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Managing my money for young adults
Managing my money for young adults

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11 Alternatives to savings accounts

This is the logo of National Savings and Investments.
Figure 3

From the late 2000s until 2022 interest rates in the UK were very low. As a consequence, alternatives to savings accounts became attractive to those seeking to earn a higher return from the money they could save. What are the alternatives?

One alternative is stocks & shares ISAs for those aged 18+. These are different from cash ISAs. With these products your money is invested in bonds and shares issued by companies and other organisations. Bonds are also known as stocks, hence the term ‘stocks & shares ISA’. The return you get will depend on how the market prices of these bonds and shares move. Bond and share prices can go down as well as up, which means that the value of your stocks & shares ISA can do likewise. Given this risk, such investments should only be considered if:

  • they’re for the long term (ideally at least 5 years) so that you’re not left open to any short-term reduction in the value of the investment
  • they form only part of your total savings and are balanced by your ownership of other investments that are low risk.

Another alternative is Premium Bonds. You can buy these from the age of 16. They’re sometimes bought as gifts when a child is born or at certain points in childhood.

Premium Bonds require a minimum investment of £25. Each month the bonds are included in the prize draw and can win prizes of up to £1 million. All prize money is tax free. The bonds can be cashed in at any point without the need to give notice.

The downside is that the money invested in the bonds does not earn interest, so the return from the investment comes if and when you win a prize in the monthly draws. If you win no prizes your bonds will generate no earnings at all.

If prices in the economy are rising during the time you own your Premium Bonds the value of what you can buy when you cash them in will be lower than when you invested in them. This fall in the so-called ‘real’ value of an investment is a risk when you hold Premium Bonds as an investment.

One idea, though, could be to buy a small number of Premium Bonds and treat them like continuous lottery tickets, with the monthly chance of winning up to £1 million!