The most popular alternative to cash savings would be investing in stocks and shares. Compared to savings accounts and cash ISAs, you’re typically looking at much higher potential growth over time this way. ‘Potential’ is very much the operative word here, of course. The value of stocks and shares will naturally go up and down over time, so the growth you see will vary from year to year, and your investment’s value can still go down in the long term.
Are stocks and shares actually any better than cash savings, then? Actually, yes, in general. The stock market does outperform ‘safer’ cash ISAs and standard savings accounts pretty much across the board. The trick to keeping your returns up and your risk levels down is not to invest everything in any one place. Spreading your money across a range of different stocks and shares is usually what the experts recommend. That way, any losses you make from some of your stocks going down in value can be balanced out by growth in others.
Stocks and shares ISAs are a very different type of investment from the cash versions, and can be a particularly smart investment option if you’re looking at investing under £20,000 in a year (that’s the limit you’re allowed to put into ISAs). The nice thing about stocks and shares ISAs is that, although the returns are likely to be higher than a cash ISA, they’re still free of Capital Gains Tax. Your money can be spread around across a wide range of investments, too. If you’re got a serious saving goal in mind, like putting together a deposit to buy a house, this could be the ideal investment to get you there.
Another variety of investment that’s generally considered good for low-risk growth is the bond. These are a little different from other options, in that you’re basically giving a loan to a government or business. Each bond has an interest rate, which you get (along with your original investment amount) at the end of a set term. Again, the popularity of bonds stems in no small part from their general stability. You know pretty much what you’re signing up to when you dive in. It’s still worth remembering that some bonds carry more risk than others, though. If the company you invest in goes bust, for instance, you could still stand to lose out. However, since you’ll be counted as a ‘creditor’ rather than a shareholder, you’ll have a decent chance of getting at least some of what you’re owed back.