Cash savings can be a good way to put some money away for the future, but they don’t typically offer a high reward. In fact, a low savings rate can easily be less than the inflation rate, which means your standard savings account won’t provide a realistic way to grow your capital.
What’s more, cash savings aren’t the most exciting way to manage your money. While they do provide a low or no risk way to store your cash, there are alternatives that carry higher risks but infinitely higher returns. If you want to make your money work for you, take a look at these effective alternatives to cash savings.
1. Index Funds and ETFs
If you want to play the stock market without selecting specific shares and companies to invest in, index funds and exchange-traded funds (ETFs) could be the right option for you. The funds invest your capital in a range of securities. By diversifying your investment, they help to protect against sector-specific crashes, which makes them lower risk than some other forms of investment. However, different index funds and ETFs carry varying levels of risk, so be sure to select a fund that matches your investment strategy.
2. Play the Markets
If you want to take a more active role in your investments, trading in stocks, shares, bonds, commodities and currencies could be a viable way for you to boost your savings. Digital tools make it easier than ever to monitor the markets and make trades. What’s more, many firms allow you to set up a demo account so you can try out various platforms before you risk your money. Just take a look at MT4 vs MT5 trading platforms to get an idea of which trading tools you’ll get the most use out of. While managing your own investments can be risky if you don’t have experience, it can also offer high rewards.
3. Become a Lender
Banks and building societies make an enormous amount of revenue from charging borrowers interest, and you can do the same. Becoming a peer-to-peer lender enables you to lend capital to individual borrowers and charge them interest. Different P2P platforms work in different ways, so be sure to read the small print before you sign up. There’s always a risk that a borrower will default on their loan, but you can mitigate this by offering small loans to multiple borrowers.
4. Invest in a Business
Buying stocks and shares is one way of investing in businesses, but becoming a silent partner is another viable way to increase your capital. Making a financial investment and becoming a shareholder in a start-up can make you millions, providing the firm does well. Of course, it’s a fact that the vast majority of start-ups fail, so this can be a particularly risky way to use your savings. However, if you want to be in on the ‘next big thing’ or you’ve seen a small business with real potential, it could be a successful way of increasing your capital.
5. Try Spread Betting
Spread betting allows you to profit from a change in the market without actually buying any stocks, shares or commodities. Instead, you simply bet on how you think the price will change. If the price moves in accordance with your prediction, you can increase your return. However, when you place a spread bet, you’re also liable if the price moves against your prediction, which means you can rack up losses quickly. Furthermore, your bet won’t stop simply when your account runs out of funds. Fortunately, you can mitigate losses by using trading tools but it’s important to get the low-down before you start investing your cash.
6. Invest in Commodities
Commodities, like oil, gold, gas and even corn, can present an attractive investment opportunity. Instead of investing in a company or in manufactured goods, you can simply invest in the economic performance of the commodity itself. As you might expect, there can be drastic variations in how each commodity performs. Oil is typically a risky commodity investment, so you may want to restrict the amount you invest in it. Conversely, gold tends to hold its value in times of economic uncertainty, so it can add a lower risk investment to your portfolio.
7. Buy Cryptocurrency
All currencies fluctuate in value and this includes digital currencies or cryptocurrencies. To date, there are thousands of cryptocurrencies out there, but Bitcoin, Litecoin and Ethereum are probably the most well-known. You can invest in digital currencies by buying some currency, keeping hold of it and hoping that its value will increase before you decide to sell. If it does, you’ll make a profit, without any fees or transaction charges to incur.
Alternatively, you can invest in cryptocurrency by purchasing low value or lesser-known digital currencies and hoping that they will become increasingly popular in upcoming years. If they do, their value could increase drastically, at which point you can sell your currency and make a significant returns.
8. Purchase Property
Many people consider property to be one of the safest forms of investment, but it does always carry some level of risk. Despite this, buying property can be a great way to increase your capital. You can either purchase a property for your own use and hope that its value increases before you sell or buy a property and renovate it with a view to adding value. Of course, you may prefer to set yourself up as a landlord and generate income from your property, as well as letting its value grow over time.
Although property can seem like an easy way to grow your capital, a successful investment requires knowledge of the market, an insight into which regions are going to be regenerated and an understanding of finance. Providing you do your research, buying, renting, and selling property can be a fun and lucrative way to maximise your savings.
9. Pay into a Pension
A pension is often a great way to prepare for the future and save for your retirement. If your pension fund performs well, you can generate far more interest than you would if you put the funds in a standard savings account. What’s more, some employers will make monthly contributions to your pension, so you can maximise the amount you’re able to save. Additionally, making pension contributions can reduce your tax liability too.
When you start paying into a pension fund, you’ll have the option to choose which funds you want to invest in. If you’re eco-minded, for example, you may want to choose a sustainable fund that avoids fossil fuels and other similar types of investment. Alternatively, you can base your decision on the level of risk you’re willing to take.
Many pension providers will allow you to change the fund you invest in at regular intervals. This enables you to adjust the level of risk you’re taking at different stages of your life and can be a good way to manage your finances as your priorities change.
Find the Best Way to Grow Your Capital
Everyone should make a conscious effort to save part of their income, but what you do with those savings will determine how much you can accrue over time. If you’re looking for an alternative to cash savings, there are plenty of investment opportunities to explore. Providing you’re aware of the risks they carry and the potential returns they offer, you can create your own portfolio and make the most of your money by investing in a variety of different areas.