Safe Investments – Savings Accounts and Bonds

In financial terms, times are currently tough for many. During the current recession many have lost their jobs and are struggling. This has led to less people investing, for fear of loosing even more. And with the fluctuating stock markets it may not be considered the best time for high risk investments. So the question is, what safe investment opportunities are there?

The most obvious safe investment is to open a Savings Account at a bank. As many are currently unwilling to “invest” as such, this is a way of keeping your money safe while earning a little interest. It may only be a little but it is better than not earning anything at all. The big advantage of a savings account is that your money is safe. In the current financial situation, you may be asking, what if my bank goes under? Will I then loose all my money? The answer to that is no, unless you have over £35,000 in the account. Up to that amount is guaranteed by the government, so it will not be lost. A Savings Account will not make you a lot. It is somewhere to keep you money where you will not make a killing, but don’t risk loosing it either.

Bonds are another low risk investment option. Again, like anything, low risk equals low reward. The reward (and risk) is potentially higher than a Saving Account though. When you purchase a bond, you are essentially lending it to the company who you bought it from. They are then obliged to pay you a specified amount of interest. They can use the money you have given them (the bond) to finance long-term investments. Bonds have a specific time to run, called maturity. This means you agree not to withdraw the bond until after this period it over. Because it is a long term loan as such, it means the company has more freedom to do with it as they please. This means they will pay you more interest as a reward for allowing them to do this. The longer the maturity period, the more profitable the bond should prove to be. The risk with bonds are that interest rates may rise, with the bond interest rising to a lesser level. This will mean that the bond will be less in real terms. Because you are receiving a set amount of interest (e.g. 3%) it means that you will be loosing out should interest rates rise above this amount.

Andrew Marshall ©

Investment Trusts