Alternatives to Savings Accounts
Can you remember your first savings account? Did you get it as a kid, excited about the free toy and the piggy bank? Or as a teen, saving from your first part-time job?
However you got your first traditional savings account, it always seemed a bit magical. You put money in, you get a little more money out! Sometimes you had to suffer the curse of “giving notice” on the “high interest” accounts… oh, the three months wait for that withdrawal to buy that thing you had your eye on!!
These days, savings accounts have very much lost their appeal, and with interest rates being perpetually low for savers (even as banks prise open credit card borrowers for rates above 20%!), this doesn’t look like it’s changing any time soon.
Part of the problem is that rates for savers are based on the base rate set by national central banks and aren’t reflected in the returns banks are making on the money. Banks love this, of course. They borrow money for super cheap and lend it back for much higher rates.
Another problem related to the low rates is that inflation eats away at the value of your money every day. Interest rates from traditional savings accounts can’t hope to keep up with that, especially when inflation steps up a gear. Even tax savings from putting your cash into a cash ISA (in the UK) can’t fight against you losing wealth every day.
About the only advantages of traditional savings accounts are that a portion of your deposits is generally protected by the Government against the bank collapsing, and the interest is legally guaranteed.
You’re not the only one looking for better returns on money than this! Here are some alternatives to savings accounts.
Stocks, Shares and Bonds
The most common investments people think about after savings accounts are stocks, shares and (occasionally) bonds. If you fancy owning stock in a company, and buying one or more of its many shares, then you can ride the rollercoaster of that company’s fortunes, hoping for an increased share price and regular shareholder payouts (“dividends”).
While this is a respectable way to try and increase your wealth, it’s still a risk, because the value of your investment (the “capital”) can go down as well as up: often quite quickly and for surprising reasons. Sometimes a company’s share price goes down simply because it didn’t make as much profit as expected. Capitalism, huh?
If roller-coasters aren’t your thing, then many companies offer the chance to invest in a basket of shares, usually chosen so that the risks balance out (though it does tend to balance out the reward as well).
In the UK it’s tax-efficient to invest your first £20,000 in a “stocks and shares” ISA because your growth and dividends are tax-free.
The name’s Bonds. Government Bonds.
If you fancy investing in countries rather than companies, you’re in luck. Governments operate their finances by issuing bonds with a guaranteed yield percentage attached.
This is regarded as safer than stocks/shares because governments not repaying you is rare. But it can happen in exceptional circumstances! When it does, you can be sure that the richer countries give that country a frowning of a lifetime.
In general, the riskier the bond, the more the return. For instance, this data shows the rates up to the end of 2021 – Mexico’s yield on a 10-year Government bond is currently 7.50%, but Sweden’s is 0.14, and Luxembourg’s was -0.14%. By now they will have changed, of course.
What all the above options have in common is that big financial companies will always be middlemen, and big financial companies historically take care of themselves far more intensively than they do their customers.
Deceptively high fees that eat into your returns are only part of the problem.
But I bought some Netflix on eToro!
Companies like eToro (and even Crypto exchanges such as Binance) sell “shares”, but it does these unofficially as “contracts for difference” – basically, getting another company to buy a share on your behalf and pretending it’s yours. The company knows nothing of your ownership, and you only get what shareholder rights the platform decides to give you.
While this allows you to buy fractions of a Netflix, it’s frowned upon in some jurisdictions and is flat-out illegal in others.
It’s basically a hack to tide people over until stocks and shares move to the Blockchain as tokenised securities or security tokens – an inevitable step because it saves the stock exchanges a lot of money and generates a ton more.
Peer to Peer (P2P) Lending
Most peer-to-peer lending in the traditional financial markets, where there are companies such as easyMoney (from the people who brought you really expensive luggage allowance charges), generate returns from one of the only areas of financial activity capable of doing so: property.
Why is it called “Peer to Peer”? Well, it’s basically you lending directly to other people you don’t know, through a platform that matches lenders to borrowers. A borrower might borrow £100,000 to buy a house but borrow it from 40 to 100 different lenders.
The rates of return are wildly variable even within the same platform and are dependent on the perceived risk and the nature of the loan. While they can be somewhat attractive, any loan you make may not be paid back.
Different platforms have different ways of dealing with this (usually their own guarantee schemes with small print). Because any loan is secured on property, there’s something to sell if the borrower defaults… but it’s a hassle and your capital is most definitely at risk.
Cryptocurrency is a relatively new technology: a virtual currency that nevertheless has a real-world value and which can be bought and sold for “real” currency.
Developing financial markets generally give better returns and more risk. Cryptocurrency is definitely a developing market, Decentralised Finance offers Crypto versions of many of the same financial instruments as above, but usually with crucial differences.
For instance, Peer-to-Peer lending is a thing, but instead of property, a loan is secured on a deposit of Cryptocurrency (which is usually Stablecoins – tokens which reflect the value of an underlying asset – for instance, US Dollar Stablecoins). Everyone is more anonymous and it’s more difficult to assess risk, but if there’s a default at least the fall-out is handled by “Smart Contracts” (automated bits of code) rather than estate agents and bankers!
Crypto Stocks and Shares
There are many ”tokens” (coins, basically) on the Crypto market that are effectively shares in an enterprise. Regulators will catch up eventually and fine them (especially if they’ve been selling to US investors).
For stocks and shares on the Blockchain, however, great strides have been made with regulator-approved security tokens, such as those listed at INX Securities and TokenSoft: these even offer legally mandated dividends. It’s an even younger area than Crypto, so the technology and choice are limited, but if you’re an early adopter it’s well worth a look.
In both of the above, your capital is still at risk and you could end up losing your investment.
Interest-Bearing Crypto Savings Accounts
However, Crypto has another trick up its sleeve: interest-bearing Crypto savings accounts. These always offer a dramatically better return than traditional ones, because the return is generated from profits made on Crypto finance activities.
Oddly, the best returns in these accounts aren’t to be made on actual Crypto such as Bitcoin (BTC) and Ethereum (ETH) – even though an account at AQRU.io can earn you 0% on these while you’re waiting for the dollar value to go to the moon.
The best returns come from Stablecoins such as digital dollars. These aren’t issued by the US Government but are tokens that track the dollar’s value and are backed by an equivalent amount of real assets in some way. You can get a 7% return on those at AQRU.io, which has an app and a website that are free to download and sign up for, and easy to use. We even give 10USDC investment to start, have a $75 referral fee, and are fee-free (except to withdraw to Crypto). The yield is paid daily, but you can see it being added every second in real-time – and it’s re-invested so it compounds. Don’t underestimate how much that helps!
Don’t expect miracles
We do have to remind you of a couple of things. First, it’s not advisable to invest money you can’t afford to lose or borrow money from credit cards to invest in Cryptocurrency.
Also, even with returns such as AQRU’s 7% on Stablecoins, the amounts only become meaningful if you’ve invested a substantial amount to earn it: whether as a lump sum, or regular saving. Usually, the returns also need some time to mature.
It’s a lot easier to get started with AQRU.io than other Crypto options: just download the app or register on the website to get started. Of course, AQRU takes its financial responsibilities seriously, so there will be verification. Get your selfie-face ready!