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Savings and investments

There are many options available for saving and investing money. For example;

  • you can receive interest on your savings in a building society
  • you will usually get dividend payments from owning shares
  • you can choose an investment fund designed to produce regular income.

You can produce an income from your savings and investments by investing a lump sum. You can also invest a regular amount of money when you have some surplus cash. If you invest a lump sum then you can make a single investment and also combine it with additional amounts whenever you want.

It is important to recognise that saving and investing usuallly involves some sort of risk. In the 1930s a lot of people lost money when several major banks collapsed.

Banks use money from savers to invest in stocks and shares, Government Gilts, money markets and corporate bonds. If the bank invests it well then the bank makes money. If they do badly the bank can lose money.

If everyone who has money in a bank asks for it at once then the bank will not have enough money to pay everyone! This is what happened in the 1930s to a bank in Germany, and then to other banks across the world. The same thing has almost happened recently to banks in Japan, Germany and America.

Saving and investing involves varying degrees of risk. If you want to save money in a bank/building society, you will be taking almost no risks with your money. If you want an income, then the potential income you can receive will normally be linked to the risk you are prepared to take with your money.
Generally speaking, the higher the potential returns from an investment, the greater the risk of losing some or all of the money you have invested.

The table below shows some examples of the degree of risk.

Need help or advice?
A financial adviser can give you help and advice. To find an independent financial adviser in your area you can contact:

Independent Financial Adviser Promotions
2nd Floor
117 Farringdon Rd
London
EC1R 3BX
Tel: 08000 853250
www.unbiased.co.uk

They will send you details of three independent financial advisers in your area.

Some of the questions a financial adviser may ask you include:

  • Have you planned for retirement? Do you want to increase the amount a pension would pay when you retire?
  • Have you any debts? Is the amount you are paying in interest on a debt more than investing the money would earn for you?
  • Do you want to invest in property? If you live in a council property do you have the right to buy (your local council housing department can provide the information)? If you have a mortgage do you want to pay some off?
  • Are you getting any benefits that may be affected.
  • Do you have an emergency fund fund for unexpected expenses?

If you decide you want to save or invest then you will be asked to consider:

  • how much to invest?
  • whether to invest in one or several things?
  • what you want to invest in? – there are lots of issues here. It is a balance between risk and payoff. Some companies offer ethical investment opportunities if this is important to you.

A financial adviser will be able to help you consider these points.

Easy access to your money
If you just want somewhere to keep your money where you can get to it then you may want to think about whether you want a:

  • Tax on savings - Interest on savings is usually taxed if you pay income tax. Non-tax payers can claim payment of interest without tax deducted. Contact the HM Revenue & Customs or your building society for a form if this applies to you.
  • Means-tested benefits - If you are claiming these, then you must declare your savings.
  • Child Trust Fund - The Child Trust Fund is a savings and investment account that became available in April 2005. The Government is making payments to help build up savings for children. Until the child turns 18 the money that is in the Child Trust Fund cannot be accessed.

    Your children will benefit from the Child Trust Fund if they:

    • are born after the 1st of September 2002 and
    • qualify for Child Benefit and
    • if they are living in the UK.

    All eligible children will receive an initial basic payment into their accounts and children from lower-income families receive an extra payment. Additionally, family and friends can contribute to the fund. Interest that might be earned with the Fund is tax-free.

For more information, see our section on the Child Trust Fund and the Government's Child Trust Fund website, which includes information on the sorts of Child Trust Fund accounts available and details of how to open one.

 

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