Wondering what to do with all that money that’s sitting in the bank earning pittance? Have you looked at these two options?
Often the only thing harder than finding the time to manage the money that sits in your bank account is deciding where to put it. Even after you’ve searched long and hard for the best deposit rate, opening an account can be like pulling teeth.
First you spend hours online or on the phone completing the application form. Then you have to send in forms for money laundering and get documents verified to prove you really are who you say you are. And then, in the blink of an eye, the 12 months ‘special introductory rate’ vanishes and you have to start the process all over again! We’ve all, sadly, been there.
With the Bank of England deciding, yet again, to maintain interest rates at 0.25% (an historic low), stashing away your hard-earned cash in the high street banks has never been less attractive or lucrative!
In fact, with inflation steadily rising¹, we see the billions of pounds held on deposit in the UK not growing but shrinking in real terms over the next few years.
Throw in the prospect of major banks like NatWest and RBS charging its business customers to deposit money with them, it’s looking even less rosy for those doctors and dentists who are operating as a limited company.
What other savings options do you have that don’t involve investing in the markets?
Thankfully it’s not all doom and gloom. If you want a better return on your savings than what the high street banks are currently offering, without the volatility of stocks and shares, there are two viable alternatives worth more than just a cursory glance.
Option 1: Peer-to-peer lending
Peer-to-peer lending plays the banks at their own game! It gives both limited companies and individuals the chance to ‘be the lending bank’ – lending to others in return for regular interest.
It is an inherently riskier* option than simply putting your money into a savings account, but could be a good solution for those:
- Looking for an inflation-beating rate without the added stress of an unpredictable stock market, and/or
- Hoping to avoid locking up their money in the long term.
For example, one peer-to-peer lending option that is on the market at the moment aims to offer an inflation beating 4% a year (gross) return, with the ability to request withdrawals at any point free of charge (though instant cash cannot be guaranteed).
* Peer-to-peer lending is not covered by the Financial Services Compensation Scheme (FSCS) and you could lose some or all of your capital.
Option 2: The new kid on the block
If you are a medic with savings of more than £85,000 – the maximum deposit amount per person per firm that is covered under the FSCS in 2017/18 – you are likely to have gone through the painful process of opening a number of savings account with several providers. All in all, a time-consuming task to do in the first place, let alone to keep track of, knowing what money is where and at what rate.
A new offering in the market aims to address your frustrations whilst keeping the risk as low as that of a traditional bank account. You can now open just one account at a rate in excess of 1%, and up to £255,000 of your money will be covered by the FSCS.
In essence, the provider of such favourable terms takes on the role of decision maker and money manager instead of you. They use a number of different banks (currently three) and place up to £85,000 with the bank that offers the best rate, another sum of money with the bank that offers the second best rate, and so on.
The caveat here is that current rates are fixed for 1 year so you need to be able (and willing) to lock your money up for at least 12 months.
Is this the way forward for your cash savings?
There is no perfect solution to finding real returns in the current environment but, until the Bank of England raises interest rates, peer-to-peer lending and this new market offering are good, strong alternatives to a traditional savings account. They are certainly options worth looking at with your financial adviser.
With most medical professionals having to work even harder for their money, isn’t it about time your money worked harder for you too?!
Would you consider putting your savings into either of these two alternative options? Let us know by adding a comment below.