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Data from Moneyfacts UK earlier this year revealed the average cash savings interest rates had reached new lows, resulting in many savers failing to see their money grow at any real speed. When it comes to getting the most out of hard-earned cash, there is an array of options, and some may suit certain people while they won’t be right for others.
Laura Laidlaw, Head of Customer Savings at Standard Life, recently spoke to Express.co.uk about ways to make money work harder in 2021.
It came as Moneyfacts analysis showed the choice in the market for easy access savings accounts and ISAs was significantly reduced.
“As a result, more and more people are starting to consider investing as a way to make their money work harder,” Ms Laidlaw said.
So, what is there to consider, and what are the options, for those looking to get started with investing in 2021?
First up, she pointed out many beginner investors have already likely been investing – in a pension.
“It’s easy to forget sometimes that many of us are investing already,” Ms Laidlaw said.
“If you have a pension, whether it be private or a workplace pension, you’re already on your way to investing in your future.
“However far away retirement might be for you, consider redirecting any savings you can spare into your pension, as every little helps in the long run, the sooner you contribute to your pension, the longer that money has to grow.”
There is a key difference between investing in a stocks and shares ISA and a pension scheme to be conscious of though.
“You should remember, that unlike a S&S ISA, once you save into your pension you won’t be able to access that money again until retirement,” said Ms Laidlaw.
“Currently the earliest age you can dip into your is 55, soon to increase to 57.
“Putting money into your pension often comes with tax relief, and if a workplace pension is available, you will receive employer contributions on top of what you pay in.
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“The annual allowance on your pension contributions receiving tax relief is currently capped at a higher limit of £40,000, or £4,000 if you’ve already started to take your pension.”
For those starting out with investing, considering what they are saving towards is important.
“First things first – before you can decide how to save your money, you need to consider what it is you are aiming for,” said Ms Laidlaw.
“If you’re working towards a short-term goal, like a holiday, or looking to build up an emergency pot of savings, you’re probably better saving in cash.
“Alternatively, if you’re saving for the long term, typically a minimum of five years, then investing in stocks and shares may be the solution for you.
“History tells us stock market returns will generally outperform cash over the longer term.
“Investing offers a greater potential for growth, but it has more risk attached to it as the value of your investments can go down as well as up.
“So, before getting started, weigh up how you feel about risk, and when you might need the money.”
Make sure you have an emergency savings buffer
Ensuring back up savings are available, in case of an unexpected outgoing, is vital before investing, Ms Laidlaw added.
She said: “Before you start with investing, it is important you have an emergency savings buffer to fall back on.
“Although saving rates might be low, easy-access accounts or cash ISAs can be useful for this sort of thing.
“You’re less likely to make any real returns, but it means the money is accessible if you do need it at a moment’s notice for an emergency, like your car failing its MOT or needing a new boiler.
“When choosing where to put your emergency savings, consider what else you might need from your account, like unlimited or flexible withdrawals, easy access or online banking.
“Generally you can access your investments when you need to, but if you happen to do so at a time where markets are down then you might risk making a loss, that’s why investments are generally for the longer term.”
So, what is an easy way to get started?
For those who are happy to make a longer-term commitment and who are confident in their emergency buffer, there are several aspects of investing to read up on.
“There are a number of ways you could begin and putting your money into a Stocks and Shares ISA is arguably one of the most popular,” Ms Laidlaw commented.
“This is a tax-efficient option as you can put up to £20,000 into an ISA each tax year without paying tax on the growth in its value.
“When choosing a provider make sure you take into account its customer service and whether there are any fees attached as this can vary depending on who you are with.
“With a Stocks and Shares ISA you are actively investing, whether that be in individual shares, investment funds or investment trusts.
“What’s good about it is that you can start with as little or as much as you want, so don’t be afraid to get started. In the long run, it will all add up.”
Standard Life’s Head of Customer Savings went on to remind investors they are allowed to ask for help.
“If you are keen to start investing, it might be worth speaking to a financial adviser to understand what’s right for you, particularly when it comes to the level of risk you are willing or able to take,” she said.
“Higher risk investments may have the potential to achieve higher returns, and advisers can also shed light on the importance of diversifying your investment mix too.
“If you don’t want to pay for advice, there are many websites out there that are designed to help you understand what you need to know about investing. For example, The Money Advice Service and Citizens Advice are both good places to start.”
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