Safest Ways of Saving Your Money
Saving is one of the most important financial disciplines you can develop. Too few of us save enough for the emergencies in life, and for a general cushion to deal with the financial ups and downs that come along the way. For those who are in work, saving even a small amount a month can really add up over the years, particularly when that money is put to good use through one or more investment channels.
Many savers would say that they are not interested in risking their money – only in keeping it safe, and generating a satisfactory level of interest in return. This rules out many of the riskier types of investment straight away, such as investing in the stock market or buying a business. Instead, these types of savers need to look toward safer investments to safeguard the money they save.
There are countless different ways to put your money to work in a safe, financially viable way. While more risk invariably means more generous returns, it also increases the likelihood that you might end up with less capital than when you started. So what are considered the safer investments, for those who are hoping to keep their money protected while generating a return?
A good old-fashioned savings account is always a good starting point, albeit far from the most efficient way to manage your funds. Savings accounts are easy to use, highly accessible (i.e. your money doesn’t usually need to be tied up for months or years at a time) and pretty safe. The one major downside with keeping your money in the bank, even in a savings account, is the interest rates that will be available to you. These will generally be quite low in comparison to other types of investment.
Certificates of Deposit
Higher rates of return are often available through certificates of deposit, or CDs. Savers can choose to buy them for a set maturity date in future and for a set percentage return. With certificates of deposit, the returns are guaranteed and defined before you make the deposit – perfect for planning your returns over a longer time period. Of course, the drawback to this is the need to tie up your money for a long time with these types of instruments. As a result, the certificate of deposit should only be used as a way of growing income on money you can afford not to have access to for the lifetime of the investment. There are also frequently penalties for withdrawal before the maturity date, and savers can end up losing the interest they have accrued if they want to cash out early. Try comparing CD rates to find the best deals on your money.
Savings trusts can be used as an alternative method of managing your money. These are often professional investment products, or can be services offered by independent financial advisers. Trusts afford special legal protection to investments, which can be beneficial in some tax purposes. As a result, they are commonly used in tax planning. They can also be used to ring-fence and protect your savings, while providing an effective vehicle for the third-party management of your assets. You should expect to pay an ongoing management fee whenever someone else invests your money for you, but you can also expect better results than you might be able to achieve yourself on the same money.
Paying into a pension fund is another option of relative security. This would see you joining the many millions who choose to pay into pension plans every year, saving for their retirement. Pension plans tend to use a mixed investment approach, seeking to contain risk while also providing opportunities for capital growth. The pension plan will then pay out your entitlement when you reach the qualifying conditions. Again, pension plans aren’t foolproof, so you should make sure that you choose a reputable, reliable provider so you can be sure your money is in safe hands.
Investing your savings is an essential part of getting the most value from the money you put away. Particularly given the importance of providing for yourself and your loved ones in old age, saving of this order is more than a crucial aspect of financial planning – it can be the difference between a life of comfort and a life of misery in the years and decades to come, so it is important you take steps to invest safely and prudently now for your future.