When planning for your future here is some useful information to be aware of before making any decisions

Make sure you understand the differences between saving and investing

Savings should always be your starting point.
Savings tend to be best for short term goals. When you save, you earn interest on the money you place in your account. Because you earn interest on your savings your money will continue to grow and the money you have saved will not reduce. However, the effect of inflation will reduce the actual value of your savings over time. 
 
Depending on the type of investment, when you invest, your money is likely to be placed in assets which include cash, bonds, property and shares. Each of these will perform differently and the value of your investment will depend on the performance of the overall mix of the assets, which make up the fund you’ve selected. Whilst one aim is to balance the effect of inflation, the value of your investment may go down as well as up and is not guaranteed. There is always a risk that you could get back less than you invested.

Make sure you have money you can access easily

Even if you're considering investing you should always have sufficient money available for any short term expenses.

It’s important to make sure you have easy access to enough savings to cover any emergencies or unexpected bills. So if you have any unforeseen expenditure you can pay for it with this money. 

Be sure you are ready to invest

It's important to make sure your finances are in shape so that you can think about investing.

Here are some things you should consider,

  • If you have any outstanding debts, investments are unlikely to outperform the interest you’re paying on them so have you thought about repaying or reducing these first?
  • Have you protected yourself and your family against any unforeseen events?
  • How much do you want to put away and how long for, taking into account any existing commitments or planned expenses?
  • Do you have a particular goal in mind that you want to invest for?
  • Have you recently received some money or have some savings that you’ve not touched for a while?

Investing is for the medium to long term

When you invest you should be prepared to have your money invested for the medium to long term, typically at least 5 years.

When you invest for the medium to long term it gives you the opportunity to minimise the short-term fluctuations in the markets. If you haven’t invested in a fixed term product, you can take some or all of your money out at any time, though you may get back less than you originally invested. Although the value of your investment isn’t guaranteed, your money will have the potential to grow more than what you'd earn in interest from a savings account over the longer term. 

Are you prepared to take some level of risk with your money

Typically you have the potential for greater returns with the more risk you take, however you also have the potential for greater losses. 
As your investments are made up of different assets such as cash, bonds, property and shares, the overall performance of your investment will depend on the mix between these.  It’s important to understand that there are different risk levels with each asset type. For example cash will be the safest, whereas a bond issuer could default and a share value will depend on how a particular company and market performs. Therefore, it is important to spread your money across a number of different assets to mitigate against loss in one particular area.
 
Generally, the more risk you take, the bigger the potential return on your investment. A more risky investment is likely to be more volatile, which means its value can rise more rapidly but also fall faster. The risk you take needs to be at a level you’re comfortable with and importantly, a level you can afford. 
 
When looking at the past performance of a particular fund, you must remember that it’s not a reliable guide to what might happen in the future. Also, could you cope in the future if your investments were worth less than you originally invested and you needed access to your money?

Investing can be monthly as well as a lump sum

You can decide what’s right for you.

Deciding on whether you invest monthly or as a lump sum will depend on your personal circumstances and also what you are investing for. Investing can help you achieve your long term goals, for example: helping your child in the future with university fees or a deposit for a house. These could be regular monthly contributions, whereas if you have a lump sum to invest you could use it to provide an additional income in retirement to supplement a pension.

There are different tax treatments when you save and invest

Make sure you invest in a tax efficient way and are making the most of any tax allowances.

The money you invest may be subject to income tax and capital gains tax. There might be allowances that you can use, however the money you get back depends on different tax treatments and your own personal circumstances.

Personal Savings allowance

When money is placed in non-ISA savings or current accounts, the interest paid is now paid gross with no tax deducted. The Personal Savings Allowance means that most people will no longer need to pay tax on their interest.

  • If you’re a basic rate (20%) tax payer, the first £1,000 of non-ISA interest per tax year will be tax-free.
  • If you’re a higher rate (40%) tax payer, the first £500 of non-ISA interest per tax year will be tax-free.
  • Additional rate (45%) tax payers don’t qualify for the Personal Savings Allowance.

Individual Savings Accounts

ISAs were introduced by the government as a tax efficient way of saving or investing. If you save in a Cash ISA you don’t pay any tax on the interest you earn. If you invest in a Stocks & Shares ISA you don’t pay tax on any income tax or capital gains tax on any income you receive from your investment. The favourable tax treatment of ISAs may change in the future.

Capital Gains Tax

Capital Gains Tax is a tax on the profit or gain you make when you sell or ‘dispose of’ an asset when you cash in an investment (excluding a Stocks and Shares ISA). You have an allowance each tax year and you would be liable for tax if you exceed this. However, this will depend on your individual circumstances.
 
If you’re unsure about how your individual circumstances affect the tax that you should pay you should seek independent financial advice.
 

Do I need professional advice?

If you‘re not sure whether investing is right for you, a financial adviser can help you decide.
A financial adviser will explore your needs, goals and investment objectives along with your understanding of investment risk. They will recommend appropriate solutions tailored to your individual circumstances. There are fees associated with receiving investment advice, which will be explained to you. 
 
Alternatively if you're confident making your own investment decisions and do not need advice you can invest direct. 
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Important Information

Please remember the value of your investments and any income from them can go down as well as up and you may get back less than the full amount you invest. When you invest you should be prepared to have your money invested for the medium to long term, typically at least 5 years.
 
With traditional savings your capital will grow when interest is added, however over time the real value will be affected by inflation. With investments, your capital isn’t guaranteed to grow, however they have more potential to balance the effects of inflation.
 
The tax treatment of your savings and investments, including the favourable tax treatment of ISAs, may be subject to change in the future and depends on your individual circumstances.