With interest rates stuck at record lows, most savers cannot get their hands on the rewards they think they deserve.
Most High Street banks pay just 0.01 per cent interest – that’s 10p a year on each £1,000 in an easy-access account.
But there is another option for cautious savers in search of a more generous return: investing.
Safer bet: As well as established FTSE companies, LifeStrategy funds also invest in government bonds and gold – assets that tend to be much less affected by economic turmoil
For many, the idea of investing is daunting, particularly after the most dramatic market movements in years and when fraud is on the rise.
Yet experts say there are lower-risk options available — managed by legitimate investment companies regulated by the Financial Conduct Authority — which savers can often overlook.
Laura Suter, personal finance analyst with AJ Bell, says the specialist funds allow cautious investors to avoid the risks associated with the stock market while still getting a better return than they would with their bank.
As well as established FTSE companies, the funds also invest in government bonds and gold — assets that tend to be much less affected by economic turmoil.
Investment firm Vanguard offers a number of options for investors looking to play it safe. Known as the LifeStrategy funds, they minimise risk by spreading investors’ money across thousands of high-quality assets.
Some are also aimed at savers who might need access to their money soon, and are thus designed to deliver a slow and steady return.
These funds are unlikely to deliver the kind of market-beating gains that many experienced investors want — but can they get the average saver a better return on their money?
A £10,000 investment in the LifeStrategy 20 per cent Equity Fund five years ago would now be worth around £12,800.
At an average annual return of more than 4 per cent (after management fees have been deducted), it’s well beyond the reach of High-Street easy-access savings accounts, where the best you can earn is 1 per cent with state-backed NS&I’s Direct Saver. Even with a top five-year fix from RCI Bank, the most you will get is 1.4 per cent.
But given the funds have benefited from strong economic conditions, what happens if markets take another turn for the worse?
Experts point to a handful of specialist funds aiming to deliver a return in even the most troubling circumstances — although, as with any investment, nothing is guaranteed.
The Personal Assets investment trust, run by Troy’s Sebastian Lyon, is a popular ‘hedge’ for more experienced investors but also an option for risk-averse savers.
Given the fund focuses on safer investments such as government bonds, its value often increases in periods of uncertainty as the price of these assets rise.
This year, the fund has delivered an impressive return of 13 per cent since March, though its average performance is more modest.
Savers who invested £10,000 five years ago would now have around £12,500 after fees. These funds can be purchased through any of the major High-Street investment firms that offer tax-efficient stocks and shares Isas.
Savers can then manage their money online or on their smartphone. Telephone and in-person brokerages are also available but may charge higher fees.
Newcomers should take time to research the fees charged both by their platform — typically around 0.25 per cent per year on your entire portfolio – as well as those charged by individual fund managers.
Some low-risk funds have been criticised for charging management fees of around 2 per cent per year, eating into investors’ gains.
These fees are sometimes performance dependent, meaning you’ll only pay them if your investments actually grow.
Tom Stevenson, an investment director with Fidelity International, also cautions first-time investors against investing all their savings in one go or putting all of their eggs in one basket.
‘Diversification is key in making sure that you are spreading your risk, as the likelihood that all assets will crash at the same time is slim,’ he says.
Savers worried about managing their money can automate the process with so-called robo-investors, like London-based Nutmeg.
The platform has a number of options for cautious or first-time investors, says its savings and investment specialist Kat Mann.
‘We ask our new customers questions to find how comfortable they are with risk and then suggest a portfolio that meets their tolerance,’ she says.
The platform also allows savers to hold their money in cash, gradually transferring this into their investment portfolio.
Since launching in early 2017, its low-risk fixed portfolio has delivered 2.8 per cent annualised growth – easily beating even the best cash savings accounts.
However, no investment is risk free and savers should think about which options might be better for them and how much money they can afford to commit.
But if you’re looking for a better return on your money, an investment portfolio is well worth considering.
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