When I worked as a Broker in my previous life in the City, our days would be full of jargon and it took time to get to grips with it, but, in the end, everything comes down to lending and borrowing and how much risk is involved.
The corporations with whom we dealt would be graded according to how likely - or unlikely - they were to default on a loan. Top name British Banks, were easy to lend to, but they didn't need to pay as much interest for their borrowing as smaller ones from Latin American countries did. Less risk = less interest - and this works both ways - whether you are depositing or borrowing.
But why do Banks want to borrow money, you might ask and what does this have to do with any of us?
Financial organizations take all the deposits of their zillions of customers - people like you and me - and club them together to make great big fat ones, that they then do lots of exciting and interesting things with, including lending on to other private customers or business, making a huge profit in between what they charge and what they pay out.
You only have to look at the rate of interest you earn in normal savings account and compare it with the the rate you would be charged if you'd like to borrow the same amount from the same organization and you'll see the difference.
Investing any funds we might have with a Bank gives us relatively little risk compared with putting our money into stocks and shares or bonds and commodities, but it, thereby gives us relatively little return. And most of us wouldn't know where to start with any of the other exciting and interesting, options that the Banks use anyhow.
But I recently heard of a company called nutmeg.com that is bringing intelligent investing to individuals, taking the City stuff and bringing it down to earth, giving us the benefits of their expertise and making people what is called a portfolio - a collection of investments - where they take all our little deposits, make them into great big fat ones and spread them into better paying ventures than a plain old savings account. Obviously, there are risks involved, but with that, the chances of a better return are higher.
You might find your funds in oil, gold or commerical property - things you'd never have the knowledge or confidence to go for yourself and, because they like to keep things transparent, you're able to look up on line exactly what's happening with your cash this month!
But the best bit? They only charge a one off annual fee of 0.3-1% for managing it all, so you always know where you are.
This brilliant little video explains it all - completely jargon free - and you can find out more here too. They'll deal with your desposits, your ISAs and your pensions for a start. Happy intelligent investing!
Disclosure - This is a collaborative post but all words are my own obvs.
