I have £50,000 that I want to invest, but I would want access to the money again in two to three years. I know this is a short time period for an investment, but leaving it in cash earning 0.1% is no good at all.
Is there something that offers a higher return, but that is safe with zero risk?
As the objective is short term and you don’t want to take any risk with your capital, you have few alternatives other than investing in cash deposits or cash equivalents. There are, however, some things you could do to improve the overall return you might see from this type of investing.
The way you operate your accounts can have an impact on the return you receive. Postal, phone and online accounts tend to offer more than branch operated accounts so consider using these methods to run your finances.
You could consider a fixed-rate bond. Access to your cash is either limited or not allowed before maturity and in return, the rate of return would certainly be improved. A typical one-year bond, where the account is operated online or by post, currently sees a gross return of around 1.3% a year.
If you don’t mind opening several accounts, you could look at using regular saver accounts. Saving amounts are usually limited to a few hundred pounds a month so you would need quite a few accounts to put away this large a sum, but this type of account can attract rates as high as 3.5% a year and may be a practical consideration for at least some of the money.
Finally, Premium Bonds, offered by National Savings and Investments, are a credible alternative. The maximum holding is now £50,000 with 100% capital guarantee backed by the UK government. Cash can be returned without notice and penalty at any time.
While there is no guaranteed return, you are only risking the measly £50 return you are likely to see in an ordinary cash account at 0.1% a year in exchange for the chance of winning prizes which are tax free and could be £25 up to £1 million. With the maximum holdings and ‘average luck’ it is not untypical for investors to see returns averaging 1.25% a year. As well as providing better potential than cash, it can be a fun way of investing too.
Best buy cash accounts
|One-year fixed-rate bond||Charter Savings Bank||1.38%||£1,000 min investment|
|Three-year fixed-rate bond||RCI Bank||1.65%||£1,000 min investment|
|Regular savings account||HSBC, First Direct & M&S Bank||6%||Must have a linked current account. Otherwise you can get 3.5% from Saffron Building Society|
|Instant-access account||RCI Bank||1.20%||£100 min investment|
|Current account||TSB & Nationwide||5%||Regular deposits required. Interest only paid on balances of up to £2,000 and £2,500 respectively.|
Source: Moneywise, 26 September 2016