Thanks to the artificial suppression of interest rates orchestrated by the Bank of England and other central banks around the world, thrifty and responsible savers have been having a tough time these last few years.
Yes there are a few enticing savings accounts out there offering rates north of 3%, but there are plenty of strings attached to these: either you have to lock your money away for 3-4 years at a fixed rate (which means you may get slaughtered if variable rates suddenly start rising), or you have to have eyes in the back of your head in case you fall foul of those marketing traps for the unwary called limited period bonus rates. Look the other way for too long, and you'll find your money earning less than 1% as the temporary bonus period expires and inflation consumes your wealth at the rate of 4% per annum.
Meanwhile, there's no sign of our central bankers changing tack any time soon as they continue to treat savers, those stalwarts of the financial firmament, with utter contempt. In mitigation, the governments and central bankers offer up the that well-worn argument that without ultra-low interest rates, our banking system would collapse. If true, my response to that is - bring it on!
When the banking system has become so utterly corrupt and completely unfit for purpose as it has today, there's only one thing to do - wipe out the banks' shareholders and bondholders immediately and sell the buildings and infrastructure for a symbolic £1 to the likes of Richard Branson or some other willing entrepreneur. In other words, we have to press the re-set button on our banks and restructure them for the purpose they were originally intended - providing sensible loans to productive businesses and reasonable returns to savers. To continue funnelling ever more taxpayer largesse towards the banks as they're currently structured is simply to increase public debts even further and see our public services subjected to death by a thousand cuts. Quite simply, the debt bubble has burst, it can't be pumped up again and it's not worth struggling to preserve the status quo.
However, since no mainstream media organisation even dares to address this particular issue at the moment, short of some new financial cataclysm, it looks like change will be a long time coming. So the UK's used and abused savers are just going to have to face the fact that, for now at least, they're on their own.
But are we just destined to grin and bear it as government and banker-induced financial repression decimates our savings? Not quite.
As many of you who read my articles will know, I'm a great fan of keeping as much of your wealth as reasonably practical in gold and silver, but even a hard-core gold-bug like me recognises reality. It's unwise to tie up all your wealth in a single asset class as even gold and silver will have downs as well as ups (as we've recently just witnessed). So if only for psychological reasons, it's best to divide up one's wealth into a range of different investment and savings vehicles. Despite the poor rates on offer, it's still essential to keep a reasonable cash cushion so you can sleep at nights. So that leaves us confronted with the small matter of finding the best place to keep our cash in these straitened times.
Like most investors looking to make the most of my cash savings, I scan the papers for the best rates from time to time. One account that I thought looked good value was the latest offering from Marks & Spencer. Yes - they don't just sell food and knickers these days. Through their financial arm, M&S Money, which is backed by HSBC Bank, they offer a range of attractive savings accounts and cash ISAs. I thought their cash ISA was particularly enticing, offering a variable rate of 3%, but here's the kicker - there were no temporary bonus strings attached. Now that's not to say they still can't lower the rate at a later date if they want to, as it is a "variable" rate after all. But with a pedigree name like M&S behind the account, it's unlikely they'll drop it like a stone when your back's turned. Whether you agree with me or not, I still reckon it's one of the best 'no strings' deals out there for savers at the moment.
So thanks to good old M&S, it's possible to double our returns over and above the high street average, with little to no risk involved.
However, if you're prepared to take one small step higher on the risk ladder, it's actually possible to get triple the average returns or more on your cash savings. I'm referring to a peer to peer lending company called ZOPA, which allows you to operate just like a bank by lending your money out to credit-checked borrowers.
Let's face it, when you 'save' with a bank, you're actually lending your money out anyway as all the bank does is lend your savings to qualified borrowers. So why not cut out the middle man and take the profits for yourself that the bank would otherwise have taken? I've been doing precisely this through ZOPA myself for the last few years, and after paying ZOPA's 1% annual fee and accounting for bad debt, I've made a gross annual return of 5.7%. Let me just repeat that - a 5.7% return on my cash savings every year for the last 3 years.
Of course, there are a couple of risks to bear in mind as there really is no such thing as a free lunch in the world of finance and investing: ZOPA isn't covered by the Financial Services Authority, so if you lose money, the government won't step in and recompense you like they would with a bank or building society account. Also, if unemployment ratchets up in the next few years, there's a chance that the bad debt rate could rise with it.
Despite those risks, I'm still perfectly comfortable allocating a small proportion of my wealth to lending through ZOPA as I am aware of what a good job the company has done tightening up credit checks on borrowers as soon as it looked like the bad debt rate was rising a little while ago. I know my own bad debt rate has fallen significantly over the last year.
Whether ZOPA is right for you or not will depend on your own financial circumstances and your attitude to risk (albeit a minimal risk), but if I had a spare couple of grand that I didn't have an urgent need for earning a pittance in an old bank or building society account, I wouldn't hesitate to lend it out through ZOPA and start earning respectable returns once again. It's at least worth investigating a bit further, wouldn't you say? After all, if we can't beat the bankers, perhaps it's about time we joined them and started pocketing a few bonuses for ourselves.
My website at http://handsoninvestor.co.uk/ is designed to help complete newcomers to the world of investing gain the confidence they need to abandon their commission-hungry financial advisors and take charge of their own financial futures. By following the guidelines provided on my site and by copying my own portfolio suggestions, my readers will, in time, gain the expertise required to become successful investors in their own right.
I provide my readers with a clear, easily executable investment strategy and what's more, I walk the walk by publishing a regularly updated portfolio of stock picks based on this strategy (at the time of writing all ten investment picks are in profit). At some point I'll be charging for this service, but for now it's all absolutely free, so why not pop by while you still can and see what you've been missing?
Thanks for reading my articles and I hope you'll become a regular visitor to my site.
Yours, John Mac, The Hands-On Investor
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