Personal finance
Making our spare cash and personal investments work hard is a goal for many of us. After all, what's the point in leaving our hard-earned savings to stagnate when they could be earning us a personal fortune? But with so many personal finance products available from banks and other lenders today it can sometimes be hard to decide which personal finance product is going to be most suitable for our circumstances.
Personal finance
Here are just three personal finance options that are open to savers: -
High Interest Savings Accounts - Personal finance at its most basic level starts with a personal deposit account from a bank or building society. High interest accounts offer the best returns, but limit your accessibility to funds should you wish to make withdrawals to finance other areas of your life. Making regular deposits into a savings account is one of the easiest ways to build up personal wealth in the long term as personal savings accounts work on the principal of compound interest.
Compound interest is essentially interest gained from both the principal deposit(s) and interest already accrued on the deposit(s). So, if you were to make one deposit of £1000 into a personal savings account at an interest rate of 5.0%, the interest accrued after the first year would be £50. Assuming the funds in the account are untouched, the second year's interest will be calculated on the £1000 principal sum and the first year's interest of £50, so providing an interest gain of £52.50. After 25 years at an average interest rate of 5%, you will have built up your personal savings fund to £3386; after 50 years that £1000 deposit will have grown to £11467 just on the strength of compound interest at an average rate of 5%. If you make regular deposits then the balance will be even greater, offering you a perfect supplement to a pension as a way to finance your later years.
Cash ISAs - These are tax-free personal savings schemes that allow up to £7000 to be invested each year on a tax-free basis. Unlike Cash ISAs' predecessors (PEPs and Tessas) there is no minimum lock in period, allowing you to withdraw funds almost immediately to finance other areas of your life should you need to. They therefore offer a lot more flexibility compared to high interest savings accounts, and have proved to be a popular finance vehicle with which to grow personal savings.
Stocks & Shares ISAs - These types of ISAs give you the opportunity to invest part or all of your £7000 ISA allowance in the stock market. All quoted companies on any stock market in the world can be used for stocks & shares ISAs, giving you a free reign on your choice of portfolio. If you do not mind taking a risk with your personal finance strategy then stocks & shares ISAs are a good way to finance your medium to long term ambitions.