By putting your money into a bank, you know that it will be safe and secure. This was once not always the case. However, UK-regulated current or savings accounts and ISAs in banks and building societies, and credit unions, are now covered by a Financial Services Compensation Scheme (FSCS) for your protection. So, even if all of your chosen financial institutions were to fail to make a profit, or worse still completely collapse, you would still get back up to £85,000 from each of those institutions that you have invested in.
Depositing your money into a bank will mean that you have the potential to earn interest while still having immediate access to your funds. In contrast, a building society account will earn more interest but possibly need you to give them 30-days-notice, depending on the type of account, before withdrawing your money. This does not seem long but if you need your money in a hurry then investing your money with a bank, or in a current account that some building societies will also offer, would have been better.
With building society accounts, the longer you are prepared to leave your money in for the better the interest account you can usually obtain. They will also have loyalty accounts which reward customers who have had their money with them for many years a higher interest rate.
ISA stands for Individual Savings Account. The principal difference between an ISA and other forms of saving account are that it offers tax-free interest, allowing you to build up more savings for your money. There is, however, a limit to how much money you can invest into an ISA each year. This is called your ISA allowance. This amount increases year on year. For the tax year 2020/21, in the UK, you could save up to £20,000 tax-free.
Providers can offer fixed or variable interest on investment plans. Fixed interest plans will not offer the largest returns but mean that you will receive regular interest payments at regular intervals. It is the safest form of investment. In contrast, variable rates fluctuate but offer higher interest rates than fixed-rate investments in good times.
And do not forget ERNIE. He stands for Electronic Random Number Indicating Equipment. Premium Bonds can be purchased through the National Savings and Investments (NS&I) website. With this form of investment, there is no risk to your capital. The amount of interest that you receive is the gamble. Periodically, you are entered into a prize draw and tax-free prizes are paid out to those holding the lucky numbers. It is like buying a National Lottery ticket except that you do not lose your original stake and you can ask for your money back anytime that you want. You will need to weigh up the number of prizes that you are winning versus the interest you have lost by not investing your money elsewhere. The prize rate is thought to be around 1% based on average luck. NS&I pay out more than three million prizes per month from random number generation. These prizes range from £25 to £1 million. If there is such a thing as a safe gamble, this is it.
So, a few options here. It is a case of balancing potential future gains against risk. It depends how much you can invest and for how long you want to tie up that money for. But then, the idea of investing is to invest for the future. If you can afford it, property is still the best form of investment. It does, however, depend on whether you have saved enough of a deposit to even enter the property market, whereas a bank account can be started off with just £1.