Your money is safer than you might think
With interest rates on cash ISAs and savings disappointing at best, investments like stocks & shares ISAs are becoming more appealing.
But after the shock of banks collapsing and even a nation going bust, we may also be feeling a bit twitchy about keeping our cash safe and venturing into pastures new like investing.
Before you resort to using your life savings as loft insulation, read our top 5 safety tips for savers and investors.
1. Cash in the bank is protected
Good news! Even if your bank did go bust with no hope of salvation, the Financial Services Compensation Scheme (FSCS) will step in to protect your cash.
The FSCS covers money in current accounts, savings accounts and Cash ISAs including any interest earned, up to a maximum £75,000 for single accounts and £150,000 for joint accounts; as long as the financial institution the money’s with is authorised by the Prudential Regulation Authority (PRA).
So it pays to make sure your bank or building society is authorised and to keep the money held with any one financial institution within the FSCS compensation limits.
2. Money invested in a stocks & shares ISA is protected too
Yes they are investments not savings, but stocks & shares ISAs are also protected by the FSCS. So if your stocks & shares ISA provider went out of business, your investment’s covered for up to £50,000.
Just to be clear, that’s protection against the provider of your stocks & shares ISA failing, not the funds your ISA money’s invested in. Sadly, there’s no such thing as compensation for an investment performing poorly.
3. Taking some risk could bring greater rewards
Like any investment, a stocks & shares ISA comes with risk. Unlike a cash ISA, the value of a stocks & shares ISA can go down as well as up and growth can’t be guaranteed.
When you invest you’re playing the long game not going for a quick win. For your money to have the best chance to grow, try and keep it invested for at least 5 years and ideally longer.
Think of investing as putting your money to work by buying in to the future performance of companies - reflected in the performance of the stock market - in the hope they do well. Over time the reward could be a better return on your money than a cash ISA or savings account.
4. Keep a separate emergency fund
But what about when the boiler conks out or the car breaks down just before pay day? Do all you can to leave your investments alone by being prepared for the unexpected. Keep some cash separately in an easy access account, ready for action.
5. The bank’s still safer than the mattresses
Mattresses and floorboards were never intended as secure homes for hard earned cash. Yes, you know exactly where it is, but it’s not earning a penny in interest and doesn’t stand a chance against inflation. And what if you were robbed or there was a fire? Most home insurance policies only cover a limited amount of cash.
Bite the bullet and keep your cash where it’s safest - in a savings or investment account covered by the FSCS.
Thinking about investing?
SunLife has carefully selected Scottish Friendly to provide My Smarter (New ISA). My Smarter (New ISA) is a Stocks and Shares ISA that’s classed as long term insurance by the FSCS, not an investment, so it sits in a different compensation band. In the unlikely event Scottish Friendly went bust, 90% of the ISA’s value would be compensated, and there’s no upper limit on that.
If you enjoyed this article, you might also like to read How much should I have in savings?