For the first time in almost a generation, there’s actually some incentive for investors to invest. With interest rates at their highest for more than a decade, and the International Monetary Fund (IMF) reporting that these are likely to remain above government targets for around 5 years, even the novice investor has plenty of options to put their savings to work.
Current account rates remain stubbornly low and even cash ISAs with most high street banks are still offering pitiful rates of interest. But if you’re looking for low or no risk and (by recent standards) a decent return on cash savings then you’re in luck because you don’t have to work hard to find rates of 5% plus on short and mid-term investments.
Government backed investments
One of the impacts of the rise in interest rates and the instability in the markets which quickly took hold in 2022, is the cost of government borrowing has soared. Like a perfect storm, this has occurred at the same time as the Nation carries a record pile of debt, creating a self-perpetuating vicious circle as they borrow more at higher rates to afford the interest payments on the original debt. The net result is that government backed investments are paying some great rates, with the safety net of 100% capital guarantee, regardless of how much you invest.
Because of the added security these investments offer, the government, through National Savings and Investments, can offer solid rates that are typically below what the markets would otherwise offer them, but from an investors perspective, beat most other cash and low risk options in terms of their potential returns. Premium Bonds have always offered a good option and currently have an annual prize fund average earnings rate (AER) of 4.65%. Premium Bonds are easy to buy, easy to sell and you maintain your capital, so they are a great easy access, option with a low minimum investment and no ceiling.
Recently NS&I has also offered some shockingly good one-year fixed bonds, which do require you to lock up the cash for 12 months but continue to offer the capital guarantee and more importantly interest rates in excess of 6%. Because they are such good value, they come and go in a flash, but with maximum investment values of up to £1million they represent a great option for self-managed investments and are open to any UK resident.
If you want to maintain access to your funds but still get a good rate of return, then current account linked savings have long been promoted by the likes of Money Saving Expert, Martin Lewis, as a great way of saving, earning, and retaining access. These accounts typically have minimum and maximum monthly payment requirements but in return you can enjoy rates of 5% – 6%. If they’re capped, then the cap will probably not trouble most novice investors, but you may find acceleration or deceleration rates e.g., funds up to £10,000 receive X% and thereafter Y%. Because they’re bank accounts, they carry the £85,000 government investment guarantee and in most cases they can be set up via banking apps, making them an easy, safe, and valuable investment option.
Green and ethical investments
In the period of ultra-low interest rates we’ve just had, the rates offered by many crowdfunding, green and ethical investments looked too good to be true, with some paying 4%-5% when the base rate was down near zero. And the reality is they do carry more risk than your average investment into a managed fund. But if you want to earn a good return and support some environmentally and socially good organisations and projects, then you’d do worse than looking at some of the platforms such as Triodos Crowdfunding and Ethex.
From solar farms and renewable energy schemes, which have been smashing it in the last year due to high energy sales prices, to B Corp certified companies offering a range of products that benefit the environment or society at large, there’s a huge array of investment opportunities. Rates are slightly different with many of these ethical investments in that the return is based on your original capital amount and most will be looking for you to put your money in for longer periods – maybe up to 15 years. However, most intend to repay your capital over that period too and you’ll still get rates of up to 7%.
Seek advice and be aware of the risks
Obviously, this is just a summary of the types of easy access, cash-based investment options on the market currently and you’d do well to either seek qualified advice from a financial advisor or avail yourself of the entire market before making a decision, if you’re a self-managed investor.
Be aware of the capital guarantee with each option. As noted, the government protects £85,000 on each bank account and NS&I is 100% government backed, but not all investments carry this kind of security. We’ve focussed on easy access, low/no risk cash-based investments here for novice investors looking to generate a bit more return but not really take any/many risks. The market is of course far broader than that and so its always best to consider your own attitude to risk and what you want to achieve before making any decisions.