10 ways to get a better return on your money
Getting a decent return on your money can seem a daunting task. A year ago building society savers were earning 7pc on their money. Today, with the Bank Rate standing at a record low of 0.5pc, most accounts pay less than 1pc.
Last Updated: 10:17AM GMT 07 Mar 2009
10 ways to get a return on your money
Investors have also seen returns plummet, thanks to turbulent stock markets. Last week alone the FTSE100 index reached a six-year low, and most experts are predicting that share prices will remain volatile for the foreseeable future. In such markets investors could be forgiven for thinking they have more chance of making money on the 3.15 at Cheltenham or with a spin of the roulette wheel.
There is no doubt that savers and investors have to face up to a new reality: either accept lower returns on money (which may mean living on less income from savings or putting those early retirement plans on ice) or accept that you will have to take more risk.
As the following points show, whatever your risk profile there are steps all savers and investors can take to boost returns and make more money from your money.
1 Get the best cash deal you can
The best rates are reserved for those who can afford to lock their money up for a year, so invest what you can in a fixed-rate account. Current best deals include a two-year bond from Abbey paying 4.01pc (the minimum deposit is £30,000). Banks also tend to pay higher rates to those with online accounts. Make the most of "bonus" rates, but ensure you switch to a more competitive deal once the introductory rate expires.
2 Make sure all savings are tax-efficient
OK, so cash Isa rates are poor, but for the first time many banks are allowing savers to transfer existing Isas. So if your Isa rate has dropped to a dismal 0.5pc, look at switching providers. The best accounts to accept transfers are from Halifax at 3.3pc and NatWest – its e-Isa pays 3.25pc. For more savings rates click here.
3 Become a lender
Another option is Zopa, which dubs itself the "eBay of the banking world". Those with cash to spare lend to strangers and earn between 9pc and 10pc on their money, depending on the credit rating of borrowers. Rather than lend to one borrower, money is given to a number to reduce the risk of losing your capital. Zopa says default rates are low, but they could rise as the recession bites.
4 Switch to an offset mortgage
Savers might be getting next to nothing on their savings, but an offset mortgage can offer the equivalent of 5pc interest, as home owners are saving on mortgage interest charges. Most mortgages allow borrowers to overpay their mortgage, up to certain limits, so it makes sense to use surplus cash this way. Offset mortgage deals, however, are far more flexible – allowing money in savings and current accounts to offset the mortgage debt, reducing interest charges.
5 Invest in a corporate bond fund
Corporate debt is looking attractive, according to Jason Walker of AWD Chase de Vere, particularly compared with the returns available on government-issued gilts. But in a recession the risk of defaults increases, so tread carefully and avoid "junk" bonds. Most advisers recommend investors to stick with "investment grade" bonds, where income is lower but there is far less chance of the company going under, taking your money with it. Gavin Haynes of Whitechurch Securities said: "Capital appreciation can occur as interest rates fall; however, the reverse is also true: if rates rise then capital losses may well be sustained."
Funds recommended by advisers include M&G Corporate Bond, Invesco Perpetual Corporate Bond and Invesco Perpetual Sterling Bond.
6 Bet on equity markets without putting your capital at risk
Guaranteed Equity Bonds (Gebs) are fixed-term investments that pay a proportion of any stock market gains over the period. Typically they are linked to one or more stock market indices (for example, the FTSE100). If the index falls over the term you get your original investment back in full. The catch? Your money is locked up for this period and in most cases Gebs pay only a proportion of any stock market gain (and do not include dividend returns). There is also a risk that if the bank backing the guarantee goes under you could lose your money.
Nationwide has a six-year bond linked to the FTSE100, DJ EuroSTOXX 50 and S&P500. It will pay up to 70pc of the growth of the indices, subject to a maximum return of 40pc of the original investment.
7 Equity funds
Advisers say investors are looking again at equity income funds to boost returns. These funds aim to deliver a growing income stream and are primarily invested in blue-chip shares that have a record of paying dividends. At the moment it is possible to achieve a net yield of about 5pc to 5.5pc and favoured funds include Invesco Perpetual High Income, Newton Higher Income and Artemis Income. Other equity-based funds that have proven track records include Blackrock UK Absolute Alpha and Cazenove UK Growth & Income.
8 Buy recession-proof shares
Not all companies suffer in a downturn, so pick up those that are likely to profit in the gloom. Rosemary Banyard, who manages Schroders' UK Smaller Companies fund, says businesses such as pawnbroker Albemarle & Bond and Park Group, the Christmas savings scheme operator, are well placed to benefit from economic contraction. Health care companies such as Advanced Medical and Health care Locums are also well placed, as is Dignity, the funeral company.
For investors wanting dividend income, Schroders believes you should consider long-established, well-diversified "mega caps" and companies that declare dividends in US dollars, given sterling's weakness. It likes GlaxoSmithKline, AstraZeneca, Royal Dutch Shell and Vodafone.
9 Boost your pension
Transfer existing investments into a Sipp and the value of these holdings will be boosted by a further 40pc for higher-rate taxpayers. Or get a return of 12pc – here's how. A 75-year-old male who pays £2,880 into an immediate vesting pension will see £720 added by the Government, making a total pension pot of £3,600. The pension is then drawn immediately, at which point he gets £900 back as tax-free cash. An annuity is bought with the remaining £2,700, paying £218.30 a year – of which the first instalment is paid straight away. Based on a net outlay of £1,761.70 he'll get annual income of £218.30 for life, a return of 12pc.
10 Take a punt on markets falling further
If you don't see the stock market recovering in the short term, make money from falling share prices via an exchange traded fund (ETF).
This route is only for those willing to take on substantially more risk. One popular EFT has been the Bank Short ETF. This aims to deliver the exact inverse of the Dow Jones Bank index, which tracks the performance of the leading banking companies in western Europe.
As bank stocks have declined, this ETF has seen positive returns. (If banks' shares rise, the reverse will happen.) According to Deutsche Bank, which launched the ETF, the fund has risen by 184pc over the past year.
http://www.telegraph.co.uk/finance/personalfinance/savings/4949583/10-ways-to-get-a-better-return-on-your-money.html
Getting a decent return on your money can seem a daunting task. A year ago building society savers were earning 7pc on their money. Today, with the Bank Rate standing at a record low of 0.5pc, most accounts pay less than 1pc.
Last Updated: 10:17AM GMT 07 Mar 2009
10 ways to get a return on your money
Investors have also seen returns plummet, thanks to turbulent stock markets. Last week alone the FTSE100 index reached a six-year low, and most experts are predicting that share prices will remain volatile for the foreseeable future. In such markets investors could be forgiven for thinking they have more chance of making money on the 3.15 at Cheltenham or with a spin of the roulette wheel.
There is no doubt that savers and investors have to face up to a new reality: either accept lower returns on money (which may mean living on less income from savings or putting those early retirement plans on ice) or accept that you will have to take more risk.
As the following points show, whatever your risk profile there are steps all savers and investors can take to boost returns and make more money from your money.
1 Get the best cash deal you can
The best rates are reserved for those who can afford to lock their money up for a year, so invest what you can in a fixed-rate account. Current best deals include a two-year bond from Abbey paying 4.01pc (the minimum deposit is £30,000). Banks also tend to pay higher rates to those with online accounts. Make the most of "bonus" rates, but ensure you switch to a more competitive deal once the introductory rate expires.
2 Make sure all savings are tax-efficient
OK, so cash Isa rates are poor, but for the first time many banks are allowing savers to transfer existing Isas. So if your Isa rate has dropped to a dismal 0.5pc, look at switching providers. The best accounts to accept transfers are from Halifax at 3.3pc and NatWest – its e-Isa pays 3.25pc. For more savings rates click here.
3 Become a lender
Another option is Zopa, which dubs itself the "eBay of the banking world". Those with cash to spare lend to strangers and earn between 9pc and 10pc on their money, depending on the credit rating of borrowers. Rather than lend to one borrower, money is given to a number to reduce the risk of losing your capital. Zopa says default rates are low, but they could rise as the recession bites.
4 Switch to an offset mortgage
Savers might be getting next to nothing on their savings, but an offset mortgage can offer the equivalent of 5pc interest, as home owners are saving on mortgage interest charges. Most mortgages allow borrowers to overpay their mortgage, up to certain limits, so it makes sense to use surplus cash this way. Offset mortgage deals, however, are far more flexible – allowing money in savings and current accounts to offset the mortgage debt, reducing interest charges.
5 Invest in a corporate bond fund
Corporate debt is looking attractive, according to Jason Walker of AWD Chase de Vere, particularly compared with the returns available on government-issued gilts. But in a recession the risk of defaults increases, so tread carefully and avoid "junk" bonds. Most advisers recommend investors to stick with "investment grade" bonds, where income is lower but there is far less chance of the company going under, taking your money with it. Gavin Haynes of Whitechurch Securities said: "Capital appreciation can occur as interest rates fall; however, the reverse is also true: if rates rise then capital losses may well be sustained."
Funds recommended by advisers include M&G Corporate Bond, Invesco Perpetual Corporate Bond and Invesco Perpetual Sterling Bond.
6 Bet on equity markets without putting your capital at risk
Guaranteed Equity Bonds (Gebs) are fixed-term investments that pay a proportion of any stock market gains over the period. Typically they are linked to one or more stock market indices (for example, the FTSE100). If the index falls over the term you get your original investment back in full. The catch? Your money is locked up for this period and in most cases Gebs pay only a proportion of any stock market gain (and do not include dividend returns). There is also a risk that if the bank backing the guarantee goes under you could lose your money.
Nationwide has a six-year bond linked to the FTSE100, DJ EuroSTOXX 50 and S&P500. It will pay up to 70pc of the growth of the indices, subject to a maximum return of 40pc of the original investment.
7 Equity funds
Advisers say investors are looking again at equity income funds to boost returns. These funds aim to deliver a growing income stream and are primarily invested in blue-chip shares that have a record of paying dividends. At the moment it is possible to achieve a net yield of about 5pc to 5.5pc and favoured funds include Invesco Perpetual High Income, Newton Higher Income and Artemis Income. Other equity-based funds that have proven track records include Blackrock UK Absolute Alpha and Cazenove UK Growth & Income.
8 Buy recession-proof shares
Not all companies suffer in a downturn, so pick up those that are likely to profit in the gloom. Rosemary Banyard, who manages Schroders' UK Smaller Companies fund, says businesses such as pawnbroker Albemarle & Bond and Park Group, the Christmas savings scheme operator, are well placed to benefit from economic contraction. Health care companies such as Advanced Medical and Health care Locums are also well placed, as is Dignity, the funeral company.
For investors wanting dividend income, Schroders believes you should consider long-established, well-diversified "mega caps" and companies that declare dividends in US dollars, given sterling's weakness. It likes GlaxoSmithKline, AstraZeneca, Royal Dutch Shell and Vodafone.
9 Boost your pension
Transfer existing investments into a Sipp and the value of these holdings will be boosted by a further 40pc for higher-rate taxpayers. Or get a return of 12pc – here's how. A 75-year-old male who pays £2,880 into an immediate vesting pension will see £720 added by the Government, making a total pension pot of £3,600. The pension is then drawn immediately, at which point he gets £900 back as tax-free cash. An annuity is bought with the remaining £2,700, paying £218.30 a year – of which the first instalment is paid straight away. Based on a net outlay of £1,761.70 he'll get annual income of £218.30 for life, a return of 12pc.
10 Take a punt on markets falling further
If you don't see the stock market recovering in the short term, make money from falling share prices via an exchange traded fund (ETF).
This route is only for those willing to take on substantially more risk. One popular EFT has been the Bank Short ETF. This aims to deliver the exact inverse of the Dow Jones Bank index, which tracks the performance of the leading banking companies in western Europe.
As bank stocks have declined, this ETF has seen positive returns. (If banks' shares rise, the reverse will happen.) According to Deutsche Bank, which launched the ETF, the fund has risen by 184pc over the past year.
http://www.telegraph.co.uk/finance/personalfinance/savings/4949583/10-ways-to-get-a-better-return-on-your-money.html
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