Survival Guide for Saver\\\'s in the Low Interest Rate Era

The holy trinity of investing  

The first thing to appreciate about savings is that there are 3 features to any investment you may make.  These are-      
ACCESSIBILITY - how easy it is to get at your money
SECURITY - How safe is your money
PROFITABILITY - how much interest you earn from your money

In any investment, which includes earning interest in a bank, you cannot benefit from all 3 of the above elements. There is nowhere in the world you can put your cash which will give you immediate access, complete security and the highest rates of interest.  You can however, have 2 out of 3. So if you want high interest then you will need to either compromise accessibility or take a higher risk.

If you are prepared to accept not having easy availability to your money then you could consider a limited access savings account.  There is a whole range of these products available spanning from 90 day access to ones that tie-up your savings for a year or more.  In general the longer you tie in, the greater the interest rate.  Mostly you can actually get at your money if you need it but you forfeit the interest accrued if you do this before the end of the tie-in period.  If your interested in this kind of saving make sure you work out very carefully what cash you will need over this period so you won't need to face this forfeit.   

Ever heard of bonds?      

If you are prepared to forgo a little bit of accessibility and are willing to take a little bit more of a risk than having your money in a bank then consider government bonds.  When a national government needs to raise money it often does so by issuing government bonds.  You can buy these through a broker or your bank.  The bonds pay a fixed interest rate which is generally higher than that you could get from a bank.  They are regarded as being very safe investments because governments rarely go bust and they can always raise taxes to pay off debts.

If you're looking for a higher rate still with a little bit more risk but aren't prepared to go the whole hog and put your money on the stock market how what about corporate bonds?        Corporate bonds are also debt obligations issued by corporations in the same way that government bonds are. The corporation promises to repay the loan at a specified future date and makes regular interest payments to you at a fixed rate. Corporations are more likely to get into trouble than governments but if you choose well a large profitable company or spread the risk over a few then you should be pretty safe.   

Next stop - mutual funds

If the stock market still feels too risky for you but you want to get returns higher than you would with bonds then a mutual fund may be the answer for you.  A mutual fund, sometimes known as a unit trust or an investment trust, is a collection of stocks, bonds and other financial instruments that are bundled into one fund.  It is controlled by a fund manager who buys and sells items to keep the fund maximizing its profits.  Mutual funds are considered safer than stocks because the risk is spread.  Different funds are also rated with different levels of risk depending on how cautious or aggressive the fund manager is.  The yields however are lower than stocks because the fund manager needs to take his cut.  Access is not so easy with many of these as there can be a fee when you buy in.        

Now let's brainstorm

If none of the ideas above appeal then here is a splash of ideas to make the best of your money.

Investing in objects            
Art works, antiques and jewelry have all kept their value very well over recent years.  Of course you have to do your research but if the banks are going to give you next to nothing for looking after your cash then why not enjoy a beautiful painting whilst it gains in value.  You can't lose (provided it's out of reach of the kids).

Investing in you    
Another way to make your money work for you may be to invest in yourself.  Are there skills you could acquire that would help you move on in your career?  Could hiring a life coach help you get the most out of life?  Think of all the ways you could invest in yourself and see if any of these could bring financial rewards.

Investing in your family and friends    
  Is there anyone you know who you trust and who needs some cash?  Maybe your best friend is looking to borrow to expand his business.  Maybe you have a son or daughter who has just graduated with heavy student debts.  No sense in them paying the lender high rates of interest when they could be paying you something in-between that would benefit you both.

Invest in your future    
  Ask yourself what you are saving for.  If it is something specific then it may be possible to begin putting your money in that direction.  For example if you are saving to retire and build your own house then why not buy the land now whilst prices are relatively cheap?

And finally

If you were to ask just about any financial advisor to give a one word piece of advice about investing it would surely be 'diversify;' which means don't put all your eggs in one basket.  If you like any of the ideas above then try and mix it up a bit.  Remember, even governments do very occasionally default on debt and banks can go bust as we now know.