What do you do with your money: Save it, spend it, or invest it?

By Kirstie Shapiro

Banks and Buildings

Banks may be a relatively safe place to keep your money, however with interest rates at an all-time low, they most certainly are not a favored place to stash your extra cash. The question then, is, were can you put your savings?

The Bank of England recently raised their interest rates from 0.5 to 0.75%, although better than before, 0.75% doesn’t give you much after a year’s saving. For every £100 you leave sitting in your savings account, you only get an extra 75p a year!! With that being said, it has to be brought to your attention, that although interest rates are up by 0.25% and if you have a tracker rate mortgage, the interest rate on that will have or will shortly be rising by 0.25%, however, although interest rates on savings account should rise, they may well not necessarily rise by the full 0.25%.


Why does the Bank of England increase and decrease the interest rates?

When the Banks decrease the interest rate, the objective is to try to get people to spend more money. When mortgage payments are lower, people have a little bit more spare money at the end of the month, and if interest rates are also low, then people can’t see any point in saving it and therefore are inclined to go out and spend it. The advantage for the Bank is that when people are out spending their spare cash, it helps to boost the economy.

With the rise in interest rates at this time in the UK, it is a wonder what the Banks are really up to. Although an increase of a quarter percent won’t cause most people to be on the bread-line, it does add to financial pressures, especially at this time with the outcome of Brexit being so uncertain. For savers, an increase like this, of 0.25%, is not something to rave about from the roof tops, in reality, inflation continues to erode people’s money at a faster rate than the interest rate can bump up their savings.


You can’t save it, you can’t spend it, so what shall you do with it?

If you have savings, the question now is, should you continue to keep it in the bank, and if not, what is there to do with this spare money?

The first thing to do is actually discover the difference between saving and investing. When we save money, the idea is to put money aside a little at a time. Usually you save in order to purchase something specific such was a holiday, or a car. Savings can also be put aside as “rainy-day funds”, to cover for unseen costs or emergencies that may arise from time to time, like a broken boiler. Savings are put into cash products such as savings accounts at a bank or building society. On the other hand, investing is when you take your money and put it into a product or service with the intention of making that money grow, because of an increase in its value. Examples of different types of investments are stocks, property or shares in a company or fund.


How do you know if you are ready to invest?

The first criteria to consider when taking on an investment strategy is to look at your financial goal. Are your financial goals short term, medium term or are they long term?

Short term goals, can be viewed as things you intend to do within the next five years. Medium term goals can be described as things that you intend to do within the next five to ten years, while longer term goals are for things you won’t need the money for, for ten years or more. It is also very dependent on how much money you currently have available to work with which will determine whether or not investment is for you right now.

For medium to longer term goals it is prudent to invest as inflation can very seriously affect the value of your cash savings over time.

The stock market very often does much better than cash products over the long term, which provides a chance for greater returns and being higher risk, also for greater losses. Company shares, is another long-term strategy that can be very lucrative, once more, this comes with a higher risk, and therefore the chance of a higher return on investment. Real estate or property investment comes in two packages: direct and indirect property investment. Here we are going to investigate these two types of investment in greater detail.


Direct Property Investment

A direct property investment includes things like buy-to-let, which pretty much is exactly what it sounds like, you buy a property and you rent it out to tenants in order to make a profit on your investment. You will know that this type of investment strategy is right for you, if you prefer to invest in something that feels more tangible than stocks and shares. It is important to keep in mind that this sort of investment is a long-term investment as property prices can fluctuate quite considerably over a ten-year period. There is also always the risk that you may not in fact earn a profit on your investment, due to the costs involved, such as mortgages or other money borrowing and the costs of running a property. Getting involved in buy-to-let also means that you then become a landlord, which is in effect a small business, entailing all sorts of legal responsibilities as well. There are two ways in which to earn profit with a buy-to-let property and they include Rental Yield and Capital Growth.

Rental yield is what your tenants pay in rent minus any expenses, such as, maintenance, running costs, repairs, and agents’ fees. Capital growth occurs when you sell your buy-to-let property for more than you bought it for. Rents cannot always be guaranteed due to fluctuations in the rental market, which may also include a period of time without paying tenants. When house prices fall, then the value of your buy-to-let is likely to reduce as well, you may not be able to sell the property and if you do, you may not get as much for it as you had hoped for. However, on the flip side, when the rental market is good so are your profit margins and when house prices are soaring your return on investment, should you decide to sell, could be well worth the efforts of direct property investments.


Indirect Property Investment

An indirect property investment includes investing in property or real estate, but without all the hands-on hassle. Ways in which this can be achieved is to invest in: property companies, bonds, peer-to-peer lending platforms, crowdfunding schemes, alongside other professional investors into an institution and Angel Investing (see August edition article “What is an Angel Investor?”). When investing in this way, you would expect to receive a repayment schedule. A repayment schedule sets out in black and white exactly how your capital investment will be repaid, as well as how your potential interest will be paid. Depending on what style repayment schedule the party you invest into adopts, you may well discover that each schedule might look slightly different.

For instance, some companies may have an 18-24 month rolling development term with target returns of 1.5 x investment. Others may insist on a more regular approach where the investor receives a specified percentage and return of their total investment after a set number of months or years. Asset backed indirect property investments are regarded as being lower risk than direct property investment, and, it is important to note that there is still some level of risk in all investment strategies. No matter where or how you invest there is never any guarantee that your investment capital will be returned or that a profit will be realized. The plus side to indirect property investment is that you don’t always need a very large pot of spare cash to begin your investment journey.

It is always prudent to do your due diligence both on the type of investment strategy that suits your risk profile and on the people and or companies involved. Often the rewards far outweigh the risks when it comes to property investments whether direct or indirect.


Comparison table between direct and indirect property investing

Direct Indirect
Tax relief No tax relief
Large financial entry point Smaller financial entry point
Varying timescales for return – generally longer Varying timescales for return – generally shorter
Relatively low risk investment Relatively low risk investment


Property investment, whether direct or indirect, is a solid and popular choice for many UK investors. Property always performs very well over the longer term and it is relatively easy to understand. In terms of developing an investment portfolio, property remains a key component for a sound and balanced strategy of investment.

Next month I will be discussing how to integrate property into your investment portfolio.

If you have found value in this article and want to discuss potential Angel Investment opportunities within the UK property market please contact Kirstie Shapiro at:

Email: kirstie@creativepropertypartners.com

Mobile: +44 (0) 7717 443 408