Terms of endearment

Look further afield than deposit accounts if you're after big returns

Part of each investor's portfolio should include money which will grow over the long term. But most people do not look any further than their savings account to put money by - and often this is held with the same bank as their current account. This means the rate of interest will be paltry, and growth virtually impossible.

Part of each investor's portfolio should include money which will grow over the long term. But most people do not look any further than their savings account to put money by - and often this is held with the same bank as their current account. This means the rate of interest will be paltry, and growth virtually impossible.

Investment for growth is worth considering, if only to get a better return on savings than a normal deposit account provides. Investment is like climbing a ladder - as you go higher the re-wards go up, but so does the risk.

After a current account the next step is a deposit or savings account. These pay slightly higher interest, though it is worth shopping around because rates vary wildly.Egg's internet account pays 6.30 per cent interest, one of the highest among instant access accounts. Compare this with NatWest's Crown Reserve, which requires a minimum balance of £2,000 and only pays 2.70 per cent.

But a savings account is not the place for money invested for growth; the interest rates are not high enough. "To achieve growth you need to look at something else, like the stock market," says Mike Owen, director of independent financial adviser (IFA) Plan Invest Group.

Deposit accounts are vital as they act as a contingency fund. Mark Dampier, at IFA Hargreaves Lansdown, advises that you hold, say, six months' salary in a deposit account.

Richard Moorfield, senior investment adviser at IFA James Rickett & Son, emphasises the importance of not confusing short and long-term financial planning. "Long-term investments are asset-backed - property or stocks and shares, for example," he says. "If you opt for shares, pooled investments such as unit trusts or investment trusts are the most secure as they help to spread the risk."

But where do you start? The first thing is to use up your tax-free allowance by putting £7,000 this year (£5,000 in subsequent years) in a Maxi individual savings account (ISA).

"Everyone should maximise their ISA allowance," says Rachel Twigg at IFA Hammond Consultancy. "But this should be in equities as a Mini cash ISA delivers negligible returns."

For those averse to risk, with-profit bonds are worth considering as they smooth out returns over time, protecting investors from stock market fluctuations.

Mr Owen recommends that first-time investors stick to something quite conservative, such as UK growth funds. Among those performing well in this sector are ABN Amro UK Growth and Newton Income.

If you are looking to invest for a period of 10 years or more, Europe and Japan are expected to perform well in coming years. Invesco European Growth, Dresdner's Charter European investment trust, Sarasin Equisar, Invesco Japanese Growth and Invesco Japanese Smaller Companies are all recommended.

In the hi-tech sector, where continued growth over the long term seems likely, top performers include Henderson Global Technology, Aberdeen Technology and City Financial Technology Growth.

When investing for the long term, it is possible to put in a lump sum or set up a unit trust or investment trust savings plan and pay in monthly instalments. Mr Dampier says such plans are a good idea if you are saving for school fees, say, as you can put away small amounts each month. Start early and you can build a good nest-egg for their education.

* Contacts: Hammond Consultancy, 0121-643 4101; Hargreaves Lansdown, 0117-988 9880; James Trickett & Son, 01706 212231; Plan Invest Group, 01625 429217.