Investments

Five ways to grow your wealth without savings accounts

Katie Royals 26th Feb 2021 No Comments

Reading Time: 7 minutes

Cash savings rates are almost non-existent at the moment. They’re basically paying 0% of nothing on the whole, so you may be looking for other ways to grow your wealth.

In fact, savings accounts have never been good for long-term investing. They are great for the short-term and it’s essential to have enough money in an easy-access savings account to cover your expenses for three to six months at any time. It’s your savings safety net.

But pretty much all the savings rates on offer in banks and building societies have interest rates that are below inflation. This means that over the long term you’re actually losing money in real terms as the pound in your pocket is worth less each year.

Luckily, there are other ways to grow your wealth outside of cash savings accounts.

Grow your wealth with Equities ISAs
Use pension investments to grow your wealth
Property investments
Alternative investments
Invest in an Innovative Finance ISA

Grow your wealth with Equities ISAs

Investing is often seen as a scary word, but it really doesn’t have to be. While your money is not secured, the stock market can be one of the best places to grow your wealth.

Equities ISAs are also known as stocks and shares ISAs. As with any ISA, you’ll benefit from the fact that it’s a tax free ‘wrapper’ so any gains you make on your Equities (stocks and shares) investments that are wrapped in an ISA are tax-free – i.e. you get to keep more of the money!

You can put up to £20,000 per tax year into any sort of ISA or a selection of ISAs (maybe some in a Lifetime ISA, some in an Equities ISA and some in an Innovative Finance ISA (IFISA), for example.

You’re not guaranteed to make money with Equities ISAs and you could end up losing money, although the longer you have the money there, the more likely you are to gain overall. The risk is greater, but over time you are more likely to grow your wealth than you would with a Cash ISA, where, because of inflation, you’re most likely to lose money in real terms.

With an Equities ISA you can hold shares in:

Individual companies
Unit Trusts
Investment funds
Corporate bonds
Government bonds (gilts)

Index trackers

A good place for beginners to start is with index tracking funds, which are a no-fuss way to put money into the stock market. You can usually invest in ‘trackers’ that are already ‘pre-wrapped’ in an ISA

Tracker funds (index-trackers) aren’t like a single company that you buy shares in. Instead, these funds track a stock market index (or part of one). Your money is invested in every company in that defined index, so you effectively invest in the index itself.

When the index average goes up – or down – your share value does the same. This varies every day as the markets change.

There are hundreds of different tracker funds around now. You could invest in one that tracks the FTSE100 or the FTSE All Share, the Nasdaq, the S&P500 or one that tracks ‘the world’ (i.e. the world economy).

There are also many companies that offer tracker funds such as:

Vanguard (they started these off in the first place)
Legal & General
Virgin
M&G
Scottish Widows
HSBC

…and more.

You can find out how to invest in index-tracking funds here and why Equities (stocks and shares) ISAs are better than Cash ISAs here.

If you’re interested in investing and want to learn more check out these webinars run by MoneyMagpie’s very own Jasmine Birtles.

Use pension investments to grow your wealth

Your pension is one of your greatest assets, even if you don’t see its benefits until you retire.

Workplace pension

Every employer should give you access to a workplace pension.

As long as you meet eligibility requirements for auto-enrolment, you should have one. Paying in the minimum contributions each month is a really easy step towards growing your wealth,

The best thing about workplace pension schemes is that not only do you put money in, but so does your employer. What’s more, you get a government bonus due to the fact that the tax you would have paid on that money is added to your contribution. You’re essentially receiving free money as well as seeing it increase in value as it is invested over the years.

The sooner you pay more in, the more time your pension has to grow to give you a more comfortable retirement, so don’t put it off.

You can find out more about workplace pensions here.

Private pension

If you’re not eligible for a workplace pension, you can invest in a private pension instead.

Popular choices for private pensions are:

Stakeholder pensions
SIPPs (self-invested personal pensions)

It’s useful to seek advice from a financial adviser if you’re choosing this option, as they’ll be able to tell you which pension is best for you. There are a lot to choose from.

However, take a look at our articles on these subjects as well so that you go to the advisor with some understanding of what they’re going to talk about.

This is what we say about stakeholder pensions and here is one on SIPPs.

Property investment

Investing in property is a popular way to grow your wealth. Like any form of investment, though, your money is not secure and profits are not guaranteed.

But, demand for housing is set to increase, which means house prices are likely to increase too. If you can cope with the downsides, property is a pretty good bet in this country in the long-term.

Buy-to-let

A benefit of buying property as an investment is that you don’t have to buy where you currently live. Many people in London, for example, simply cannot afford the prices there. However, there’s nothing stopping them buying a property somewhere cheaper and renting it out.

Having said that, the downsides are:

You have to save quite a lot of money for a deposit. With shares you can invest with as little as a tenner!
It is ‘illiquid’ so it can take a long time (and some cost) to sell the property and get hold of your cash.
There are a lot of costs involved including the maintenance of the property, including service charges, agent fees, and the cost of tenants either not paying the rent or trashing the place.

There are also tax implications for those who are on a high income already, which eat into potential profits.

Can I afford a buy-to-let?

You need to find out if you can afford to buy a property first. If you’re interested in property investments, consider:

If you can afford to have an empty rental property that it costs to run.
If you can meet mortgage payments with the predicted rent.
Whether you’d get a mortgage.
Whether you’ve got enough for a deposit.
If you have money for conveyancing and purchase fees.
Whether you can afford to tie your capital up for a while.

Flipping property

Some people choose to buy and ‘flip’ a property. This is where you snag a property at a discount because it needs a significant amount of work. Then you do the work yourself and, hopefully, sell it on for a profit.

This can be risky as you’re not guaranteed an end price – and could lose money if renovations cost a lot.

Also, there will be tax to pay on any profit above the capital gains tax threshold.

Other options for property investment

If you don’t like the sound of owning actual bricks and mortar after that, don’t worry. There are other ways to invest in property.

Real Estate Investment Trusts (REITs)
Property stocks and shares (estate agencies, house-building companies etc)
Peer-to-peer lending

…all allow you to invest in property without taking on as much risk of owning a whole property.

Instead, with these options your money is invested in projects and companies that either build, sell or lend on properties.

As a shareholder in a REIT or property company, you’ll benefit from the fund or company’s success and share of the profits – without needing a lot of capital.

With peer-to-peer lending in property you lend directly to property developers or mortgage holders and gain interest on those loans.

So, if you like property but you can’t be bothered with replacing boilers, painting walls and dealing with nuisance tenants, try one of the above investing options.

Alternative investments

Pretty much anything can make an investment. Antiques, art, musical instruments, cars, watches and wine are just some of the more common alternative investments available.

You can even invest in diamonds. These have proven to be a very good investment in the past: from 1999 to 2011 three-carat diamonds increased 144.9% while five-carat diamonds increased 171.1%.

Of course, there are no guarantees when it comes to investing in anything, but the beauty of investing in alternative assets is that you can choose something you like.

Say art is your thing – the painting you choose may not increase in value and grow your wealth as you hoped. But, at least you can still get personal value from it as long as you and your family like looking at it!

One man made £44,000 by investing in vintage whisky as a birthday present each year for his son. The son used the profits for his first house deposit!

We have a LOT of articles on how to make money from collections (including art, piggy banks, Barbie dolls and more) so take a look to see what you would enjoy having around your home that could be a hobby and increase in value.

Invest in an Innovative Finance ISA

You can also try an Innovative Finance ISA (IFISA). These let you invest in peer-to-peer lending opportunities within the tax-free wrapper of an ISA product.

Peer-to-peer lending is where investors – like you – lend money to businesses who might not qualify for traditional commercial loans. If, for example, they’re a small business in need of just a few thousand pounds, many banks won’t lend because it’s not commercially viable for them (they won’t make a big profit).

An IFISA is at least a medium-term financial plan: you have to commit to lending your cash out for a minimum period. But you’re likely to see returns around the 4% mark.

Your cash is not protected by the Financial Services Protection Scheme (FSCS) once it is lent out, although, for most of the platforms, it is covered while the money is on deposit waiting to be lent.

Five ways to grow your wealth without savings accounts