Savings Accounts – What Are Your Options?

Whether times are good or bad, deciding where to place that little nest egg of savings is never easy.

There are usually two primary considerations that most savers try to balance – the safety and security of their savings versus the return (earnings) on them.

In this marketplace the offerings and conditions change almost daily so research will always be necessary and it is highly advisable to consult a duly qualified and registered independent expert before making any decisions. There are though a few general points to consider at the start.

High variable returns – high risk.

Some potential locations for savings offer an uncertain future. The returns are not guaranteed and the value of the savings can go down as well as up. Against this if things ‘go well’ than the earnings and growth of the nest egg can be spectacular.

Examples of this type of saving and investment would be standard stocks and shares portfolios, non-government backed private bonds, currency trading linked savings and commodities based products that bet upon oil or gold prices etc.

In these types of savings and investment schemes, the ‘nest egg’ may rise in value consistently, it may go up-and-down, or it may decline dramatically to near zero and be entirely lost. Schemes of this nature typically may be better suited to corporate entities or very wealthy individuals – they may be seen as too risky for the average saver/investor.

Moderate level returns – balanced risk.

Some products offer the possibility of higher returns without putting the entire savings at risk. These usually involve the saver/investor passing the savings to a brokerage company and specifying which percentages of it are to be invested where. It may be, as an example, that 50% of the fund is invested in government-backed bonds that guarantee a return of ‘x’ percent after several years. The other 50% could be split 25% going to a fixed interest guaranteed scheme and the remaining 25% used to play the riskier stocks and shares markets.

In these schemes the investor minimises their risks of total catastrophe but are prepared to take higher risks with a small percentage to hopefully achieve higher gains.

Once again these schemes tend to be normally utilised by people with larger sums to invest and who are prepared to spend time monitoring the performance of their savings in the various marketplaces.

Specified level returns – lower to zero risk.

For the majority of ordinary savers and investors, the idea of gambling with all or part of their savings may prove too intimidating to contemplate. To achieve a reasonable rate of return on their funds with minimal risk means that they will probably be looking at one of a range of more conventional savings products.

• Tax-Free savings with guaranteed returns. Examples of this include ISAs where a lump sum is invested for a specified period and often a fixed percentage or minimum percentage profit is guaranteed. The savings may not be accessible in full ahead of the maturity period without incurring tax penalties.
• Fixed rate ‘notice period accounts’. In these products the savings are deposited into a savings account and usually receive preferential interest rates because the money cannot be withdrawn by the saver without giving 30, 60 or 90 days notice to the bank or building society.
• Instant Access Savings Accounts - these also offer preferential interest rates but with immediate access to the savings if they are needed.
• Bonds. It is possible to purchase bonds through banks, building societies and brokers. If these are government backed with a guaranteed interest payment at maturity (say 5 years) they may be described as ‘GILTS’. It is worth noting that not all bonds are government backed or totally secure.
• Premium bonds. These offer no interest at all but the money is safe and there is a chance of winning a significant sum tax-free.

As always, research and advice will highlight a vast number of options but always be sure that the position is totally understood from a risk, guarantee and potential return viewpoint before depositing those precious savings!

• Savings can be used to earn money and grow the ‘nest egg’
• Some savings and investment areas offer potential high returns but are also high-risk.
• Savings schemes can be found that are a mixture of guaranteed and riskier investments.
• Many standard savings schemes offer specified levels of growth with little if any risk to the funds.