Finance expert shares pitfalls of popular savings methods as inflation soars
Recent figures suggest personal savings reached the second-highest levels on record in the wake of the coronavirus pandemic, as spending opportunities were limited for most of the country over the last year due to lockdown restrictions.
And it seems the increase in funds has driven a demand for investment, with two-thirds of people across the UK reportedly planning to buy stocks and shares in the future.
ETX Capital is keen to help budding traders make the most of their investments and Annie Charalambous, Head of Communications, has looked at popular money-saving myths so that potential investors can avoid some common pitfalls.
Myth-busting common money-saving methods
Saving with banks
We all know banks have been the traditional go-to for savings, but are many of us letting our earnings stagnate?
Research suggests that cash ISAs are the nation’s top savings account choice. However, with inflation rates expected to hit over 4% next month and interest rates still low, leaving your money sitting in the bank won’t help you achieve the greatest return, and you risk losing out in the long run.
Finance experts typically recommend people to ‘save for the short-term and invest for the future’, meaning that you should only consider widening your investments once you have a comfortable level of savings.
A wider investment portfolio may include diversifying to a stocks and shares ISA or even working with a financial expert to find the right fit for your needs.
Can crypto equal cash?
A recent study found that 45 per cent of young investors made their first moves in the financial markets with cryptocurrency, believing it yields greater returns than traditional assets.
However, it’s vital to remember that crypto is a volatile market - largely due to a lack of regulation and because sudden shifts in investor sentiment can significantly move market values.
For experienced traders, cryptocurrencies provide both an opportunity to diversify portfolios and access a burgeoning asset class. Even so, research is essential in the crypto market. Before trading cryptocurrencies, you should first understand the asset and its role in the market – as well as whether you can afford to cover any potential losses.
The 25% interest and you
Since the closure of the ‘Help to Buy ISA’ to new applicants in 2019, the ‘Lifetime ISA’ has become a popular savings account for those looking to capitalise on attractive government bonuses.
Savers between the ages of 18 and 39 can stash up to £4,000 per year in a Lifetime ISA and earn a 25% bonus.
However, these funds can only be used to purchase a first house or prepare for retirement.
If you’re keen on getting on the property ladder, this might look like an attractive way to top-up your savings. But for those looking to boost their retirement pot or simply save for other ventures, it could be more prudent to diversify your portfolio with a wider range of financial assets.
For example, personal pension schemes also allow you to prepare for retirement, but without annual limits. Premium bonds, on the other hand, offer a risk-free alternative for holding cash, with the opportunity to win bonuses each month.
Investors sometimes view the property market as the ultimate investment, but in reality it’s not that simple.
While stocks, shares and savings accounts offer easy access for those with varied resources - and relatively minor premiums - the property market can be filled with hidden fees.
Not only is real estate simply unattainable for many starting investors, there are extra costs to consider even if you can afford to jump on the housing ladder. These range from broker and legal fees to insurance costs and potential landlord expenses. This is why some investors look to expand their portfolios beyond real estate, hedging against unexpected costs and market volatility.
Their expanded portfolios may include markets like commodities, which are less likely to be impacted by the same factors that affect the housing market.
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