Simple steps to make your money work for you in later life.
Financial Awareness Day on August 14 is the perfect opportunity for people to take a step back to assess their savings. In the last month alone there has been a 60 per cent increase in the number of people making Google searches looking for ways to boost their savings, make investments, and find the best ISAs compared with the whole of 2024.
This year has also seen a continuation of a volatile financial world with interest rates dropping, raised tariffs from the US, while inflation has fluctuated, the cost of living crisis continues to impact people’s budgets.
With this fiscal background, the need to make money go further means that savings and investments are a necessity. Finance has a reputation of being a daunting area for many, but finance expert Antonia Medlicott, who is Founder and Managing Director at Investing Insiders, has shared five ways to make the most of your cash and boost your retirement pot by over £50,000.
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Look to make your money work harder
Check that you don’t have any savings in low-interest accounts, which could be accruing better rates in a tax-free ISA instead. Over the past decade, the average annual return for investments in the S&P 500 index, done through an ISA, has been 10.6 per cent. Meanwhile, for a UK savings account during the same period, it was 2.57 per cent.
You can shelter a maximum of £20,000 from income and capital gains tax per year, but remember, any unused allowance does not roll over to the next tax year, and only 20 per cent currently utilise their full allowance. If you’re going to invest in an ISA, ensure that you invest early, near to when the tax year begins on April 6th.
If you invest in an ISA for 25 years but only do it at the end of each tax year, you could miss out on over £50,000, which would go a considerable way towards a retirement fund or future goal.
Make use of tax breaks in your personal savings allowance
If you are a basic rate taxpayer, then you can earn £1,000 of interest per year, tax-free, and could benefit from putting your money into a high-interest ordinary savings account.
By accessing one of the top-paying savings accounts, which are currently paying up to 7 per cent interest, you would need to put away more than £14,285 in a year to earn £1,000 in interest and breach that personal savings allowance threshold.
Consider a Money Market Fund for short-term gains if you’re nervous
Something which has increased rapidly in popularity over the past few years is the Money Market Fund (MMF). These kinds of funds have grown by an estimated 1,100 per cent in the past two years, and are designed to maintain a stable value while generating returns that have the potential to outstrip cash.
This type of portfolio is intended to be held for two years or less, and you can exit or transfer your funds to another type of investment at any time. You’re also not liable for tax on any income you earn, as long as it is held through an ISA.
For long-term life goals, open a Stocks and Shares ISA
Some people are reluctant to transfer savings to a Stocks & Shares ISA, but this is a great idea if you’re looking to save over the long-term. Historical performance shows that investments tend to return more than cash holdings over a five year period, but are more likely to be subject to short-term market volatility as seen with Trump tariffs, so you don’t want to be in a position where you need to withdraw your savings during a market downturn and end up losing money.
Stocks and Shares ISAs are good for larger life goals such as supplementing retirement savings, saving faster for a house, or supporting children when they’re older, as you could end up generating significant returns that can supplement your income later in life.
You can also take control over where your money goes by choosing the industries you want to invest in. If nervous, it might be good to put in a small amount at first, and then when you see the returns, you will be confident enough to put more money in.
Diversify your investments to mitigate risk
If you’re looking to invest your savings, ensure that you diversify your investments across different sectors. The reason for this is that it reduces the potential risk; if one industry is struggling, then it is only a small part of your overall investment.
It also maximises your chances of increasing your savings, as across multiple sectors, it is likely that at least one will always be performing well.
If you’re unsure, many investment platforms offer a variety of these ready-made options, and they’re a great way to achieve diversification with absolutely no effort or prior market knowledge.
Finally, Antonia said: “Whether you’ve had a pay rise at work, have come into some money recently, or just have spare money sitting in a low-performing savings account, there are ways that everyone needs to be aware of that can provide you with greater wealth in the future.
“Investing your money through accounts like a Stocks and Shares ISA isn’t for everyone. But, historically, those who have put their faith in the markets have enjoyed far greater returns than those who used savings accounts instead. You can limit the potential risk whilst still reaping the benefits, however, there are also other ways for those who still feel nervous to do so.”