­­Is A Savings Account The Best Way To Invest Your Money?

When you put your money into a regular checking account, you typically do not earn anything from your funds. However, savings accounts can earn you money in the form of interest. Right now, the average interest rate for savings accounts in the UK is 2.77%. Such accounts are available at all banks – including physical banks and online banks. 

Opening a savings account is easy and typically risk-free. However, is it the best way to invest your money? Other investments could potentially earn you a lot more. However, these alternative investments do come with their added risks. This post delves more into the benefits and drawbacks of a savings account, and how to choose the right one.

Why invest your money in a savings account?

While savings account interest rates can fluctuate, there is almost no way that you can lose your money when putting it into a saver (unless your account is hacked, which you can usually avoid by taking good security measures). Savings accounts also require no maintenance like many other investments such as property or collectables. And unlike stocks or crypto, you don’t have to constantly monitor the price. It is a hands-off risk-free form of investment.

What are the downsides of a savings account?

While you can make money from a savings account, you generate greater returns from many other forms of investing. Savings account interest rates are currently at a high point, and most don’t exceed 3%. Gold’s current annual return is about 5%, while many people are able to enjoy a 9% annual return by investing in stocks. Clearly, other investments could help you build your funds more quickly – which could allow you to reach investment goals more quickly.

What are the alternatives to savings accounts?

There are many alternatives to a savings account – some of which have already been mentioned. A few examples include:

Government bonds

These are loans provided to the government that are paid back with interest. The interest rates for bonds are higher than savings accounts and they provide the same amount of security, however you may not be able to access your money until the maturity period is reached.

Peer-to-peer lending

This involves giving out loans to people online through a trusted peer-to-peer lending platform. You can charge interest fees of 6% or more – getting more money than you would from any saver. But there is a risk the borrower may not pay back their loan.

Precious metals

The likes of gold and silver have fluctuated in value over the years, but have mostly risen in value. Gold investment carries some of the most stable returns. You can invest your money into bullion, coins, jewellery or gold accounts.

Stocks

Stocks involve buying a share of a company in exchange for a slice of the profits. Buy a share in the right company and you can make huge returns. Of course, companies can also fall in value so you need to be careful. It’s best to spread your risk by investing in a range of stocks.

Collectables

Collectables like trading cards, records, watches and stamps can increase in value over the years. You do need to keep them in good condition to ensure this, and there is a risk they may fall in value if demand fades away.

Property

You can make a lot of money from investing in property. The drawback is that property requires investing a lot of money upfront and a lot of hands-on maintenance – whether you’re considering a buy-to-let property or flipping a property. 

Prefer the idea of a savings account?

If you do choose to put your money in a savings account, make sure to do your research first in order to choose the right saver. The interest rates of savings accounts vary and some could make you a lot more money than others. Just consider the fact that there may be conditions to meet in order to generate this interest such as maintaining a minimum balance and contributing a certain amount of funds per month.

• This article is for informational purposes only, always seek advice from a financial professional on this topic.

Top photo by Pawel Czerwinski on Unsplash