Comparing property investment returns to bank interest ratesDec 22, 2021
How many times have you seen social media posts offering 10x of what is being offered by the banks?
Or the terms 'bank-beating returns' and 'beat the bank'?
Property investors & developers often go to great lengths to try and capture an investor's attention...
But that isn't always a good thing...
Especially when you are catching their attention for the wrong reasons!
We see a lot of social media posts asking for money because they can offer way more than the banks can.
Well, of course they can!
Because saving and investing are not the same thing.
Saving is setting money aside in a safe place.
It stays there until you want to access it.
It’s not about how fast it grows.
It’s meant to be liquid, safe and there for a rainy day.
It serves as insurance for an emergency.
It is not an investment.
Investing is the process of putting your money to work for you.
It can typically make more money for you than the money you might earn in a savings account.
With reward comes risk.
If you make poor choices, or if things beyond your control go wrong, you could lose all that money.
There is a significant difference between saving and investing.
With interest rates on bank accounts at an all-time low, many are keen to highlight the high interest rates that they can offer.
This often leads to comparisons being made between the investment opportunities and the more traditional banking products, e.g. savings accounts.
The FCA states that if the financial promotion compares relevant investments, you must ensure that the comparison is meaningful and presented in a fair and balanced way.
For example, highlighting that investing in property:
- is an illiquid investment;
- any investment losses will not be covered by the Financial Services Compensation Scheme (FSCS);
- the capital is at risk (you could lose everything); and
- returns are not guaranteed.
Whereas with savings accounts:
- you can often have instant access to your funds;
- you know the level of return you will receive; and
- the FSCS provides financial protection for the first £85,000 that is in your bank account. In the event that the bank goes bust, you will get that money back.
These products have completely different risk profiles and they need to be explained.
So if you want to make comparisons, make sure you present it in a fair and balanced way!
No savvy investor wants to invest with someone who only highlights the rewards and ignores the risks.
Don't risk pushing savvy investors with deep pockets away by saying the wrong thing.