4 ways to boost your savings this year
Over the last decade, the low-interest-rate environment has made life difficult for savers. Before the Global Financial Crisis, high-interest-rate savings accounts offered rates of 5% or more, and savers could make a decent return on their money, risk-free. Today however, it’s a different story. According to Moneyfacts, the average easy-access savings account rate is just 0.63% pa.
Yet there are ways to boost your savings in the current financial environment, especially if you’re willing to be a little entrepreneurial and/or take on a little more risk. Here’s a look at four ways to get more out of your money right now.
Higher interest savings accounts
If you’re willing to move your money around, you can find interest rates that are significantly above the 0.63% average rate. For example, the Marcus savings account from Goldman Sachs currently offers a rate of 1.5% AER (includes a 12-month bonus of 0.15%). Similarly, Tesco Bank offers a rate of 1.4% (includes a 12-month bonus of 0.85%).
While these kinds of savings accounts will boost your savings, it’s important to realise that the rates offered are still very low, especially when you consider that inflation is running at nearly 3% per year.
Return potential: 1/10
Risk level: 0/10
Fixed-term savings accounts
A step up from regular savings accounts, fixed-term savings accounts (also called fixed-rate bonds) offer higher rates of interest, provided that you lock your money away for a fixed term such as one, two or five years. Right now, it’s possible to pick up rates of around 2% pa or slightly higher if you lock your money away for a year.
While these kinds of products are generally low risk because most are covered by the Financial Services Compensation Scheme (FSCS), there is risk in the form of interest-rate risk. In other words, if interest rates rise, there will most likely be better fixed-term offers available.
Return potential: 2/10
Risk level: 2/10
Peer-to-peer lending
Another option is peer-to-peer lending (P2P). This is the practice of lending money to individuals or businesses through online services that match lenders with borrowers.
One platform that enables you to do this very easily is Funding Circle. I’ve personally used this platform for years and have earned rates of around 5% to 6% per year. The key thing to remember, however, is that borrowers may not always be able to pay your loan back. Therefore, it’s essential to spread your money out over many different counterparties. It’s also sensible to stick to borrowers who have good credit ratings.
Return potential: 4/10
Risk level: 4/10
Dividend stocks
Lastly, if you’re willing to take on a little more risk, consider dividend stocks. Right now, there are some absolutely fantastic yields available from well-known blue-chip stocks such as Royal Dutch Shell, HSBC Holdings, Lloyds Bank and GlaxoSmithKline. Indeed, all four of these stocks currently offer dividend yields of around 6%.
Of course, it’s important to realise that shares are higher-risk than the other products I’ve mentioned. Share prices constantly move up and down, and there’s no guarantee you’ll get your invested capital back. There’s also no guarantee regarding the dividend payments.
However, when you consider the big dividend yields on offer, as well as the long-term returns that the stock market has generated, there is certainly a case for allocating some capital towards dividend stocks in today’s low-interest-rate environment.
Return potential: 7/10
Risk level: 7/10
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Edward Sheldon owns shares in Royal Dutch Shell, Lloyds Banking Group, and GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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