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What is the best way to invest your money?

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Investing will usually earn you better returns than a savings account over the long term, but it’s important to choose the right approach. Here are the different ways you can invest your cash.
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Investment risks

Investing means that your capital is at risk. Investments are not guaranteed; their value can go down as well as up and you may not get back the full amount you put in. Always do your own research and never invest more than you can afford to lose.

If you’re saving for the long-term, for instance for a house deposit, a pension or something else more than five years in the future, investing might be the best approach. You’ll usually make more in returns that you’ll receive in interest in a savings account, which means it can be a sensible way to grow your money.

In fact, most savings accounts currently pay rates lower than inflation, so by not investing your cash, you’ll actually lose money in real terms over time. But investments are not guaranteed, values can go up and down, and you could risk your capital, meaning you don’t get back what you put in.

That’s why it’s really important to make sure that you’re investing over a longer time period, so you can ride out the volatility. It’s also critical to choose the right investment approach. Here’s everything you need to know.

Make the most of your tax-free ISA.

How to get started with investing

The first thing to understand is that there are lots of different vehicles you can choose when it comes to investing your money. These vary wildly from putting extra money in your pension, setting up a Stocks and Share ISA, or even stock picking yourself.

The right approach will depend on a variety of factors including your confidence levels and knowledge, your risk appetite, what you’re saving for, and how much you’re prepared to pay in fees and charges.

Here we explain the main options on offer.

Use a Stocks and Shares ISA

A Stocks and Shares ISA is one of the most tax-efficient ways to invest your money. It’s a government wrapper, which means that you get any gains tax-free. 

There are two ways you can invest with your ISA:

  • Managed ISAs: You choose how much risk you want to take and what the aim of your investment is, e.g. growth or income, and your money will be invested for you by a fund manager.

  • Self-invested ISAs: You choose where your money is invested, including funds, shares, bonds or investment trusts.

If you want to invest for your children's future, you could use a Junior ISA. Here is how Junior ISAs work.

If you’re saving for a property or a pension, you may want to consider a Lifetime ISA, where the government will top up your contributions by 25% up to a maximum bonus of £1000 a year. There are various conditions involved, but the main one is you have to use the cash for a first home or leave it until you’re 60.

Here is how stocks and shares ISAs work

Invest in your pension

Many people don’t realise this, but if you’ve got a Defined Contribution (DC) workplace pension, then that’s invested to grow your savings. Pensions are another tax-efficient way of investing because for every penny you save, the government gives you free cash in the form of tax relief.

If you want to boost your retirement fund, then topping up your pension is probably the best way to do it.

There are a few options available to you. If you’re employed and enrolled in a workplace scheme, you can boost your contributions. Depending on who you work for, you might even find that your employer will also pay more in, giving you a better rate of return. Many schemes will also let you pay in extra money without having to up your contributions from your pay packet. So, if you have savings sitting in the bank you can funnel them into your workplace pot.

If you don’t have a workplace pension, you could start a private pension to grow your money and give you an income when you retire. There are two types of private pension you can invest in:

  • Personal pension plan: The pension provider invests in funds for you.

  • Self-invested personal pension (SIPP): You choose which funds you want to invest in. Here is how SIPPs work.

Here is how to work out if you should invest in a pension

Do it yourself investing (DIY investing)

DIY investing is when you decide how your money is invested, buy shares yourself and create your own portfolio. It’s the most complicated option, and not suitable for someone who doesn’t have a thorough understanding of stock markets and the risks.

You can open a share dealing account with a broker to buy shares in companies that you want to invest in, for instance, BP or Vodafone.

It is up to you how much control you have. You can:

  • Get advice on which shares to buy or sell

  • Have no guidance from the broker

  • Let the broker make all trades for you

When you buy shares, you could make an income through the dividends paid by the companies you invest in, or profit by selling your shares for more than you bought them for*. Because company values go up and down, this approach is risky and if you need your money back you might have to sell for less than you paid.

* Subject to trading charges and fees.

If you do DIY investing outside of a pension or ISA, you will have to pay income tax on any dividends, and capital gains tax on any profits from shares.

Here is how share dealing works

What is a dividend?

Let an expert invest for you

If you want to leave your money in the hands of a professional, you could invest in a grouped investment. Your money is added to other people's cash and invested on your behalf by a fund manager. Here are the different types of grouped investments you could choose:


An OEIC (open-ended investment company) lets you invest in the shares of companies.

Open-ended means there is no limit to the number of shares you can buy in a company.

Your money is added to one large pot with other investors' cash, which means the fund manager can invest in a wider range of assets.

This spreads the risk because it means your money will be invested in several different assets.

It also means the fund manager can make investments you could not make on your own.

More information on how OEICs work

Unit trusts

This is an open-ended investment that lets you buy units in a trust.

You can either invest a lump sum in a unit trust or save a set amount each month.

Find out more about unit trusts here

Investment trusts

An investment trust is a listed company you can invest in. The company then uses your money to buy assets and shares in other companies.

It is closed-ended, which means there is a limited number of shares that you can buy in the investment trust.

Here is everything you need to know about investment trusts

Again, if you choose these options outside of an ISA or pension wrapper, profits and dividends will be subject to tax.

Investment alternatives


Peer to peer savings is a way of lending your money to potential borrowers for a fixed return.

You add your money to a peer-to-peer provider's platform, and it is lent out to borrowers who pay it back with interest.

You can also invest your ISA allowance into peer to peer through an innovative finance ISA (IFISA). Here is how the IFISA works.

There is a risk you may not get your money back if the borrowers do not repay their loans.

Here is what you need to know about peer-to-peer savings

Savings accounts

Putting your money in a savings account or bond will not earn you much interest. Your money is safe because you’ll always keep your capital. But if the rate of return doesn’t beat inflation, your buying power will decrease over time.

The type of account you choose will depend on:

  • How much you want to save

  • What access you need

  • How long you can tie your cash up for

  • If you want to save tax-free

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