Avoiding the rainy day blues

Savings: Do you keep bundles of used tenners under your mattress or piggy banks full to the brim with fifty pence pieces? Well it's time you

We Should all be savers. And whether it is towards a down-payment to buy a house, planning ahead for retirement or just putting money away for next year's holiday or to buy Christmas and birthday presents, decisions have to be made about which is the most suitable means of saving these funds.

Putting money under the mattress has few attractions. For short-term savings, we tend to use building society or bank accounts. Interest rates on these may be low, but our money is safe.

Looking at the medium-term, anything between one and five years, there are many more options. We can take advantage of the tax system and look at other savings methods such as National Savings. For those prepared to take a risk, personal equity plans (PEPs) can be considered. Over the long term, that is, anything longer than five years, then the savings options really multiply. Which is best depends on what is being saved for and the degree of risk we are prepared to take. Much depends on individual circumstances and whether we have a lump sum to invest or plan to save regular amount.

This survey explores the main areas for medium and long-term investment. One important principle to be aware of is that different forms of saving carry different levels of flexibility. Pension plans, for example, often specify a retirement date and high penalties if they are stopped earlier. Other potential means of saving for retirement, such as PEPs, are more flexible, having few penalties when cashed in early.

The stock market attracts increasing attention. But even the professionals who make their money out of encouraging investment are becoming increasingly nervous about where share prices are heading in the short-term. The present bull stock market, with prices rising strongly, has been too good for too long. Historically, over the long term, equity investment has outperformed all the other main means of savings, but past experience also suggests that the stock market is due some sort of correction.

Whether you are sitting on a profit from past investments that you want to park safely elsewhere or planning to start saving now, the accompanying articles will look at the alternatives.