Where to invest your money this year

With interest rates so low, savings accounts are not giving the return they used to so where are the best places to invest your money this year? Here are our top 5 suggestions.

1 – Use your ISA allowance

An ISA is tax free and whilst there is a limit on the amount you can invest in an ISA it’s certainly a good option to save money.

You can go for a cash ISA, safe but lower rate of interest, or a stocks and shares ISA, more risky as your capital is at risk if share prices fall.

Currently the ISA limit is £3,600 or £5,100 if you’re over 50 by 5 April 2010.

2. Consider a fixed rate bond or a fixed rate savings account

These are effectively savings accounts into which you place a sum of money for a fixed period of time. As you are tying up your money for a while the interest rates are generally better than on an instant or easy access savings account.

As an example, ICICI are currently offering their HiSave Fixed Rate Account with an interest rate of up to 4.7% AER.

3. Get an easy access savings account

Whilst these may not pay as much as a fixed rate bond, the plus is that you can get a competitive interest rate on an easy access savings account and be able to access your funds without penalty should you need them.

Take note of the bonus element of the interest rate as you assess the best savings account. The bonus can be a significant part of the interest paid and therefore you need to be aware of when this applies. You may want to consider moving your savings account when the bonus period finishes.

Alliance & Leicester Online Saver Issue 7 is currently offering 2.75% gross p.a./AER including bonus.

4. Invest in shares through an index-tracker fund

Any investments in stocks and shares of course has an element of risk and may not be for you. However, index trackers may be something to consider. These funds basically follow the performance of an index, the FTSE 100 fro example. This means that if the index goes up by 5% so too broadly does the value of your fund. Remember though if the index goes down by 5%, your fund goes down 5%.

There are a number of different index trackers available, including from HSBC and Santander.

5. Switch to a better current account

Some current accounts offer better interest rates than others, particularly in the first year – basically an attractive offer to win your business.

Usually though the interest rate will only be paid on a certain balance. For example the Alliance & Leicester Premier current account pays a fixed interest in year 1 on balances up to £2,500. Balances over this amount still earn interest but at a very much lower rate.

To qualify for these higher interest current accounts you’ll need to pay in a certain minimum amount each month.

These are just our top suggestions on where to invest your money. You need to make your own assessment of what is best for your needs and if appropriate seek independent financial advice.