Knowing what to do with your money can be difficult, especially with savings rates so low. Here is what you can do if you have money to invest.
Investment ISAs put your capital at risk, and you may get back less than you originally invested.
You are charged more interest on most credit cards and loans than the return you get from savings accounts or investments, so a good first step would be to use any surplus funds to focus on clearing any debt.
Start by listing all your outstanding debts
Work out which debt charges you the most
Pay off the debt with the highest interest charges first.
Make sure you check if there are any restrictions on whether you can repay each debt early, as you could face early repayment charges.
Using your savings to reduce the balance on your mortgage could save you hundreds or thousands of pounds in interest.
Check your mortgage documents or contact your mortgage provider to find out how much you could overpay without penalty.
Compare how much interest you will pay on your mortgage to the end of its term with the amount you will be charged by making a large payment.
Some mortgages charge you for overpaying too much in a single year; this can be as much as 1% or 2% of your mortgage balance.
If you have not used your ISA allowance this tax year you could open a cash or stocks and shares ISA.
The main benefit of an ISA is that it is tax free and for the 2020/21 tax year, the annual ISA allowance is set at £20,000.
Stocks and shares ISAs (also called investment ISAs) let you invest your money in a tax efficient way. This is because your annual ISA allowance is not taxed, unless you receive dividends on your investment.
Depending on your individual circumstances and existing retirement provisions you may want to consider using your money to invest in a pension.
Investing in a pension has a number of tax benefits, and depending on your income it could boost the value of your fund by up to 50%.
Look for a savings account that offers the highest interest rate while giving you the access you need to your money.
If you want to lock your money away for a set period, a fixed rate bond or notice savings account could offer a better return.
If you are happy to tie your money up for at least 5 years you could explore your investment options, however your money will likely be exposed to some risk.
Even if you choose a low risk investment you would need to be comfortable that your money could drop in value if your investments perform badly.
This is another option that lets you set up your own portfolio of shares and deal in individual companies' stocks directly.
Although you have more control it can also be a much riskier investment compared to grouped investment methods so make sure you know what you are doing before you start.
Investing in precious metals such as gold, platinum, or silver, or in antiques, art or fine wines are increasingly popular choices but again are high-risk options.
The value of these types of investments can fluctuate quickly meaning you are at risk of seeing your assets soar and fall in value in a short time period.
There can be a number of advantages to this, such as the ability to rent a property out to earn an income or renovating properties and selling them on for a profit.
If you do not have the cash to buy outright then you are likely to need a buy-to-let mortgage, which will add extra costs to your property venture.
If you rent out the property you will take on the responsibilities and expenses of becoming a landlord which could end up costing you more than you think.
If you are unsure which option is the best choice for your individual circumstances, you may want to speak to an Independent Financial Advisor.
An IFA will be able to look at your finances in detail and recommend a selection of different investment options that are well suited to your financial goals and circumstances.
All content on money.co.uk is meant to be used as guidance and is not financial advice. For specific advice for your individual circumstances, it's better to seek the services of an Independent Financial Advisor.