some money in cash savings for a rainy day – but if there’s money that you won’t be touching for a few years, then it makes sense to look at this as an investment option.
If you’d like to see how much a Stocks and Shares ISA could grow in years to come, why not have a look at Nutmeg’s handy ISA calculator.
Ask for advice
Investing needn’t be a scary prospect. Like with most things, there’s an element of risk involved, but it’s never been easier to get your money working harder.
If you’re unsure, it might be wise to talk to a financial adviser before making the first step.
Getting some advice could help you make sense of things and choose an investment option that is right for you. Just make sure you’re aware of the costs involved.
Risk warning: As with all investing, your capital is at risk. ISA rules apply.