With interest rates at record lows, making the most of your £10,000 investment has never been more important. This guide will explain some of the choices currently available to UK investors, to help you choose the best way to invest £10k.
Rather than relying on income and a tiny growth from cash savings, many are now turning to a number of alternative ways to invest their money, including bonds, stocks and shares ISAs and peer-to-peer investments.
Whether you have £10,000 or £100,000, investing your money could make a huge difference in the long run.
What is a bond?
In simple terms, a bond is a debt security.
Essentially, when you are purchasing a bond you are lending money to an entity known as an issuer. The ‘issuer’ could be the government, a corporation or a federal agency.
In return for this money, the issuer promises to pay you back in full with regular interest payments. A bond can have a variable interest rate, but more commonly they have a fixed-rate.
ISA vs. bonds
Although rates on bonds can differ, fixed-rate bonds provide a guaranteed rate of income for a set period. Generally, investment bonds allow you to make huge deposits, whereas ISAs have an annual deposit limit.
For the 2017/18 tax year, the ISA limit is £20,000. There is also no limit on the number of bonds you can open.
However, it is worth knowing that you don’t have to pay any tax on the interest you earn in an ISA.
Savings Accounts vs. Bonds
The main difference between bonds and savings accounts is that investors can sell their bonds to other investors before they reach their maturity dates.
People who invest in savings accounts do not have the same option. Money invested in a savings account will maintain a steady value unless the owner withdraws money.
Corporate Bonds and Gilts however, rarely stay at the same value and they fluctuate depending on factors such as interest rate changes and the creditworthiness of the issuer as they can be traded by institutional investors.
However, individual investors can trade corporate bonds known as retail bonds on the London Stock Exchange
Savings Bonds usually last for a fixed term and pay out a fixed interest can operate in a similar way to a savings account and pay regular interest.
Savings account investors can generally leave their money in the bank for as long as they like, whereas bond investors will have their money in the bond until maturity date, which could number from 1 to 5 years.
Long-term Investment Options
These are not the only investment opportunities available. One alternative is an equity investment, which generally means buying and holding shares of a firm or stock market. Investors will recover their money once they sell their share or when the assets of the firm are liquidated.
Pension plans are another viable alternative. They are investments that help you build up a pot of money for your retirement. A pension plan is also a tax efficient way to invest.
If you are wanting to invest 10k, there are a lot of options for you to consider.
Always seek financial advice before making your decision if you are not sure on where to place your money.