Five income-generating alternatives to savings accounts

As we all know, the average interest rate on a savings account now paying a measly 1.08 per cent, millions of savers are looking to obtain better returns elsewhere. Here are five income-generating alternatives to savings accounts.

1. Government bonds (Gilts)

Gilts involve lending money to the Government. This is generally seen as a safe investment option as the Government is unlikely to be unable to pay your money back.

If you are looking for a safe way, and be sure that you will receive interests, a government bond may be what you’re looking for. Twice a year, you get a fixed rate of interest. The interest rate is averaging at about 3.5%.

2. Premium bonds

With this popular savings alternative, savers can hold up to £30,000 in bonds but instead of interest payments, bond-holders have a chance to win tax-free prizes.

However, with the average rate on savings accounts now so low, premium bonds seem as good a place as any to keep savings, and come with the advantage of being 100 per cent guaranteed by the Treasury.

3. Index-linked savings certificates

These are effectively three or five year bonds paying interest of a full percentage point above the retail prices index (RPI). The current interest rate is only 1.1 %, but all returns are tax-free and are guaranteed by the Treasury. There is a maximum investment of £15,000.

4. Zopa

This is a new system, which allows people who want to invest their money to come in touch with people that are looking for a personal loan.

As a lender, the interest rate that you obtain on your cash varies depending on the category of borrower you lend to. The longer you are prepared to lock away your money, the higher the return, ranging from an average of 7 % for the lowest-risk three-year loan to as much as 12 % for high-risk five-year loans.

5. Corporate bonds

This seems to be another alternative with an upcoming success, as investors are being attracted to the average return of 5.5%. Corporate bonds are a good investment opportunity at the moment, although it is important investors understand the risks.

Corporate bonds offer the most attractive risk/reward characteristics of any asset class. Plus there is potential for capital growth. However, investors should remember that corporate bonds are much riskier than cash, due to the possibility of companies going bust and defaulting on payments.

Own opinion

I personally think that keeping your money on a regular savings account is a rather lazy and unreasonable way of investing your savings. Especially in times like these, you have look for a better way to gain higher interest rates for higher returns. There are so many alternatives for every individual investor, so you should be able to find one that fits to you standards. Whether you are looking for a high risk investment, or a more secure one, every other way will probably be more successful than your normal savings account. This article shows us 5 alternatives that may be the solution to most investors interest issue. I would personally choose for a safe way to invest my savings, but of course I would rather aim for a proper interest rate of about 5%, so I think I would go for a corporate bond. Of course I would look up the way of managing the companies before I’d let my money get to them, so I think that if you do your homework, the risks will be rather limited.

Source: http://www.actualteam.com/?p=7504
Written by Tom Baeyens,
Student at Artevelde College
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