A generation ago, it wasn't unusual for financial advisers to recommend investing in high interest savings accounts. Back when our parents were younger, high interest savings offered a fairly stable investment vehicle with an attractive return. That's no longer the case.
Today, using high interest savings as a stable investment vehicle still makes sense – but only on a limited basis. Savings accounts just do not have a high enough return to make them suitable as a main investment strategy, let alone the only one. However, a second type of investment can be added to the savings that will secure your financial future: rental property.
Right now, the top savings rates are hovering right around 2%. That's not bad, but what if you could do better? What if we told you it is possible to earn closer to 5% in the short term, and upwards of 8% in long-term property investments? You can. Plenty of investors do it all the time.
Here's the problem with high interest savings. The interest that banks and building societies pay is based largely on the interest rate they pay to borrow money. The more it costs them, the less they have to invest in their own portfolios and the less money they have to return to you. As long as the economy remains stagnant, there is little chance that savings accounts will do any better than they are doing now.
Rental property is entirely different. Rental rates may fluctuate, but they continue to rise at a fairly reliable rate year after year. While your savings accounts remain flat, rental rates will continue to go up. That will put more money in your pocket every month.
Anyone who is skilled in savings and investments will tell you it is important to diversify your portfolio. In other words, you do not want to concentrate all of your resources in a single type of investment. If that investment goes, you could lose it all. So placing your money in several different types of vehicles is always wise.
You can combine high interest savings with property investment for the best total return. Savings accounts give you stability and a fairly safe investment that is unlikely to be lost. Property investments also offer good stability but the potential of comparatively high returns.
One way to combine the two is to take some of the profits earned through investment property and put them into your high interest savings account. Doing so is a good way to protect your profits. The remainder of that profit can be invested in new properties. This is a way to use your profits to grow your portfolio of properties.
Please do not think that property investment is not without risk; that's certainly not the case. Every type of investment – including high interest savings – comes with some measure of risk. In terms of property investment, the most common risks include:
Despite the risks, rental property is an excellent investment many investors are using to solidify their portfolios. You can do the same. We encourage you to get in touch with us so you can learn the benefits of combining high interest savings with property investment. Fruitful Property is in the business of helping property investors succeed. We want to help you as well.
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