If you have £250 in a UK savings account earning little to no interest, you may want to consider other investment opportunities.
There are lots of ways to try and safely invest £250. A stocks and shares ISA, or Premium Bonds – with the chance to become a millionaire each month – or just general stocks and shares, are some of the current ways in 2021.
If you are brand new to investing you are certainly not alone.
Interactive Investor is a good easy way to open a Stocks and Shares ISA with £250 – they’ve just won the Best Low Cost ISA 2021 Boring Money Award – check them out here
We all need to start planning ahead for our future. Pensions today will be diluted over the years to come. Government back pension schemes encouraging you to save, and your employer to contribute, are helping but these are nothing compared to the final salary pensions so many enjoyed, but sadly these have all but disappeared.
Investing today is better than investing from tomorrow, and considerably much better than starting next year!
30 is now the age in which people finally manage to save enough for the deposit on the average starter home. As a result the equity in our home at time of retirement may not be as beneficial as it once was.
If investing is something you are contemplating, here are some of the popular options and methods out there to invest your £250.
What should you do if you have £250 to invest in 2021?
Just 10 short years ago, UK high street savings account attracted customers with what felt a standard interest rate of around 3%-6% interest. The variance based on the amount you invested, and sometimes which bank you opened an account with.
Times have changed considerably. 6% was considered the normality for so long, it became a shock for many when this rate reached 0.1%. Even 0.6% is often out of reach!
That means a £250 investment on January 1st is worth-, on 31st December, a disheartening £250.25!
Just 25p passive income a year in a year with a £250 investment. Even compound interest can’t wade in to save the day here.
It was a commonly understood, just that decade ago, that a lottery win of £1million would set you up for life. Bank the £1million and live off the £60,000 a year interest.
Today, that £60,000 per year would translate to £1,000 per year in interest. An incredible £59,000 less a year in interest than just 10 years ago.
Your £250 investment in Year 1 would be worth £252.51 in 10 years-time. A total investment passive income earning of £2.51 in 10 years.
We will need to find better ways to invest our £250.
Stocks and Shares ISA
ISA’s are nothing relatively new. The ISA Government scheme is a tax free way of saving money for the first £20,000 per annum you invest (this is the current 2020-2021 rate).
Further Information: -> Government’s Guide to ISA’s 2021
There are various types of ISAs available to consumers today. These are in the main available from high street banks and other investment companies. ISA simply stands for Individual Savings Account.
UK law states you, of course, pay tax on any earnings you make. It’s irrelevant whether those earnings and income comes from employment, self-employment or investing. You can invest up to £20,000 per year within an ISA though and not pay tax on any earnings made.
A stocks and shares ISA – through a good company such as Interactive Investor – is one way to invest your £250. This should in theory provide a better return than just depositing it to a regular savings account.
Banks and investment companies charge a small service fee to setup and manage your ISA account for you. This service fee pays for the services company who will take care of your ISA and investment as part of a larger investment portfolio.
Service fees from these institutions are usually around 0.5%-0.75% of your investment, which means for a £250 investment you would pay between £1.25 and £1.88 in fees. Fees are usually deducted from any investment earnings within your ISA account.
An investment of £250 with a financial investment company, who pays on average 6% per annum, after one year your investment would be worth £265. You would earn £15 income.
Although this doesn’t look much, it is a considerably larger return than the 25p income from a savings account, although of course investment carries risk, and you may not earn back as much as you put in.
It becomes even more exciting though when we look at the earnings for year two and beyond as the compound interest begins to work its magic.
After ten years your investment would have grown to £447.71. A total income of £197.71. A larger passive income return on investment than the £2.51 in a 0.1% earning standard savings account.
If, today, you plan to start a Stocks and Shares ISA with your initial £250 investment, and could add a further £250 per month to your plan and used the same investment company with an average return of 6% per annum – what could you earn?
After ten years your investment would be worth £41,066.07. Your contribution to your investment would be £30,000 and therefore your income would be £10,816.07.
Start this plan at the age of 25 and at the predicted UK retirement age (67) your investment would be worth £545,104.10. Your contribution would be £126,000 and passive income would be £418,854.10.
Remember rates are not guaranteed and you could end up with less money than you invested.