In August 2016, the Bank of England cut the already low interest rate (0.5%) to a record low of 0.25%. The interest rate has been held at this level ever since. Whilst this is good news for people with mortgages, it has not been good news for savers. For dentists and doctors who have substantial amounts of money held in savings accounts, you will no doubt be finding that this money is earning you very little in terms of interest.
This does not constitute advice and advice should be sought in all instances before acting on it.
Some banks try to tempt new savers with introductory high interest rates. This will guarantee that your money earns a decent rate of interest for a year. However, the process of opening a new saving account is not as straightforward as it sounds.
For doctors and dentists who are looking to achieve better returns on their savings, there are alternatives to the traditional saving account.
(1) Peer to peer lending
Peer to peer lending is where the lender, lends money to others in exchange for regular interest payments.
There are several firms that offer this type of service, such as Funding Circle and Ratesetter. They match individuals or businesses with spare cash that are looking to receive a higher rate of return on their money, to people or companies who need to borrow money.
Pros of peer to peer lending
- Borrowers are thoroughly vetted
- The peer to peer lending firm acts as intermediary, chasing the borrower for repayments in case they fall behind on their repayment schedule
- The lender can expect to receive interest that is higher than the rate of inflation
- Consumers using peer to peer companies are now protected by the FSA. By April of this year, all firms should have at least £50,000 in capital to act as a buffer in case they get into financial difficulty
Cons of peer to peer lending
- Carries greater risk – if the peer to peer site collapses, you are responsible for getting your money back from the borrower
- The cash may not be lent right away, and during this period you do not receive interest payments
- Peer to peer lending firms are not covered by the Financial Service Compensation Scheme
(2) New savings account with higher protection
Money held in a savings account is protected by the Financial Service Compensation Scheme, up to a maximum value of £85,000 per institution.
If you are professional with savings higher than this, you will be advised to open numerous accounts and deposit money into each, up to the maximum protected level.
However, there is now a bank account that offers protection up to a maximum value of £255,000.
It’s important to note that this type of account is only offered by a select number of firms.
Cons of the account
- Savings are protected by the Financial Services Compensation Scheme
- It’s easier to keep track of savings as it is not held in several accounts
Pros of the account
- Interest applied is around 1%
- Interest rate is fixed for one year, so your money is tied up for 12 months
For investment planning, speak to Darren
Dental & Medical Financial Services have been helping doctors and dentists with investment planning for over 25 years. Call to discuss your situation with Darren to ensure you will meet your personal financial goals.
Tel: 01403 780 770