Be safe but don't be sorry

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NO INVESTMENT is entirely safe. Keeping your money under the mattress may protect your capital, but after 10 years you may well find that inflation has severely eroded its value.

The more pertinent question is what proportion of your assets you should tuck away in secure places. People who need to play very safe are young investors who might need access to their money at short notice; those who fear for their job security; and people close to retirement who will have less time to make good any losses on riskier investments.

If you don't fall into one of these categories, the proportion of safe investments you include in your portfolio will depend on your attitude to risk.

The first step for most savers is a bank or building society savings account. There is a bewildering range of accounts and some offer a much better deal than others. A good postal account should currently pay around 7 per cent interest. Instant-access accounts pay similar or better rates than accounts that ask you to tie your money up for 30 or 60 days or longer, so unless you cannot trust yourself not to fritter away your savings on impulse buys, there is little benefit in locking them away.

A bank or building society bond paying a fixed rate of interest could be a better bet for those who can afford to tie their money up for a year or two.

Nationwide is currently paying 7 per cent gross on its fixed-rate one- year and two-year bonds, and other banks and building societies should offer similar deals.

Among the most popular safe investments in recent years have been Tessas, which pay tax-free interest on money invested over a five-year period. A good, variable-rate Tessa could pay around 8 per cent at the moment.

Tessas are to be phased out from April 1999, but investors can still take one out and retain the tax benefits when they are replaced by the new individual savings accounts.

Many people who have a small amount to invest are attracted to friendly society bonds. The most you can invest is pounds 25 a month or pounds 270 a year. These bonds are often bought for children and offer tax-free returns if you can leave the money invested for 10 years.

Gilts and National Savings are backed by the Government and are the nearest you will get to a wholly secure investment. Gilts pay a fixed rate of interest over a set term - usually five, 10 or 15 years. They are considered particularly attractive at the moment because their value rises as interest rates fall. You can buy gilts through the Bank of England.

National Savings offer a range of investments including tax-free certificates and income and capital bonds.