Alternatives to savings accounts

Saving money is an essential part of modern life and without a comfortable buffer, if the worst happens, life can become pretty uncomfortable.

However, if you have sufficient money in the bank and want to think about other ways to use your spare cash, what options are there?

Investing money in the US government is said to be one of the safest ways to make a return, despite the state of the country's economy at the moment. Treasuries – or government bonds – are an investment that can offer either a variable or fixed rate return and offer little risk.

The only downside is that to get the maximum benefit, it is necessary to tie up funds for a long time, with penalties usually enforced for withdrawals before five years.

Individuals willing to consider riskier vehicles could contemplate investing their money; an option that has the potential for great returns but also a very real possibility of losing some or all of the capital laid out.

For this reason, investing is not a suitable choice for everyone and the general advice given is that you should never invest money that would have catastrophic consequences if lost.

There are a huge number of investment options, of which simple purchasing of stocks and shares is the one of the most commonly chosen and certainly the best-known amongst the general public.

However, there are a number of other options which could also be considered, such as forex – the trading in foreign currencies – a market that eclipses conventional stocks and shares and offers the same potential for gains.

Anyone with a significant sum to invest might find real estate a viable alternative, especially with the current property prices at rock bottom and expected to rise as the economy eventually strengthens.

Savers with a particular interest could opt to support a project or invest into funds with a special emphasis, such as eco-friendly schemes or sharia compliant shares.

Those who want to help a charity but do not feel they have the spare cash to make the donation they would like might want to consider helping the cause out by purchasing a bond, if available, or shares.

The credit crunch has meant that borrowing from banks has become far more difficult and alternative means of lending are springing up. Peer to peer is one such enterprise but to be successful, it obviously requires members who are willing to lend as well as borrow.

Applicants are usually thoroughly credit-checked and given a risk rating and lenders can bid against each other to offer the individual a loan at the rate of interest they feel reflects their credit score.

One golden rule of thumb is that if the money is likely to be needed at retirement, it should be moved to a low risk safe haven where it can remain without the danger of falling in value, at least two years proper to when it is likely to be utilized.

Savings Bonds Explained

When putting money aside for a rainy day, it is all too easy just to open a savings account and reap the meager returns that are offered.

However, there are other savings vehicles suitable for those who want to invest their cash for the medium to long term but who do not want to risk losing their capital.

One of the most secure forms of investment are the savings bonds issued by the government, which are available to purchase either as a savings asset or as a gift for another person.

Savings bonds are provided by the federal government and act as a way for the US to fund the debts it holds by borrowing money from the American public.

There are various type of investments available including fixed rate bonds as well as those offering a variable rate.

The main types on offer are I and EE bonds that rack up interest during the term of the investment. These do not become payable until maturity.

The fixed rate bonds available are primarily the I bonds that provide a pre-agreed interest payment plus an additional amount set at a level in excess of inflation. EE bonds can be fixed rate bonds but are also available as a variable investment.

Bonds can be purchased either via banks or online. Bonds purchased via banks are only available in paper form while online banking offers an electronic option.

Electronic bonds are far more flexible and are available in any denomination of $25. Paper savings bonds are slightly more fixed and offer the option to purchase $50, $75, $100, $200, $500, $1,000, $5,000 or $10,000.

Electronic and paper bonds work in two different ways. Electronic bonds begin to earn interest immediately and start at the worth of their face value. Paper bonds, on the other hand, start off with a value worth half of their face value and reach maturity when the interest payments bring the value up to their stated amount.

Electronic savings bonds also have another very unusual feature. Despite having a maturity date, they can go on earning interest for up to 30 years.

Owners of the bonds are able to use the Treasury Direct website to track the value of their investment and see when their bond will stop earning interest.

As well as being a safe haven in difficult economic times, because of the protection of the federal government, savings bonds also have other benefits.

The interest on the various types of bonds can be deferred until the maturity date or earlier encashment, at which point it is not subject to state tax, unlike other savings accounts.

While savings bonds undoubtedly offer investors significant benefits, if they are cashed in before they have been invested for five years a sacrifice equivalent to three months of interest will be made.

In addition, as a fixed rate bond locks in the interest payable, if the economic outlook changes during the investment period and interest rates rise, the bond can become less competitive.

How do you know your real credit score?

While we all know that it is important to have a good credit score, often we do not think about our own score until we have credit declined, for example, when looking to arrange loans. It is important, however, to keep track of your credit score and take action if necessary.

It is interesting that while most Americans have heard of credit scores, many do not know how they are calculated and what they are used for.

At a basic level, your credit score measures your ability to repay loans and other debts. It influences whether lenders will lend to you and, if so, on what terms.

A credit score is a bit like a report card. It records what debts you have, whether you pay your bills and whether you make repayments on loans on time. Any missed or late payments are recorded.

The main benefit of having a good credit score is that you qualify for better rates on loans and mortgages. Lenders see you as a good risk and reward you accordingly.

It is not just when you are looking for credit, however, that your credit score is important. These scores are increasingly used as a background check to evaluate you when you apply for an apartment or job.

So who decides what your credit score is? There are a number of different credit agencies around. The main American ones are Equifax, Experian and Trans Union.

Scores can be different at the different credit rating agencies because they may have slightly different information from each other and may use different ratings systems. There should not, however, be any major discrepancies between the different agencies.

Your credit score is constantly changing. You get points based upon the agencies' assessment of your creditworthiness i.e. your ability to pay back your debts such as loans and credit cards. Your whole financial history is taken into account.

There are, however, some things that cannot be used to determine your credit rating such as gender, race, ethnicity and religion. This is because of equal opportunities legislation.

The best way to know what information is being held about you is to obtain a copy of your credit report. These are available for a small fee but the agencies sometimes offer to obtain your report for free. You are also able to obtain a free copy if you have been denied credit in the last 60 days or are on welfare.

The first thing to check is that it is accurate. If anything is wrong, you should contact the credit agency and dispute it. Even if your dispute is not allowed, you are still able to ask for a statement to be added to your credit file.

If your credit score is poor, there are a number of steps that you can take to improve it, such as paying off existing debts on time. It is also important not to continually apply for new credit or loans as these applications will all appear on your file.

It is important to continue to have some form of credit such as loans or credit cards, however, as no credit history can have nearly as much of an impact as a poor credit history.

There are ways to rebuild your credit file. Some companies offer loans for people with poor or no credit history. These are usually for smaller amounts and are more expensive than conventional loans. They can, however, be a good way to demonstrate financial responsibility.

In the modern world, it is inevitable that we will all need credit at some point, whether it is for emergency loans or big purchases on credit cards. It is, therefore, important to make sure that your credit score is correct and take action if it could be improved.