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INVESTMENT: Getting More Yield from Your Hard-Earned Savings
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For years now the central banks of the developed world have been forcing interest rates down to almost rock bottom. Whilst this is wonderful for borrowers, it has been wiping out the sensible people who consistently work hard and save money for a better life in the future. To make matters worse, stock market valuations are currently at unsustainable levels and are not a very attractive prospect for people who want to make a steady return without taking risks.

The fact is that in this generally unenticing savings environment, it is more important than ever to look at ways to get more ‘bang’ for your hard earned bucks!


Finding Motivation to Fight Off Inflation

When we embark on the noble task of building a nest egg for our future, our biggest enemy is the evil and ruthless force of inflation. So destructive is this parasitic monetary phenomenon that it can turn your juicy retirement fund into pocket change over the course of your lifetime. Unfortunately, while the rates of inflation will vary over time, it is never likely to go away and has pretty much become a fact of life.

Given that inflation will continuously stand in the way of financial prosperity, our goal is to recognise the threat it poses and always look for ways to keep its effects at bay. The key to protecting your savings in the long term is to always be vigilant when it comes to ensuring that your money works like an army that is constantly battling inflation. If you have a nice lump sum nestled away in a bank account somewhere earning 2% interest per year, then you might think this is a nice little treat for doing nothing. However, if inflation is hovering around 3% then you are actually losing money; which bring us onto our next point…


Shop Around for the Best Rates!

In this day and age loyalty to your bank will get you absolutely nowhere! If you have kept your money in the same place for the last couple of decades then now is the time to look elsewhere and see where you can maximise your interest.

Comparison websites are aplenty nowadays. Online platforms such as Moneysupermarket.com in the U.K. are a saver’s best friend when it comes to finding the best rates of return. Simply spend 30 minutes every month skimming through these kinds of sites to see which financial institutions are offering the highest interest rates to depositors. It is pretty straightforward to open an account with most banks, especially if you have a nice juicy pile of cash to deposit, so don’t lose money by being lazy and loyal!

When you are looking at the different kinds of ‘high’ interest accounts and savings schemes, make sure that you keep an open mind. It is traditionally assumed that the so called ‘instant access’ accounts offer lower rates of interest to those in which you are obliged to lock your money away for a set period of time. However, this is not always the case and there are plenty of special current account deals that are offering generously high returns.


Trusting the Trackers

If you look around the globe you can find financial institutions that offer tracker bonds which give you a guaranteed rate of interest that is X% above the central bank’s base rate. Let’s say that the Federal Reserve keeps rates at 0.50% for the next year or so, if you can find a tracker bond which offers you the base rate plus 2% (which seems to be a fairly standard rate at the moment), then your overall yield will be 2.5%; which is probably going to be a bit higher than where inflation will be. Tracker bonds reduce your risk in terms of interest rate fluctuations over the course of time and are well worth considering during a period of monetary policy uncertainty.


Don’t Forget the Bonds

Admittedly, bonds are not as risk-free as straightforward savings accounts and ISA’s etc, but they are a great option nevertheless. The trick lies in picking the right ones. For example, if you want to stick with treasury notes and other forms of government debt then your borrowers are unlikely to default, but the yields will stay pretty low; in some cases not even beating inflation. So if you trust the commanding heights of society to meet their debt repayment obligations, then by all means invest in state denominated bonds. Note that you will make more money in this regard if you are in a position to leave your money there for 5, 10 or even 20 years.

As we have seen before in this column, another good way to make your savings work for you is to acquire corporate bonds as part of your portfolio. Depending on your risk appetite, lending money out to private companies may be the best way to give your savings a boost.


altExplore Unconventional Ways to Make a Return

Being a successful lender doesn’t necessarily mean that you have to go down the bank and bond routes. If you want to take a bit more risk in order to glean higher returns on your savings, then there are certainly some lesser trodden paths that you could take.

Aside from lending to friends and family members, perhaps to help them gather enough capital for a mortgage deposit, there is a rapidly growing phenomenon known as ‘social lending’. There are many online platforms which allow you to make high rates of return by letting you lend money to other individuals or companies through the website.

This sounds a bit dodgy, but on closer inspection it is not always as risky as you think. Popular online platforms such as Fundingcircle.com and Zopa.com have been highly successful in minimising the risk to lenders and they boast an average return for their users of 5-7% annually. The concept behind this model is that these sites bring credit-worthy firms and profit seeking cash hoarders together in order to make transactions which completely side-step the banks. There are thousands of people out there making money from this method right now, and it might just be a great way for you to increase your savings pot too! 

By Josh Cooper
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