How to invest money in the UK

If you’ve been saving for some time or have a cash lump sum, you might be wondering where and how to invest your money. Read on for details on the key things to keep in mind before you invest, and some investment options you might not have considered.

The information provided here is for informational and educational purposes only and does not constitute financial advice. Please consult with a licensed financial adviser or professional before making any financial decisions. Your financial situation is unique, and the information provided may not be suitable for your specific circumstances. We are not liable for any financial decisions or actions you take based on this information.

An investment is something you put your money into with the hope of it growing in value over time and generating a profit. Some people even use investment returns as their main source of income. There are several different ways to invest money in the UK, including assets such as shares in a company, government bonds, or property, or alternative investments like art and antiques.

Learning how to invest your money can provide you with long-term financial security and help you build your wealth over time. Investments offer the potential for strong returns over the long-term, which can help your savings keep up with inflation and ease the impact of short-term ups and downs in the stock markets.

Investing money isn’t something to take lightly. Unlike putting money in a savings account, there’s no such thing as a risk-free investment. Find out more whether you should save or invest your money.

There’s no one-size-fits-all approach when it comes to investing, nor is there a “best way” to invest money. Here are three of the most important things to consider when deciding how to invest your money:

1. Your risk tolerance: Investing money in the UK doesn’t provide guaranteed returns, and it’s important to understand the risk that you might lose money. Think about how you cope with risk before choosing how to invest your money. Some investments may promise higher returns but are extremely risky as a result. If you prefer to avoid this uncertainty, more stable options like bonds or savings accounts might be a better choice.

2. How much money you have: The decision of how to invest can sometimes be determined by how much money you have, as some investments require a minimum amount to get started. It’s also important to assess your overall financial situation. High-interest debt can end up accruing interest faster than any investment returns you might make, so it may be sensible to focus on paying that off first. Also, it’s generally a good idea to have an easily accessible emergency fund of around three to six months’ net income to cover any emergencies.

3. Your timeline and financial goals: When it comes to stock investing, in particular, experts often recommend maintaining your investments for at least five years, giving your money the chance to grow and recover from any market downturns.. If you have a short-term savings goal like saving for a house deposit, a savings account could be the most suitable option. Similarly, if you’re approaching retirement, it may be best to stick to more conservative ways of investing your money.

When considering how to invest money in the UK without taking on too much risk, you could also look at fixed rate bonds. Provided you’re happy with putting your money away for a set term, you get the benefit of predictable returns without the ups and downs that come with riskier investments.

Whether you choose to invest your money or save, make sure you do your research to fully understand the product and risks involved. If you’re unsure, it might be worth consulting an independent financial adviser.

As we’ve mentioned, there’s no “best way” to invest money, as it’s down to your personal needs, your own appetite for risk, and your reasons for investing. However, if you’re wondering how to start investing, here are some of the most popular ways to invest money in the UK:

Investing in stocks and shares can give you competitive returns if you’re prepared to take a risk and have a long-term approach. It involves buying a stake in companies, with prices fluctuating on the stock exchange. You might make capital gains, but also losses if a company’s value falls. Because of their volatility, stocks might not be the best option if you’re just starting to learn how to invest your money.

Here’s an overview of how to invest money in stocks: 

• Online platform: You can buy and sell individual shares through an online platform or stockbroker. Y

• Funds: Investment funds pool money from multiple investors to buy a diversified portfolio of stocks and shares, with fund managers making investment decisions on your behalf.

• Exchange-Traded Funds (ETFs): ETFs trade like shares and track a group of assets or an index, offering instant portfolio diversification.

• Stocks and shares ISAs: These are tax-efficient investment accounts that allow you to invest in stocks, shares, investment funds, and ETFs. Any returns generated within the ISA are tax-free.

It’s important to research and understand the risks of each option before deciding how to invest your money. Historically, stocks and shares have outperformed savings accounts over long periods, but there are no guarantees for the future.

If you’re looking at how to get into investing in a lower-risk way and you have a lump sum of cash to put aside, you might want to consider investing your money in a high-yield savings account. Here are two options you can find at Raisin UK:

• Notice accounts – Here, you can access your money after a set notice period and take advantage of competitive variable rates.

• Fixed rate bonds – With a fixed rate bond, your money is locked away for a specific term at a rate that won’t change until the end of that term, making them ideal during times of uncertainty or falling interest rates.

With Raisin UK, you can compare competitive offers like these and open accounts from a range of partner banks and building societies. It’s one step you can take today to make your savings work harder.

Cash ISAs are a type of individual savings account that let you save tax-free with an annual limit of £20,000 on your deposits. There are three main types:

• Instant access cash ISA: Deposit and withdraw money at any time without penalty, although this might be limited by your ISA provider.

• Regular savings ISA: Fixed rate of interest as long as you deposit an agreed amount each month.

• Fixed rate cash ISA: Lock your money away for a set period to earn a competitive interest rate.

You can invest your £20,000 annual ISA allowance in different types within the same tax year. You may also be able to contribute to more than one of the same type.If you are unsure whether an ISA or a savings account is best for you, keep in mind that ISAs have the benefit of tax-free savings, but savings accounts tend to offer higher interest rates.It’s also worth remembering that the personal savings allowance (PSA) lets basic-rate taxpayers earn up to £1,000 interest tax-free, so many people won’t pay tax on their savings anyway.

Children’s savings accounts are investments you can make on behalf of your children to put them on the path to financial security, while helping them understand how to save and why it’s important. They typically offer more competitive interest rates than adult accounts.

You can open a junior ISA for your child, which offers a yearly allowance of £9,000. If you’d rather know how to invest for them instead, a stocks and shares junior ISA could be worth considering. It’s crucial to keep in mind that stock market investments carry a significant risk to your funds.

A Lifetime ISA (LISA) is a type of savings account for people over 18 and under 40 to help them either buy a first home or save for retirement. 

• Save up to £4,000 per year.

• Get a 25% government bonus (up to £1,000 annually).
• Choose between cash LISAs or stocks and shares LISAs depending on your risk preference.

Paying into a pension is generally considered one of the best ways to invest money for your retirement. While you might already be enrolled in a workplace pension scheme, you could also consider additional options, such as a Self-Invested Personal Pension (SIPP). A SIPP offers a wider range of investment opportunities, giving you greater control over where your funds are allocated and allowing you to tailor your portfolio depending on your specific financial goals.

Peer-to-peer lending is where you lend money directly to individuals or businesses that need capital to grow. It can offer high-return investments, averaging 7.36% per year, but it doesn’t come without risk. Your investment is paid back to you with interest, but only if the business or project has succeeded. Underperformance could mean losses, so it’s important to carefully assess the potential risks of each lending opportunity before committing your funds.

While you’re exploring how to invest your money, it’s important not to underestimate the importance of an emergency fund. An emergency fund can be an important safety net in the event of any unforeseen expenses. Having this fund to fall back on might prove critical if you’re considering high-risk investments that mean you could lose your money. 

You might consider keeping your fund in an easy access savings account for instant access to your money when you need it.

If you want to grow your savings without putting your wealth at risk, opening a high-interest savings account could be the best way to invest your money. The good news is you can access a range of competitive savings accounts through the Raisin UK marketplace. You first need to open a Raisin UK Account; then you can apply by logging in, applying for a savings account, and transferring your deposit.