Putting money in a standard UK bank saving account or cash ISA will see your savings shrink, not grow.

How come? Well, typical bank interest rates are below the cost of inflation – the amount prices rise and affect how much it costs us to live.

Let’s say you’ve had £1,000 in a high street bank savings or cash ISA account for the past 10 years. The average inflation rate over that period is 2.6 % (May 2007 to May 2017). Even if your bank paid you 1% interest – and most pay even less than this – this means your £1,000 now has the buying power of around £850 – £150 less than it was worth when you tucked it away!

That’s the equivalent of around 76 cups of Costa coffee down the drain!

What’s the alternative? Ditching the bank options and switching to save in a ‘stocks and shares’ ISA can reap much better rewards – especially if you’re planning to build your savings for longer than 3 years. Stocks and shares tend to rise and fall in value depending on individual company performance and what’s happening in the world. This is one reason why people chose to save in ‘fund portfolios’’, a blend of different types of stocks and shares investments that mean risks are spread.

There are options for different types of stocks and shares ISA, depending on what your goals are for the savings and how much time you want to keep the money there. Using an online financial advice tool like [firm’s name] is a great way to find the right one.

Although you won’t have to speak to a financial adviser directly, your decision will be safeguarded by the fact it’s a product offered by an independent financial advice firm that is regulated by the Financial Conduct Authority (FCA). Some online companies offering access to this type of saving don’t offer you any protection that the product you choose is right for your circumstances.

Why do the rich just seem to get richer? It’s a fact that money makes money and a key reason for this is due to compound interest.

It may sound like financial jargon but the way it works is simple. When you set up a savings plan, after a set amount of time you usually get a small amount of money added in the form of interest. This means you then have a bit more money than you started with. That slightly larger amount then attracts further interest, which is a larger sum than the first amount because your savings are more than you started with. The longer you keep your savings, the more the pot grows and the larger the amounts of interest you build up.

For example, if you earn the average UK salary of £27,271 and were able to save £227.26 every month (10% of your earnings) somewhere that paid you 7% interest a year, the compound interest would mean that in 10 years you’d have an amazing £39,564!

At the same interest rate and saving the same £227.26 a month, after 20 years you would have £119,076, rising to £278,867 after 30 years and, after 40 years it would be worth £599,995.

The key is in how much interest your savings are likely to attract and for most British savers, it’s where they put their savings that’s the problem. Recent research among people planning to save money over the coming year highlighted that seven out of 10 will put their money in a bank.

These savers will never be rich, for two key reasons.

  1. Banks pay very small amounts of interest.
  2. The amount of interest most banks pay is below the level of inflation and the cost of living, which means your savings are actually worth less in real terms than the amount you first saved.

Savers putting £227.26 every month into a bank account paying 1% interest would have just £134,170 after 40 years – £465,825 LESS than if they had been getting 7% interest!

The good news is that if you’re able to put some money into savings you could beat the lowly bank interest rates by using a stocks and shares ISA. This offers the ability to earn significantly higher levels of compound interest, depending on how the fund performs over the years and has the added benefit that the money you earn is tax free.

Stocks and shares tend to rise and fall in value depending on individual company performance and what’s happening in the world. This is one reason why people chose to save in ‘fund portfolios’’, a blend of different types of stocks and shares investments that mean risks are spread. Saving through stocks and shares is ideal if you’re planning to build your savings for three years or more.

There are options for different types of stocks and shares ISAs, depending on what your goals are for the savings and how much time you want to keep the money there. Using an online financial advice tool is a great way to find the right one.

Although you won’t have to speak to a financial adviser directly, your decision will be safeguarded by the fact it’s a product offered by an independent financial advice firm that is regulated by the Financial Conduct Authority (FCA). Some online companies offering access to this type of saving don’t offer you any protection that the product you choose is right for your circumstances.

Do you know people who are hooked on upgrading their mobile phones every two years when their monthly contract runs out, yet complain that they don’t have cash to save for the future? Monthly contracts that give you a new phone typically cost between £40 and £50 a month, because they build in the cost of the phone alongside the tariff for using it. It’s possible to get contracts that don’t give you a phone yet still offer good packages of free calls, texts and mobile data for between £10 and £20.

Obviously, it seems a no-brainer that you can save around £30 a month if you just keep your phone for another two years and switch to a cheaper monthly contract but that doesn’t seem much in terms of building wealth, does it? Surprisingly, it’s a good start, especially for those who believe they can’t save any money so aren’t putting anything aside for their long-term future.

The key is how that money is saved. If £30 a month over two years is put in a typical bank savings account, paying 0.5% interest, the amount at the end of the two years would be £754.06. If the same amount was invested in a stocks and shares type ISA, which let’s assume delivers an equivalent of 5% interest, the amount would be £791.87 after two years. Hmmm. Not a huge amount of difference. But wait! The real benefits lie in leaving this investment over the longer-term.

Over a 20-year period, the £754.06 saved in an account paying 0.5% interest would be worth £833.35, while the £791.87 invested in a stocks and shares-type investment fund that returned 5% would be worth £2,045.49.

Better still, if £30 a month was saved every month over twenty years, the investment paying a 5% return would be worth £12,463.77 – almost £5,000 more than if left in a low interest savings account.

As a client of Prosperity IFA you have the opportunity to help people you know to start saving in a way that could really make a difference to their wealth in later life, by introducing them to our Online Advice tool. This easy-to-use tool is designed to guide them to the right investment solution that matches their risk appetite and is right for their long-term goals. It uses a step-by-step process that gets them to think about their financial future and it helps them identify how much of a risk taker they are and, importantly, their capacity for loss. It then matches them with an investment fund package that uses their tax-free ISA allowance.

The fund packages bring together different types of investment options, blended together to produce solutions that take into account the risk profile of the individual. They can use their ISA allowance and complete the whole process online in less than 15 minutes. And guess what? They can even do it from their mobile phone! Find out more here.

Referral bonus

We’ll give £50 each in Amazon vouchers to both you and whoever you refer when they start using the platform. All you have to do is email us with the names and email addresses of the people you are referring. Once they invest through the platform we’ll contact you to arrange delivery of your vouchers.

Send your referrals to Info@prosperityifa.com or contact your adviser.

As a client of Prosperity IFA  you have the equivalent of personal finance trainers working for you, with the all benefits that can bring to your overall long-term wealth. For friends, family and colleagues who don’t yet have the funds to need this service, there’s a real danger they can become financial couch potatoes, with any money they do save doing very little or no work, especially if it’s held in bank deposit accounts or cash ISAs.

With the help of Prosperity IFA , you have the power to show them how they can flex their savings muscles without breaking sweat. How?

Banks currently offer ridiculously low interest rates – often below the rate of inflation – so any money tucked away there is just snoozing and, ultimately, losing because, in real terms, its value is actually worth less than has been saved. The alternative is to use an ‘active’ savings scheme, one that invests the funds into stocks, shares and other products designed to make the money work much harder and deliver better long-term results.

Just like going to the gym, it’s a bad idea to simply fling yourself into this sort of savings because if you don’t know what you’re doing, it’s possible to get hurt. That’s where we can help. Helping your friends and family to get off the financial couch is easy using our simple with the Prosperity IFA Online Advice tool which will guide them to the right savings solution for their long-term goals.

The tool uses a step-by-step process that will help them think about their financial future and lifetime goals. It will help them identify their risk appetite and, importantly, their capacity for loss and then match them with an investment fund package that uses their tax-free ISA allowance. The fund packages bring together different types of investment options, blended together to produce solutions that take into account the risk profile of the individual. The whole process can completed online in less than 15 minutes…even from a couch! Find out more here.

If you’re feeling really generous you could consider helping them make a start, by gifting up to £3,000 a year tax free each year. If you give them larger amounts and you die within seven years of making the gift, they will have to fork out the tax, which could be as much as 40%. Have a chat with us if you would like more information about this.

Referral bonus

We’ll give £50 each in Amazon vouchers to both you and whoever you refer when they start using the platform. All you have to do is email us with the names and email addresses of the people you are referring. Once they invest through the platform we’ll contact you to arrange delivery of your vouchers.

Send your referrals to info@prosperityifa.com or contact your adviser.

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A recent report from the Office for National Statistics has warned that the savings ratio – which measures how much of their disposable income households put into savings accounts or pensions – fell below 2 per cent for the first time since records began in 1963.

The ratio was down to 1.7 per cent in the first quarter of this year from 3.3 per cent in the final three months of last year.

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