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Should I save or invest my money?

Money Advice Service

Wondering whether you should save or invest? The answer depends on your goals and your financial situation. This guide will help you work out how to go about building up your savings and the best way to invest money. It also covers the basics of planning out your finances for short term savings and long term investment. What’s the difference between saving and investing? Who should save? Are you ready to invest? A look at some goals – save or invest? Set your savings goals What’s the difference between saving and investing? Saving is putting money aside, bit by bit. You usually save up to pay for something specific, like a holiday, a deposit on a home, or to cover any emergencies that might crop up, like a broken boiler. Saving usually means putting your money into cash products, such as a savings account in a bank or building society. Investing is taking some of your money and trying to make it grow by buying things you think will increase in value. For example, you might invest in stocks, property, or shares in a fund. Who should save? Not sure how much you spend every month? Use the Budget planner to get a clear picture of your finances and work out where you might be able to cut costs. 1. Setting up an emergency fund Everybody should do their best to build up an emergency savings fund. The general rule is to have three months’ worth of living expenses saved up in an instant access savings account. This should include rent, food, school fees and any other essential outgoings. Your emergency fund means you have some financial security if something goes wrong. 2. Keep saving Now that you’ve got an emergency fund, it’s a good idea to save up at least 10% of your earnings each month (or as much as you can afford). Set yourself savings goals and put away enough to buy what you want. This could be a house deposit, a wedding, or a trip. You could also start to think about investing your money. When shouldn’t you save? The only time you shouldn’t save, or invest is if there are more important things you need to do with your money. For example: Getting your debts under control. Making sure your family would be able to cope financially if you died. Decide whether to save or pay off debts. Do you need life insurance? Are you ready to invest? Investing can be a great way to get more from your money, but it’s not for everyone. Whether or not it makes sense for you depends on your goals – specifically if they are long, short, or medium term. Short-term goals are things you plan to do within the next five years Medium-term goals are things you plan to do within the next 5-10 years Longer-term goals are ones where you’re won’t need the money for ten years or more Short-term goals For your short-term goals, the general rule is to save into cash deposits, like bank accounts. The stock market may go up or down in the short-term and if you invest for less than five years you might make a loss. Medium-term goals For the medium-term, cash deposits may sometimes be the best answer, but it depends on how much risk you are willing to take with your money to achieve a greater return on your investment. For example, if you are planning to buy a property in seven years and you know you’ll need all your savings as a deposit and don’t want to risk your money, it may be safer to put your money into a savings account. However, bear in mind that your savings will still be at risk from inflation. This is where the interest you earn on your savings fails to keep up with the rate of inflation so the buying power of your money is reduced. Each pound you have today will buy less in the future. On the other hand, if you are more flexible, you might consider investing your money if you’re prepared to take some risk with your original capital to try and achieve a greater return on your investment than would be possible by saving alone. Longer-term goals If you’re nearing 30, or older, you should be investing in your retirement. Most people invest in a pension, but other investments can be suitable too. For longer-term goals, it’s often best to invest because inflation can seriously affect the value of cash savings over the medium and long-term. The stock market tends to do better than cash over the long-term providing an opportunity for greater returns on any money invested over time. You can lower the level of risk you take when you invest by spreading your money across different types of investments. This is called diversification. Read our guide Diversifying – the smart way to save and invest. Getting advice When investing it is a good idea to consider if you would benefit from professional advice from a regulated independent financial adviser. Learn more in Do you need a financial adviser? A look at some goals – save or invest? Goal Situation and timescale Save or invest? Buy a new car Your old car is ready to give up the ghost – you need a new one within a year. Save Put down a deposit on a house You’d like to move in to your own home by the time you start a family – maybe in three years. Save Pay for your child’s wedding Your child is still very young – probably at least 15 years away from getting married.Your child is older – a couple of years away from getting married. InvestSave Have a comfortable retirement You’ve just turned 30, and you’d like to retire when you’re about 65 – 35 years in the future. Invest Set your savings goals As you can see from the table above, you probably have quite a few financial goals. They’ll all have different timescales, which means you might want to do some saving and some investing. That’s why it’s important to make a plan. If your finances are fairly simple, learn How to set a savings goal. If your situation is more complicated, for example, if you have various assets and liabilities, gather the facts and Complete a money fact find. This article is provided by the Money Advice Service.

Premium Bonds

Money Advice Service

Premium Bonds from National Savings and Investments (NS&I) give you the chance to win tax-free cash prizes. The bonds don’t pay interest, but you can win between £25 and £1 million in monthly prize draws. When may Premium Bonds be for you? How do they work? Risk and return How to access your money Are Premium Bonds safe and secure? How to buy Tax What if things go wrong? When may Premium Bonds be for you? Premium Bonds may be for you if you: Want the chance to win tax-free cash prizes in a monthly draw. If you are a parent, guardian, grandparent or great grandparent wanting to buy for a child under 16 years old. Have £100 or more to invest. Premium bonds might not be for you if you want: A regular income. Guaranteed returns. Concern about the impact of inflation on your savings. How do they work? To get started, you’ll need to invest at least £100 (or £50 if you agree to put in money regularly by standing order). You can keep buying bonds until you reach the maximum holding level. That level is £50,000. You get a unique bond number for every £1 invested. So if you save £100, you’ll get 100 bond numbers (each with a chance to win a prize). Once you have held your bonds for a full month, they are included in a monthly draw and you stand a chance of winning a cash prize. You can buy them for yourself or on behalf of your child, grandchild or great-grandchild. You have to be aged at least 16 to purchase Premium Bonds for yourself. Risk and return Your chances of winning the top prize are very slim – most people will win smaller prizes or nothing at all. All the money you put into Premium Bonds is secure. There’s a very small chance you could earn a very high tax-free return. You won’t earn regular income on your bonds. Most people who buy Premium Bonds will earn only a small amount as a percentage of the money they contribute. Unless you win one of the bigger prizes, your return is unlikely to beat inflation. In other words, your money probably won’t grow fast enough to keep up with rising costs and have the same buying power over time due to it being eroded by inflation. How to access your money You can cash in your Premium Bonds at any time without penalty. This can be done by: Registering for their online or phone service. Downloading a Premium Bonds Cashing in form and posting it to NS&I Calling and requesting a Premium Bonds Cashing in form on 0500 007 007 It could take over a week for the money to reach your account. Are Premium Bonds safe and secure? Your money is secure, since Premium Bonds are fully backed by the government. How to buy You can buy Premium Bonds directly from NS&I by registering your details on their website or by calling 0500 500 000. Tax Any prizes you win on a Premium Bond are free from UK Income Tax and Capital Gains Tax. What if things go wrong? NS&I voluntarily works within the spirit of the Financial Conduct Authority guidelines. Find out how to sort out a money problem or make a complaint. Next steps For more information on Premium Bonds visit the NS&I website or download a Premium Bonds brochure here. This article is provided by the Money Advice Service.

Savings Bonds

Money Advice Service

Savings Bonds are interest paying deposit products offered by banks and building societies and occasionally National Savings and Investments (NS&I) for a set term. A bond of this type is really a fixed term loan from you to the provider (the bond issuer) usually in return for a higher interest rate than you may get from traditional deposit accounts. Savings Bonds – are they for you? What types of Savings Bonds are there? The risk and return of Savings Bonds Accessing your money from Savings Bonds Charges Are Savings Bonds safe and secure? Where to get a Cash Savings Bond Tax and Savings Bonds If things go wrong with your Savings Bonds Savings Bonds – are they for you? Also known as ‘fixed-rate bonds’ or ‘fixed-term deposits’. A Savings Bond may be for you if: you have £1,000 or more in cash that you can tie up for at least six months or the term of the bond you want a potentially higher return than on your regular savings account you don’t want to risk losing any of your capital What types of Savings Bonds are there? Fixed Rate Savings Bonds guarantee a set interest rate over a specified term - most savings bonds pay fixed interest. Tracker Bonds track a particular index or rate (for example inflation or Bank of England base rate) over a set period of time, from six months to five years. Although the minimum investment for some Savings Bonds is £1, the minimum deposit is usually £1,000 or £2,000, with a maximum typically of £500,000. Interest rates are sometimes tiered according to the amount you deposit. Structured deposits are sometimes advertised as savings bond. They often promise higher returns, but carry more risk than traditional savings bonds. If you think the bond you are considering may be a structured product read our guide. Read Structured products Be sure you understand what you are buying. The risk and return of Savings Bonds You get your original capital back at the end of the term plus the accrued interest. These products tend to offer higher interest rates than instant access accounts. With Fixed Rate Savings Bonds you know at the outset exactly how much you will receive when the bond matures (however, this is not the case with tracker bonds). Your original investment will not hold its value in real terms (its ‘buying power’) if the interest you are getting is less than the rate of inflation over the investment period. If the bond you are considering is a structured deposit the risks will be different. Read our guide to Structured products and be sure you understand what you are buying. Accessing your money from Savings Bonds These products usually require you to tie up your money from between six months and five years. There can be big penalties for early withdrawal so make sure you know what these are and can manage before you tie up your money up. In some cases you may not be allowed to access any of your capital until the end of the term - check the facts before you commit. Charges Check the product literature for charges if you withdraw your money early. Withdrawing your money may not be allowed in some products. Are Savings Bonds safe and secure? Cash you put into UK banks or building societies (that are authorised by the Prudential Regulation Authority) is protected by the Financial Services Compensation Scheme (FSCS). The FSCS savings protection limit is £75,000 (or £150,000 for joint accounts) per authorised firm. It is worth noting that some banking brands are part of the same authorised firm. If you have more than the limit within the same bank, or authorised firm, it’s a good idea to move the excess to make sure your money is protected. Find out which banks are part of which authorised firms on the Bank of England website. Find out more by reading Compensation if your bank or building society goes bust. Where to get a Cash Savings Bond You buy Savings Bonds directly from a bank or building society or NS&I. Each bond issue is limited so be sure to keep an eye out for good deals. Buy online, through a branch, by post or over the phone depending on the product and provider. Comparison websites are a good starting point for anyone trying to find a savings account tailored to their needs. We recommend the following websites for comparing savings accounts: Money Saving Expert Money Supermarket Which? Remember: Comparison websites won’t all give you the same results, so make sure you use more than one site before making a decision. It is also important to do some research into the type of product and features you need before making a purchase or changing supplier. Find out more in our guide to comparison sites. Tax and Savings Bonds Most people need to pay income tax on the interest they receive so basic rate tax is normally deducted as a matter of course from savings account interest. If you’re a non-taxpayer you can ask for interest to be paid without any tax deductions. Follow the link below to the HM Revenue & Customs (HMRC) website to find out how. Find out from HMRC how to get tax-free interest payments Find out from HMRC how to claim back tax on overpaid interest Some savings bonds are available as tax-free ISAs. Read our guide to NISAs and other tax-efficient ways to save or invest. If things go wrong with your Savings Bonds If you are unhappy with the service you receive or want to make a complaint about a Savings Bond you have bought, read our page Sort out a money problem, make a complaint or get compensation. This article is provided by the Money Advice Service.