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The information on this website is for general guidance and is not financial advice. If you need more information or personal advice, please contact an Independent Financial Adviser.
If you have money to spare, you can save and/or invest it. If you save your money, you put it aside without risk; usually with the chance to earn interest. If you invest your money, there is potential for your money to increase in value; however the returns aren't guaranteed. Investing is generally more suitable for the longer term.
Many people are worried about the security of their money in the current complex, and often uncertain, financial climate. The Financial Services Authority (FSA) and many financial advisers suggest 'diversifying your portfolio', which in essence means speading your investments so that they are held in different places with varying levels of risk. The old adage 'don't put all of your eggs in one basket' is considered excellent investment advice. Also, having some of your money in an investment that is easily converted to cash in case of emergencies.
For other simple steps that you can take to help reduce your worries and maximise the money that you have, see the FSA's Top ten tips for consumers.
Savings
Putting a little money away regularly is the best way of saving up for expensive things, like a holiday, furniture, or a special family occasion. Savings accounts are for times when you may need to withdraw your money quickly. They’re different from investments, which are really for the longer term. We have explained some of the main types of savings products in this section.
Bank and building society accounts
With savings accounts you'll always get back at least the amount of money that you paid in, plus interest at the rate advertised. There's a wide range of accounts to choose from, with key differences being how quickly you can withdraw your money; the minimum amount required to keep the account open; and the type and rate of interest paid.
Cash ISA (Individual Savings Account)
Most banks and building societies offer tax-free savings and investment accounts called ISAs. For the tax year 2008-09 you can save up to £3,600 in a Cash ISA if you're a UK resident aged 16 years old or over. You can't have more than one Cash ISA in the same financial year. See the section on ISAs in Investments further down the page.
Credit unions
Credit unions are financial organisations which are owned and run by their members for their members who can save with them. Once you've established a record as a reliable saver they will also lend you money, but only what they know you can afford to repay. Members have a common bond, such as living in the same area, a common workplace, membership of a housing association or similar. For further information, see our section on Credit unions.
Investments
There are different types of investments but, basically, you take a risk with your money by investing in assets that could rise or fall in value. There is no guarantee you will make a return on your investment, or even that you will get back the same amount that you invested in the first place. Investments are different from savings; they are typically designed for the longer term and involve different types of risk. Before investing it’s usually a good idea to have sorted out any debt that you owe; made sure that you have insurance to protect yourself against unforeseen events; built up some savings; and arranged your pension.
Shares
You can buy shares as part of a pooled investment or directly, when you buy through the stockmarket. Shares are also known as equities or stocks. When you buy shares in a company, you are buying a part of that company, and you become a shareholder, which usually means that you have the right to vote on certain issues. You can either buy new shares when the company starts up and sells them to raise money, or buy existing shares which are traded on the stockmarket. The aim is for the value of your shares to grow over time, as the value of the company increases in line with its profitability and growth.
In addition, you may also receive a dividend, which is an income paid out of the company’s profits. Longer-established companies usually pay dividends, whilst growing companies tend to pay lower, or no, dividends. If you are investing in shares, you should expect the value of your investment to go down as well as to go up.
Bonds
Bonds are loans to companies, local authorities or the government. They usually pay a fixed rate of interest each year and aim to pay back the capital at the end of a stated period. Corporate and government bonds are traded on the stockmarket, so their value can also rise and fall.
Corporate bonds are issued by companies as a way of raising money to invest in their business. They have a nominal value (usually £100), which is the amount that will be returned to the investor on a stated future date. They also pay a stated interest rate each year, which is usually fixed. Corporate bonds are bought and sold on the stock market and their price can go up or down.
Gilts (government bonds) are bonds issued by the government which pay a fixed rate of interest twice a year. They are generally considered safe investments, as the government is unlikely to go bust or to default on the interest payments. However, you are not guaranteed to get all of your capital back under all circumstances. Gilts, like corporate bonds, are bought and sold on the stock market where their price can go up or down.
Bond funds invest in several bonds (including corporate and government bonds) with different interest rates and different maturity dates. This reduces the risk to your capital. However, because of the mix of investments, bond funds can't promise a fixed return; instead they aim for a 'target return'.
Individual Savings Accounts (ISAs)
Individual Savings Accounts (ISAs) are savings and investment accounts in which you can save up to £7,200 each year and not pay tax on the income you receive from your investment.
The most you can save and/or invest in a tax year is £7,200. Up to £3,600 of that allowance can be saved in cash with one provider. The remainder of the £7,200 can be invested in stocks and shares with either the same or another provider.
Money saved in previous tax years - savers are able to transfer some or all of the money saved in previous tax years from a cash ISA to a stocks and shares ISA without this affecting their annual ISA investment allowance.
Money saved in the current tax year - savers are able to transfer money saved in the current tax year from a cash ISA to a stocks and shares ISA, but they must transfer the whole amount saved in that tax year in that cash ISA up to the day of the transfer. The money transferred is then treated as if it had been invested directly into the stocks and shares ISA in that tax year; the saver is then still able to save or invest the remainder of their £7,200 annual ISA investment limit in that tax year, including up to £3,600 in a cash ISA.
For further information about ISAs, read the HM Revenue & Customs ISA factsheet, or contact the ISA helpline on telephone number 0845 604 1701.
Help and advice
When getting advice on your savings and investments it's important to know what type you're getting and to check that your adviser is authorised by the Financial Services Authority (FSA). For further information, read the Financial Services Authority’s guide to Getting financial advice, or check their register to see if the firm you want to use is regulated.
To find an Independent Financial Adviser (IFA) in your area, visit the Unbiased website and enter your postcode for details of an IFA near you.
Useful information
Age Concern’s information sheet How to get information and advice about your investments
Financial Service Authority’s leaflet No selling. No jargon. Just the facts about saving and investing
It can be easy to mislay important documents and information. Age Concern has developed a LifeBook so you can find exactly what you need without searching through file after file. You can record all sorts of useful details, from who insures your car, to where you put the TV licence. The LifeBook will not only help you to be more organised but could also be invaluable to a family member or a friend if they need to locate important information about you in an emergency. Simply follow the step-by-step instructions to fill in the various sections with your details, contacts and locations of important documents. The LifeBook is free and you can complete it online or order one by telephoning 0845 685 1061.
Article last updated November 18, 2008 9:52 am
