There is no escaping the fact that everyone will retire one day – even you. In most countries, the retirement age, state pension eligibility and the amount you will receive is clearly defined. We all know the worst-case scenario. The question is, do you want to work until you’re almost 70, and then eke out a meagre allowance? No, thought not.
Of course, this scenario is laughably simplistic and highly uncommon amongst professionals with a comfortable income, yet the sentiment still applies. Even when faced with a potential financial short-fall in retirement, many of us continue to be ill-prepared for what lies ahead, adopting what can only be described as a laisse faire attitude towards pension plans and savings.
Most of us are happy to spend time pondering how we can make the most of our well-deserved retirement, so why not apply the same dedication to ensuring there will be sufficient funds to realise those dreams.
Imagine if you had a crystal ball, you could look into the future to see if your pension and savings will give you the financial freedom you desire or if you are heading for a rude awakening. In the case of the latter, how would you remedy the situation?
You can’t turn back the clock, so now is the time to get savvy with your savings by making informed life-changing financial choices. Simply squirrelling money away in savings accounts and pensions is not always the answer, it is vital that you identify the most effective financial instruments available to you in order to generate the best possible income.
Are you making the right choice?
Mike Ramsay, of Alliance Capital explains, “When building your financial portfolio, it’s tempting to include high risk – high return investments. Yet, it makes more financial sense to choose investments that can deliver high returns with minimal risk, such as fixed term bonds with guaranteed returns. We subscribe to the ethos of ‘going slow and steady to win the race’, but it’s the addition of guaranteed returns that will get you over the finish line – every time.”
Even in a ‘slow and steady’ race there are winners and losers. It pays to keep a close eye on tax laws and the opportunities available, since the choices you make could potentially double or triple the money you can access later. If you find that you have committed to a less than satisfactory interest rate, be ready to move your money at the end of your fixed term, if a better opportunity arises.
Where should you plant your money tree today? Let’s assume that you want it to grow over a fixed period of 5 years. You want a safe option, so you won’t be investing in wine, a truffle farm, art or cryptocurrency; this is cash you can’t afford to lose.
Here are the most common options for savers who invest their money for a fixed term of 5 years.
APR of up to 1.5%
Taking UK savers as an example, offshore accounts were once the preferred tax efficient option, since tax was not applied to interest before it was paid to the account holder.
In April 2016, this ceased to be a selling point, because the new personal savings allowance allows most UK residents to pay zero tax on their savings. Basic rate taxpayers can earn up to £1,000 interest tax-free; this limit is £500 for higher rate taxpayers.
Higher rate taxpayers can still save money with an offshore savings account, by taking advantage of the delay between when interest is earned and when tax on savings is due to HMRC. This delay presents an opportunity for short-term investment and further interest earnings.
Most people will not benefit from offshore savings options.
APR of up to 2.15%
Yesterday’s savvy savers could be today’s losers, thanks to the new UK personal savings allowance. Those who purchased ISAs for their tax-free benefits are now missing out on the opportunity to earn a higher rate of interest offered by bank savings accounts.
ISAs still have their function, since money stored there doesn’t count towards your PSA, however for most people, ISAs are no longer the most lucrative choice. If you have an ISA, it’s time to review and rebalance your savings.
APR of up to 2.5%
Savings accounts are only marginally better than the rock-bottom interest earned from offshore accounts and ISAs.
Today the most competitive interest on fixed term savings, from Atom Bank, hoovers around 2.5%. Given this paltry rate, it’s no surprise that investors are looking elsewhere for a place to put their hard-earned cash.
Bank accounts are a good option for easy access savings, but you can earn far more on your savings with other fixed-term investment options.
APR of 6%
A far higher rate of interest can be achieved over the same 5-year term by investing in fixed rate bonds, like those offered by Alliance Capital Savings, part of global insurance and financial giant Alliance Group International.
Alliance offers a range of options for savers that allow them to enjoy higher rates of return whilst increased levels of financial security via a capital guarantee and an insurance protection provides additional peace of mind.
Alliance is a regulated institution with Global Business Licences across Europe, Asia, Africa and The Middle East. The company has sustained an annual growth rate of over 150% per year, a reassuring signal of a robust strategic approach to risk management and diversification.
Fixed-rate bonds are a preferred choice for expats, since non-UK residents cannot continue to pay into an ISA and may not even be permitted to continue to use their UK bank account. Terms and conditions are changing all the time, and Brexit is likely to add further complexity and narrow choices for expats. In the past year, some expats have been forced to close their bank accounts, since the terms and conditions of their account require UK residence.
Choosing fixed rate savings bonds from Alliance is particularly beneficial for expats, who can invest in multiple currencies. If you keep your money invested in the bond for 9 years, the fixed interest is an eye-opening 10%; which, for a low risk investment, is hard to beat.
APR of 7.1%
Peer-to-peer lending options have increased over the past few years with the success of websites like Zopa and Funding Circle.
These websites are regulated by the Financial Conduct Authority, which normally means that the first £85,000 of your investment would be protected, but this is not the case in peer-to-peer lending. When you invest in a peer-to-peer loan, your contract is with the recipient, so if the lending website goes out of business, you are not protected.
This form of lending is in its infancy and definitely not without risk. No one knows if a peer-to-peer lending company will be capable of weathering a financial downturn, so this option should complement, rather than replace your longer-term savings investments.
Retirement savings should be entrusted to a company with a strong, well-established reputation and your capital should be protected.
Compare the market
Your options are changing all the time and you should conduct thorough due diligence before you move your money. The only constant is that the decisions you make now will dictate the terms of your retirement.
For more information about guaranteed savings bonds contact firstname.lastname@example.org.
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