As we’ve mentioned, there’s no “best way” to invest money, as it’s down to your personal needs, your own appetite for risk, and your reasons for investing. However, if you’re wondering how to start investing, here are some of the most popular ways to invest money in the UK:
Stocks and shares
While savings accounts might be considered the best place to put your money without risk, investing in stocks and shares can give you a better return on investment if you’re prepared to take a risk and have a long-term approach. Investing in stocks and shares can be volatile and unpredictable, and might not be the best way to invest money if you’re new to saving or aren’t comfortable with the associated risk.
If you are a beginner and considering where to invest money, you might start by researching how to invest in stocks. Investing in stocks involves purchasing a stake in a company, with prices fluctuating throughout the day on the stock exchange. While there’s potential for capital gains if your stock investments rise in value over time, there’s also the risk of capital losses if the company’s value drops. There are various ways of investing in stocks and shares in the UK:
Using a platform: You can buy and sell individual company shares through an online platform or stockbroker. When it comes to investing in shares, you decide which companies to invest in and when to buy or sell the shares.
Funds: Investment funds pool money from multiple investors to buy a diversified portfolio of stocks and shares. You can invest in funds that match your investment goals and risk tolerance, with professional fund managers making investment decisions on your behalf.
Exchange-Traded Funds (ETFs): ETFs are similar to investment funds but are traded on the stock exchange, as you would find if investing in shares. They track various indices or assets, offering diversification and flexibility to investors.
Stocks and shares ISAs: Stocks and shares ISAs are tax-efficient investment accounts that allow you to invest in stocks, shares, investment funds, and ETFs. Any returns generated within the ISA are tax-free, making it one of the best long-term investment options.
Each of these options comes with its own advantages and considerations, so it’s important to research and understand them before deciding on the best way to invest money. Historically, stocks and shares have outperformed savings accounts, but there are no guarantees for the future. In general, when it comes to financial decisions, it’s a good idea to carefully consider risk.
High-interest savings accounts
There are many different types of savings accounts to consider, and they’re generally low-risk investments. If you have a lump sum, you might want to consider investing your money in notice accounts or fixed rate bonds. Notice accounts provide the flexibility of being able to access your money after a set notice period, and typically offer competitive variable interest rates. Fixed rate bonds allow you to lock your money away for a set time at a rate that won’t change until your account matures. This stability makes them attractive during uncertain times or when interest rates are falling, as they ensure a guaranteed return on your investment.
Cash ISAs
Cash ISAs, or Individual Savings Accounts, are similar to traditional savings accounts, but provide the benefit of tax-free savings. There’s an annual limit of £20,000 on your deposits. There are three main types of cash ISA, each catering to different investment needs:
An instant access cash ISA allows you to deposit and withdraw money at any time without penalty, although this might be limited by your ISA provider.
Regular savings ISAs typically offer a fixed rate of interest as long as you deposit an agreed amount each month.
With fixed rate cash ISAs, you lock your money away for a set period to earn a competitive interest rate. You’ll usually find that the longer the term, the higher the interest rate.
You can distribute your £20,000 ISA allowance across different ISA account types, as long as they are opened in different tax years. For example, you might opt to spread your risk by investing part of your annual ISA allowance in a stocks and shares ISA, and the remainder in a cash ISA.
Whether it’s better to put your money into an ISA or a savings account depends on your individual circ*mstances. The main advantage of an ISA over a savings account is that you can save up to £20,000 tax-free. However, savings accounts typically offer higher rates of interest.
It’s also worth remembering that the personal savings allowance (PSA) means many people won’t pay tax on their savings anyway. The PSA allows basic-rate taxpayers to earn up to £1,000 of interest per year without paying any tax, while higher-rate taxpayers can earn up to £500 per year tax-free.
Children’s savings accounts
Children’s savings accounts are investments you can make on behalf of your children to put them on the path to financial security, while helping them understand how to save and why it’s important. This type of savings account typically offers more competitive interest rates than adult savings accounts, making it one of the best ways to invest money for your child’s future.
Similar to adults, you can open a junior ISA for your child, which offers a yearly allowance of £9,000. If you’re keen on finding an investment option for your child, a stocks and shares junior ISA could be worth considering. By opening one after your child is born, you have until they turn 18 to potentially see returns on your investment. However, it’s crucial to keep in mind that, similar to the adult version, stock market investments carry a significant risk to your funds.
Lifetime ISAs
A Lifetime ISA (LISA) is a type of savings account designed for people over 18 and under 40, and it’s intended to help you either buy your first home or save for retirement. While you can only save up to £4,000 per financial year in a lifetime ISA, the government will then add 25% to your savings up to £1,000 per year until you’re 50. You have the option of choosing between a cash lifetime ISA and a stocks and shares lifetime ISA, depending on your risk tolerance and how long you have to save. So, if you’re looking to get onto the property ladder or save for your later years (and get a little help along the way), a lifetime ISA could be the best way to invest your money.
Pensions
Paying into a pension is generally considered one of the best ways to invest money for your retirement. While you might already be enrolled in a workplace pension scheme, you could also consider additional options, such as a Self-Invested Personal Pension (SIPP). A SIPP offers a wider range of investment opportunities, giving you greater control over where your funds are allocated and allowing you to tailor your portfolio depending on your specific financial goals.
Peer-to-peer lending
Peer-to-peer lending can offer high-return investments, typically averaging between 8.86 to 13.08%, but this type of investment doesn’t come without risk. Peer-to-peer lending means you’ll invest your money into a business or project that needs capital to grow. Your investment is paid back to you with interest, as long as the business or project has succeeded. While this type of investment might offer lower risk in times of economic growth, it’s important to carefully assess the potential risks of each lending opportunity before committing your funds.
