Earn money at home

Author : Kate Tee

With banks being bailed out and companies going bankrupt, you may be a little confused about where to stash your cash. Should you save your hard-earned money or invest it with the hope of higher rewards?

Savings accounts

There is a range of savings accounts available from instant access accounts to ISAs, fixed rate bonds to monthly interest accounts.

Pros:

• Savings accounts offer a safe haven in the current economic turmoil. Even if the institution you're holding your cash with fails, you won't lose money as long as your provider is covered by the Financial Services Compensation Scheme, and you don't hold more than £50,000 with any one group.
• You can also save up to £3,600, rising to £5,100 next year, tax-free, through the cash portion of your annual ISA allowance. See Confused.com's ISA Guide to Tax Free Savings.

Cons:

• Savings accounts offer security but they also offer low returns. Latest figures show the average interest rate paid on an instant access account was just 0.16% in April. Some accounts have stopped paying interest altogether!

• Unless the returns you earn on your money outstrip inflation, the value of your savings will be falling in real terms.

Top tip: Shop around for the best rates.

Investing in shares

Stocks and shares, also known as equity investments, range from funds that aim to replicate the performance of the FTSE, to ones where fund managers hand-pick the shares. You can also focus on individual sectors or countries, or spread the risk by putting your money into a broader range of areas.

Pros:

• Stocks and shares can yield greater returns than money held in savings accounts.

• The huge range of investments means it should be possible to find one that matches the level of risk you're prepared to take. Some commentators believe the current depressed levels of global stock markets make now a good time to buy.

• You can also use your annual £7,200 ISA allowance, which increases to £10,200 next April, to invest in shares. This option means you won't pay capital gains tax on your investment.

Cons:

• It's important to know that the value of stocks and shares can go down as well as up. Higher returns usually require a greater risk. There's always the possibility, particularly in the current market, that you could end up with far less than you put in. Always be aware of the risks before investing in shares, and consider getting independent financial advice.

• Although some investments have annual charges as low as 0.5%, it's more usual for them to be around the 1.5% mark, which will eat into any gains you make. Some funds also levy initial charges of 4% to 5% when you first take them out.

If you want to put money into equities, but are worried about getting the timing wrong, you could consider drip-feeding a fixed monthly amount of your cash into the market. This way, when markets are falling, you could buy more units for the same amount of cash.

Alternative investments

Alternative investments cover everything from property and fine wine, to art, antiques and vintage cars.

Pros:

• Returns on alternative investments can be good, and in some cases, such as property, can also generate an income, if rented out while owned.

Cons:

• The market for alternative investments tends to be more volatile than for stocks and shares, as it depends largely on wealthy individuals looking to purchase the items.

• It's important to store the items correctly so they don't depreciate. However, this could cost you money.

Note: This is not the market for a novice investor. Consult an expert before putting your money into alternative investments.

Top tip: It's important to consider getting insurance for alternative investment items, just in case a clumsy moment in the cellar or a prang in the car puts a big dent in your retirement expectations.

Article Source: http://www.ArticleStreet.com/profile/kate-tee-11796.html