What’s the best way to grow a small amount of savings?

What’s the best way to grow a small amount of savings?

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If you are growing a nest egg and want to make your money work harder, a Stocks and Shares ISA could be a good option. You could build on your savings without losing any of your gains to the tax office. If you open an ISA, your yearly allowance of £20,000 could help gradually turn your modest savings pot into a decent sum of money.

 

Contribute gradually rather than in lump sums
As the end of the tax period approaches each year, it can be a race for investors to pay into their ISAs before their annual allowance expires. According to the Financial Times, 97% of the amount invested in the tax year 2017/18 was via lump sums. If you don’t use it, you lose it, right? But why the last-minute rush? Surely, it’s better to think strategically and plan your ISA payments throughout the year, using a Direct Debit to deposit regular monthly payments into your ISA. This drip-feeding not only will it help you to make the most of your allowance, it also means you’re buying investments throughout the year at varying prices, which could mean better returns if you happen to buy cheap. Not to mention, the sooner the money is in, the longer it has to grow.

 

Why a gradual, long-term approach works
Long-term investing can be key to realising positive returns. By investing over the long-term, you’re giving your money more time to benefit from the power of compounding – when your returns generate further returns. Most available evidence based on how markets have performed in the past shows that remaining invested over a long period of time tends to pay off. For example, people who invested for any 10-year period since 1986 until February 2019 in the FTSE 100 index have had an 87% chance of realising positive returns on their investment – and that period includes three major market crashes: Black Monday, the Dot-com bubble and the 2008 financial crisis.

 

Put your money into a Stocks and Shares ISA
With a Stocks & Shares ISA, you can buy investments (e.g. shares, bonds, property, and commodities) and you don’t pay UK tax on any gains you make, so you get to keep more of your returns.

Here are some benefits to investing in a Stocks and Shares ISA:

 

You could get potentially higher returns than a Cash ISA
Since ISAs were introduced in 1999, the stock market has typically outperformed cash ISAs two-thirds of the time, and in 2017/18 those holding Stocks and Shares ISAs earned on average a 4.8% return compared to 0.97% for cash ISA holders. What this and similar research shows is that while the risk may be higher with a Stocks and Shares ISA, you could also see far higher returns than with a Cash ISA. It really comes down to how much risk you’re willing to take in pursuit of higher returns. The fixed interest rate of a Cash ISA is guaranteed but will only grow to a certain point. A Stocks and Shares ISA is not tied to any fixed interest rate and in effect, the sky is the limit for returns, but with it you accept a risk that your investments could also lose some of their value. In reality, even cash savings come with risk. Inflation erodes the value of your cash each year, so there’s a real chance it could be worth less over time if it’s not growing quicker than inflation is chipping away at it. 

 

You can split your money between different kinds of ISA accounts
If you want to maximise your chances of good returns and spread your money over different ISAs, you can do just that with a Stocks and Shares ISA. It’s good practice to put some savings into an easy-access Cash ISA for a rainy day, then put any other savings into a Stocks and Shares ISA as part of a longer-term investment. If you have children, you could put some funds aside for a Junior ISA.

 

Beginner’s guide to investing in an ISA: Dos and don’ts
Here is a handy list of dos and don’ts for first-time investors. Take a look.

Do: make the most of your annual ISA allowance. You cannot carry unused allowance over to the following tax year!

Don’t: invest in things you don’t understand. In fact, stock picking is very risky, so unless you know what you’re doing, it’s probably safer to buy tracker funds that follow the market and spread your money across hundreds of well-known companies. Or use an online investment service that will make the decisions for you.

Do: keep an eye on your returns. While it’s not always true that the ‘grass is greener on the other side’, there may well be an investment plan out there that works better for you.

Don’t: take more risk than you’re comfortable with. A good place to start is ask yourself ‘could I afford to lose half of this money?’

Do: your research. There are a lot of misconceptions around investing, and you will be far more confident if you put them to bed.

Don’t: go into it thinking it’s a ‘short-term thing’. Five-years should be a minimum if you have something in mind for the money.

 

For more information on any of the above, get in touch - we’re happy to help.

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Wealthify Customer Reviews

4.34 Average

339 Reviews

Jonah Cockshaw

I'm huge on personal finance, investing and saving. And, for me, Wealthify has allowed me to set up my investment fund, make use of my ISA allowance and make contributions / investments on auto-pilot. I knew that investing into Stocks, Shares, Bonds, Property and so on were all great, long term things to do, but Wealthify has made it easy and dummy-proof... I love it already!

Posted 1 week ago

Chris Littlefair

I have found it extremely easy to set up and monitor my ISA. There is plenty of information about stock movements being made on my behalf and it feels like a very personal service being offered by this young company.

Posted 1 week ago

Anxhelino

Staff is very friendly and quick to respond to any questions that I had. Everything is extremely transparent with emails when they are making drastic changes in the investment plan and as for performance, they did really put my money to work hard with good investment choices and a truly diversified portfolio.

Posted 1 month ago

Giada

Lovely customer service, decent returns, easy account to open and close. Overall very satisfied!

Posted 1 month ago

Jim Corley

Wealthify customer service is absolutely superb, it really cannot be faulted. I have had several queries which were answered, and where needed, actions taken within a few minutes of my call to them. 10/10. With regard to investment performance, overall it has been slightly above the performance of my other investment pots, despite me making my original deposits when global markets were significantly higher than they are now. If they can stay on course, 16% in a year, given all the fiscal uncertainty, is superb.

Posted 1 month ago

Hugo Scheiff

Wealthify has been a solid investment platform for me in the last year. Global markets have been a bit shaky but they have managed to keep some fairly consistent returns and stability for my portfolio. Above everything else though is the customer service. It is truly excellent and always done with a friendly attitude and every question I have had has been resolved straight away. Worth sticking with them for the customer service alone!

Posted 1 month ago

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