2016 is a new year and the perfect time to lay out a new set of savings and investment goals. And with that in mind, here are five ways to make your money work for you all-year-long.
Savings
This year new rules on the taxation of savings come into force. These new measures will eliminate the tax on saving for 95% of savers, making cash savings a more attractive asset for investors.
From April 2016 savers will not have to pay tax on the first £1,000 (or £500 for higher rate taxpayers) of interest they earn on their savings. What’s more, from April banks and building societies will stop automatically taking 20% in income tax from the interest earned on non-ISA savings.
Supersized ISA
The new supersized ISA allowance is also a boon for savers. The ISA allowance for the 2015/2016 tax year is £15,240, up from £11,880 two years ago. Assuming you take up this new, large allowance every year, and assuming a 7% per annum growth rate, it will take 23 years to hit £1m in savings. It would have taken 27 years of saving at the old rate of £11,880.
Help to buy
For first-time buyers, a great way to boost savings is with the new Help to Buy ISA. As with other ISAs, any savings deposited in one won’t be taxed, but the primary benefit is that for every £200 you save the government will pay you a £50 bonus towards the purchase price of a property. However, the total bonus is limited to £3,000, so you won’t receive any top-ups on savings of more than £12,000. Still, this bonus is a gain of 25% on your cash, and the cash saved is entitled to interest just like an ordinary cash ISA. Rates of up to 4% are currently available.
The maximum amount you can pay into your Help to Buy ISA is £200 per calendar month, although when you first open the account, you’re allowed to make an additional contribution of £1,000, for a total of £1,200 in the first month.
Peer-to-peer
The Help to Buy ISA is aimed at younger investors, peer-to-peer lending could help more experienced investors achieve outsized returns during 2016. That said, this asset class is only suitable for experienced investors. While the rates of interest on offer may look attractive, your capital is at risk. Unlike shares, which can be sold at any time, with peer-to-peer lending, your money is locked-up for a set period.
If you’re fully aware of the risks and comfortable locking-up your capital in this way, returns of 7% per annum are available with peer-to-peer lending.
A warning
Rule number five is probably the most important.
Remember Warren Buffett’s rule one of investing, “don’t lose money.” There are many get-rich schemes out there, but novice investors should avoid all of them. It may be tempting to use sophisticated financial products such as CFDs, spread betting and FX trading to help accelerate your returns, but more than three-quarters of the investors that try these products end up losing money. It’s better just to stay away entirely.