On Thursday 4th August 2016, the Bank of England unanimously voted to cut interest rates to a new historic low of 0.25%; following 7 years at the previous low of 0.5%.

With deposit interest rates so low, maybe now is a good time to consider the best alternatives available for investing your savings with a more medium to long term horizon.

It no longer makes sense to leave significant amounts of money on deposit (we would always recommend that you hold some monies in deposit based accounts for liquidity and emergency access purposes).

There a number of alternative investments that have the potential to provide  better investment returns over the medium to long term than deposit based accounts:-

1- Stocks and Shares (ISA)

2- Unit Trusts

3- Investment bonds

4- Venture capital trusts

5- Enterprise Investment Scheme (EIS)

1- Stocks and Shares IsA

An Individual Savings Account (ISA) is a class of retail investment arrangements available to residents of the United Kingdom. It qualifies for a favourable tax status. Payments into the account are made from after-tax income.

The account is exempt from income tax and capital gains tax on the investment returns, and no tax is payable on money withdrawn from the scheme either.

This type of lets you put money into range of different investments, including unit trusts, open-ended investment companies (OEICS) and investment trusts, as well as government bonds and corporate bonds

2- Unit Trusts and Open Ended Investment Companies (Oieics)

 Collective investments as they are sometimes referred to allow you to pool your money with that of other investors to give you a stake in a ready-made portfolio. Two of the most popular types are unit trusts and open-ended investment companies (OEICs). An investment fund can offer a practical and affordable way to invest in lots of different assets without the pressure of making your own calls on individual stocks and shares.

With a unit trust, a fund manager buys bonds or shares in companies on the stock market on behalf of the fund. The fund is split into units, and this is what you’ll buy. The fund manager creates units for new investors and cancels units for those selling out of the fund. The creation of units can be unlimited, hence why the fund is ‘open-ended.’

The price of each unit depends on the net asset value (NAV) of the fund’s underlying investments and is priced once per day. This means that the value of the units you buy directly reflects the underlying value of the investment.

OEICs operate in a similar way to unit trusts except that the fund is actually run as a company. It therefore creates and cancels shares rather than units when investors come in and go out of the fund, but they still directly reflect the value of the assets that your fund manager has invested in.

3- Investment bonds

These are life insurance policies requiring a lump sum of a least £5000 that are invested in a variety of investment funds. Some have a fixed term, others are open ended, either way your return depends on the success of the investment.

Some investment bonds guarantee that you will not lose your initial capital, but you will pay more in charges. Withdrawals of up to 5% per year can be made without tax liability, although when you cash them in, you will pay tax on accumulated profit as income for that year.


4- Venture capital trusts (VCTs)

This is a highly tax efficient UK closed-end collective investment scheme designed to provide private equity capital for small expanding companies and capital gains for investors. Venture Capital Trusts (VCTs) are run by a fund manager that invests mainly in smaller non stock exchange companies.

Higher returns are possible but likewise higher risks, including losing your initial capital. Benefits also include tax relief to promote investment in high risk companies, plus no Capital gains tax on profits from sales of your VCTs, even over a short holding period.

5- Enterprise Investment Scheme (EIS)

The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax relief to investors who purchase new shares in those companies.

Investing in small companies is generally riskier than buying shares in giants like HSBC or Shell. And the fact that the companies are not listed on the stock market means that there’s no easy way to sell your shares.

But small companies can grow very quickly because they are coming from a low base. With a small company, you’re more likely to lose your money, but you’re also more likely to make significantly higher returns.

Contact us

If you'd like to sit down and discuss if any of these alternative investments might be suitable to help you meet your current investment objectives, please do not hesitate to contact to arrange a no obligation, initial discussion.

Call us now on: 01242 516784 or click the 'Contact Us' button to send an email
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The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.