Under the Mattress Probably not the best place. It doesn’t pay interest, inflation eats away at it, and, if you have a burglary, standard insurance only covers the first £500 stolen. But, if you really do want to keep your money at home, the four most common places to hide it are, according to a Halifax survey, (a) under the mattress (b) in the sock drawer (c) in the top of the wardrobe and (d) in the bedside table. A home safe, such as the Chubb MiniBanker, costs around £500, but insurers won’t pay more than the standard sum, even if it’s in a safe.
National Savings & Investments Most rock-solid, with a government-backed promise of 100% security. Direct Saver – minimum investment £1 – pays 2%, which is taxable. Its Fixed-Interest Savings Certificates lock you in for two or five years and pay 1.25% and 2.25%, but are tax free, so work out at up to 3.75% for higher-rate taxpayers. But what many financial advisers like most are its Index-Linked Savings Certificates, guaranteeing your cash will grow in line with the Retail Prices Index plus 1%. They’re tax free and available at the post office with a minimum of £100. Remember, though, that because inflation is 3.7% today, it’s no guarantee you’ll receive interest anywhere near that. Someone investingtoday will receive the difference between the index figure at the time and whatever it is in a year.
Fixed-rate savings bonds Savers can find interest of up to 5% on long-term fixed rate bonds, such as that offered by Coventry Building Society. Three-year bonds pay around 4% – both the Post Office and Lloyds Bank have a 4.1% three-year deal, while ICICI Bank, a UK subsidiary of an Indian bank, pays 4.25%. All are covered up to £50,000 by the Financial Services Compensation Scheme.
Gilts and corporate bonds Over the last month, funds investing in gilts – bonds issued by the government – have gone up 4.4%, and are the best short-term performers in the unit trust world. UK corporate bond funds are riskier and have done less well, although they are still up 0.6%. If you believe deflation is heading our way, then gilts and bonds should do well, but if it’s inflation, then steer clear.
The Post Office no longer sells gilts so the easiest way to invest is via a stockbroker or through the government’s debt management office (dmo.gov.uk). For bond funds, Patrick Connolly of advisers AWD Chase de Vere recommends M&G Corporate Bond and Fidelity Strategic Bond.
Absolute Return Funds These use complex hedging techniques to reduce risk. For example, Insight Absolute Insight aims to achieve positive absolute returns in all conditions. It made money despite the turmoil of 2008 and early 2009, ratcheting out gains of 0.3%-0.4% a month, and, over three years, has averaged 5.8% per annum gross. Brian Dennehy of advisers Dennehy Weller says investors should also look at Standard Life’s Global Absolute Return (GAR) fund, which, over the past month, is up more than 2%.
Gold Justin Modray of CandidMoney.com says: “When markets go up the creek, gold tends to be the safe haven of choice, as its worth is not dependent on the financial strength of companies or governments. Nevertheless, prices can be volatile.” Over the past year it has gone from $900 (£620) an ounce to more than $1,200 this week. Play the market through Gold ETFs – also known as Exchange Traded Commodities (ETCs) – which invest in physical gold and are bought and sold like any other share. Go to etfsecurities.com
Defensive shares When the FTSE falls, there are always “defensive” stocks which tend to do well in downturns. Stockbroker Killik & Co says: “The stock market may well break below recent lows. However, this should not cloud the fact that there are some excellent, well-financed, global businesses with yields higher than both the market and government bonds. We believe these businesses are in a position to survive and to grow their dividend income stream. We would highlight GlaxoSmithKline on a 5.8% yield, Imperial Tobacco on a 4.8% yield and Pearson on a 4.1% yield.”
Shorting the market Angela Merkel won’t like it, but there’s nothing to stop you becoming a naked short seller. Justin Modray says: “If you want to bet on the FTSE 100 falling, then an ETF called the ETFX FTSE 100 Super Short Strategy (2x) will oblige by letting you profit by double the amount of any falls (you’ll obviously lose out by double any gains, too). Alternatively, you could spread bet on the index or individual companies.”