With inflation and the cost of living at record highs, it is vital that you make your money work as hard as possible for you, and that includes anything you’re able to put into savings.
With hundreds of investment options across banks, financial providers and even cryptocurrencies, many people don’t know which ones to choose, and which are best for them at each period of their life.
Martin Shaw, CEO of Association of Financial Mutuals, the trade body of mutual providers, has outlined the best and most secure investment products depending on your age.
Everyone is different, and Martin explores which products may be best for which age group.
Under 18: Think about the control
Junior ISAs are the best way for under 18’s to save. While the money belongs to the child, many accounts are set up to give control of the account to the parent or guardian, with the option of passing it over to the child once they turn 16.
These are a great option for teaching children positive ways of saving and managing money.
The length of time the money is likely to sit in the account may determine the most appropriate type of Junior ISA (JISA) you should open.
Cash-based ISAs are good if you plan to take the money out in the short-term, but with high rates of inflation, their buying power reduces quickly.
For children that are saving for the longer term, a stocks and shares JISA could be the best option. This is because they are designed to deliver better value over a number of years, and although there is some risk the value of the investment will fluctuate, it offers a better prospect of a return when inflation is high.
Depending on when the child was born, they may already have a Child Trust Fund (CTF) - this is applicable for children born between 1 September 2002 and 2 January 2011 and included a minimum of £250 deposit from the government on the opening of a CFT.
If this is the case, these work in a similar way to JISA’s, with the addition of the extra government contribution, and are a good investment choice for young people.
Once the child turns 18, this fund matures and stops receiving interest, so it’s important to either withdraw the money or transfer to another investment option after this time. If you are the parent/guardian of a child under 18, and want to check if they have a Child Trust Fund, you can find out through the government website here.
Age 18 - 25: Start to make a financial plan
Between the ages of 18 to 25 is usually the time of life with the least responsibilities and when you have little money left over at the end of the month, but that doesn’t mean it isn’t a good time to start planning for a better financial future.
Your financial plan might include allowing for student loan repayments, the costs of buying a car, or saving for next year’s holiday. It is certainly worth trying to put some money aside for the longer term, and taking out an ISA may provide a good, flexible option.
Remember, cash ISAs are good for short-term, secure ISAs, and Stocks and shares ISA are most suited as a medium term investment, making them good for saving for a new car, or the beginnings of a house deposit which may take a few years.
You may also want to think about where your money is invested. Today there are many green and Ethical ISAs, to ensure your money is invested in businesses that match your interests and beliefs.
Age 25 - 35: To buy or not to buy
If you're aged between 25 and 35 or you are just certain you’re ready to save for a home, the Lifetime ISA is your best bet, you can save up to £4,000 per year and the government will add a 25% bonus to what you put in (up to £1,000).
For those opening a Lifetime ISA, it's important to know that the government bonus is only applicable for purchasing your first home, or saving for retirement with the funds available once you turn 60-years-old.
If you’re looking to save, but not quite sure if you want to buy a house, then the stocks and shares ISA is a better option.
35 - 45: Family on the mind
Typically this is the age where you may already have a young family, or be thinking about starting one.
Look for products like Tax Exempt Savings Plans which allow you to invest a small, set amount of money, tax free, over 10 years. The investment sits in a growth fund designed for long term savings, and the cash is available in a lump sum once the plan matures, and may also come with life insurance.
There are limits to what you can invest per year but you are able to put away money for a minimum of 10 years and get it back in a tax-free lump sum, perfect for when children get older and you want a cash boost, whether it be a new home, house upgrades, school supplies or a nice holiday.
You can put money into this long-term investment alongside other saving options like ISAs and pensions, so you can continue saving elsewhere whilst waiting for the lump sum to come in.
40 - 60: Thinking about the future
Although at this age, you should already have a pension in place, this is the age you should really start taking it seriously.
At this time of life you may be earning more money, and have fewer debts than when you were younger, so regular saving is vital.
As well as Tax Exempt Savings Plans, if you have a lump sum you would like to invest, look for Investment Bonds which usually allow you to withdraw a small amount each year, tax free. Many can be opened in single and joint names, so while a good idea for retirement, it can also be used for saving up for something special, whether that be a child’s wedding, first home, or a holiday of a lifetime.
70 plus: Keep the pension you’re not using invested
Known as a ‘drawdown’ , having a flexible income pension allows you to take money from your pension flexibly, whilst keeping the rest invested.
This means that you can scale the payments up and down depending on what you need at any given time.
In most cases, the first 25% will be tax free and as you draw down, you can choose where the remaining money is invested. With this type of investment, it also means that the money will be passed onto your loved ones if anything happens to you.
The examples given by Martin are for illustration only, and your own circumstances may be different.
As with all investments, it is important that you review product options carefully, and consider taking independent advice if you’re unsure.
Your attitude to risk is important: an investment offering a higher return is more likely to be more volatile, whilst a low risk saving is more secure.
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