There is a very definite line between savings and investments, and when you are looking for the best place to keep your money it is important to understand this.

In essence it is about timing, and when you might need to spend the capital.

In so many cases people keep all their "savings" in a readily accessible and secure place such as a bank or building society as this gives them a comfort zone and they know that they can look at their statement and see their money grow. The problem comes when you look at how fast the money is growing in and whether or not the real value is going down due to inflation. Unless it is put in a good postal account then in many cases your "savings" can actually be going backwards, if the interest you receive is lower than inflation. For those with limited cash assets, then the bank or building society might be the only viable option to them, as everyone should leave some cash where they can get at it quickly. A rule of thumb is that for any money you are unlikely to spend within a five year period, you should consider an "investment".

For the majority, an "investment" is deciding where to put the money you don't keep on deposit. Consequently there are hundreds of different products and providers all competing for your money. Sadly there are no magical plans that produce fantastic returns with total security, you simply have to use a bit of common sense and adopt a realistic attitude.

There are several things to consider. Are you or your wife tax payers? Do either of you pay at the higher rate of 40 per cent? Are you looking purely for growth, and how long could you leave the money invested?

An "investment" needn't be all that risky either. Most of us remember the crash of 1987 and it unnerved many first time investors who had taken the plunge on the stock market through unit trusts and suddenly saw their capital fall sharply, but those who rode out the rough times have seen just how well the stock market can perform compared to deposit accounts or National Savings. Even though the markets have fallen recently, they are still higher than they were even a year ago.

For the cautious investor, then you could be looking at perhaps With Profit Bonds, which are returning about eight per cent a year net, or Corporate Bond PEPs which are yielding around seven per cent tax free. For the more adventurous, then there are investments directly linked to the stock markets such as Equity PEPs, Unit Trusts, Investment Trusts, and of course shares.

Alan Mills is an independent financial adviser with A. J. Mills Independent Financial Advisers, a member of DBS Financial Management PLC, which is regulated by the Personal Investment Authority. Not all contracts of PHI are regulated by the PIA. Answers given are for general guidance only and specific advice should be taken before acting on any of the suggestions made. All information is based on our understanding of current tax practices which are subject to change. The value of shares and investments can go down as well as up.

Converted for the new archive on 30 June 2000. Some images and formatting may have been lost in the conversion.