Interest rate cut: what do I do with my money now?

Interest rate cut: what do I do with my money now?

With interest rates close to zero, savers could be forgiven for giving up, and putting their cash under the mattress.

By Harry Wallop, Consumer Affairs Editor
Last Updated: 9:23PM GMT 05 Mar 2009

Corporate bonds are becoming increasingly popular. These are a form of IOU issued by large companies. The important thing is not to store it under the bed

What's the point of letting £100,000 languish in an account for it to earn all of £290 in interest in a year. And that's before tax.

But savers really should not despair at the average savings rates cited by the Bank of England. Canny investors need to shop around, hunt for better than average, and think about alternative places for their cash than a standard deposit account.

For starters, there are some cash Individual Savings Accounts, that are offering well over 3 per cent, such as Marks & Spencer's 3.1 per cent, which savers can withdraw their money from at any time. The advantage with ISAs is that they are more or less tax free, though savers can only invest up £3,600 each year.

For those with more cash, and the discipline to deposit money regularly, they can enjoy an astonishingly good rate of 5.84 per cent from Barclays – more than tenfold the new Bank Rate. The down side is that you have to put in at least £20 every month but no more than £250.

Further afield from traditional banks, there are endless possibilities.

Corporate bonds are becoming increasingly popular. These are a form of IOU issued by large companies. (Take a look at Barclays corporate bond.)

They are not risk-free and tend to pay higher returns than deposits to compensate investors for a lower degree of security; for example, British American Tobacco bonds due to be redeemed in 2019 currently yield – or pay out the equivalent of an annual return – about 6.4 per cent, while Tesco bonds pay 5.5 per cent. And Tesco is still likely to still be around in 2019 to pay investors back.

Or you can always turn to the last refuge of the desperate: gold, which is proving a volatile, but impressive, performer during the financial crisis.

You can buy the stuff via gold exchange traded funds, which trade on the stock market like shares, or pop down to a bullion dealer and buy a bar or coin of the hard stuff.

The important thing is not to store your savings under the bed.

The only winner will be the local neighbourhood thief. And as the police have warned, they are on the increase – unlike interest rates.


http://www.telegraph.co.uk/finance/personalfinance/savings/4944354/Interest-rate-cut-what-do-I-do-with-my-money-now.html