How do stocks work?

Companies issue shares to raise money often through an initial public offering (IPO), which allows them to sell ownership stakes to investors.

Once listed on a stock exchange, these shares can be bought and sold by the public. 

The price of a share is driven by supply and demand. If more people want to buy a stock than sell it, the price goes up, and vice versa.

Market value (or market cap) is the share price multiplied by the total number of shares. 

Prices change based on company performance, news, investor sentiment, and broader economic factors.

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Why invest in stocks?

Investing in stocks gives you the chance to grow your money if a company's value increases over time.

Some stocks also pay dividends, a portion of company profits shared with shareholders, potentially providing regular income. 

Over the long term, stocks have historically outperformed cash savings and helped investors build wealth. While short-term ups and downs are normal, staying invested can pay off.

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How do stocks make you money?

As mentioned above, investors can potentially make money from stocks in two ways:

1. Capital appreciation - this means the price of your stock has increased. When your appreciated money is invested in a stock, you won’t make a profit until you ‘realise’ your gains by selling it.

2. Dividends - this is a share of a company’s profit, paid out to you in cash. Not all stocks offer dividends, and payouts are at the discretion of the company. 

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Types of stock explained‍

1. Growth stocks aim for rapid expansion and often reinvest profits, so they may not pay dividends. 

2. Value stocks are seen as undervalued by the market and could offer higher potential growth. 

3. Dividend stocks regularly share profits with investors, providing income alongside potential growth. 

4. Blue-chip stocks are large, established companies known for stability

5. Penny stocks are low-priced and higher risk, often tied to smaller or newer businesses. 

Each type comes with its own balance of risk and reward, so it’s worth matching your picks to your goals and comfort level. Understand stock market basics.

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Risks of investing in stocks

Stock prices can rise and fall quickly due to market volatility, meaning there’s always a risk of losing money.

Emotional investing, like panic selling during downturns, can lock in losses and hurt long-term returns. 

It’s important to understand your risk tolerance and avoid reacting to short-term market noise.

Diversifying your investments and staying focused on long-term goals can help manage risk investments. A steady mindset is just as valuable as a strong portfolio.

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Stocks summary

Stocks let you buy a slice of a company, with the potential to earn through rising prices and dividends — though prices move up and down.

They’re a powerful tool for long-term growth, especially when you stay diversified and think long-term.

Next, we’ll explore investment bonds — typically a steadier asset than stocks that can offer regular income and help balance risk in your portfolio.

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FAQs

Is investing in stocks worth it?

Investing in stocks can be one of the most effective ways to grow wealth over time. While there are risks, stocks have historically outperformed cash savings and inflation, especially over a long-term investment horizon.

Do all stocks pay dividends?

No, not all stocks pay dividends. Some companies reinvest their profits to fuel growth instead. These are often called growth stocks, while dividend-paying stocks provide income alongside potential capital gains.

Which stock is best for beginners?

There’s no one-size-fits-all answer, but beginners often start with well-known, stable companies (blue-chip stocks) or consider index funds and ETFs, which spread your money across many stocks to lower risk.

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Direct investment into individual stocks is not available via the Chip platform. Chip offers investment funds that invest in different assets as a collective investment.

We are taking the app offline during the night (10:30pm - 1am) on Tuesday 20 January 2026 to perform essential maintenance.

During this time, you won't be able to open your Chip app to access your account, or make any deposits or withdrawals.

This won’t affect your balance or any pending transactions, and normal service will be resumed early morning on Wednesday 21 January 2026.

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What we’re doing

We are making some software updates and routine security upgrades.

We need to temporarily take the app offline to ensure minimal disruption to payments and processes, and we’re working through the night to limit the impact to Chip members.

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We’re here to help

If you have any questions, the team will be happy to help. Simply hop into your in-app chat, or drop us a line to hello@getchip.uk.

What is a pension fund? 

A pension fund is a large pot of money pooled together from many different pension savers. Professional fund managers use this pool to buy a diverse range of assets within their pension plans, such as:

• Shares: (equities): Owning small parts of companies (e.g. Apple, Shell, Tesco). Historically, these offer high growth but come with higher volatility. 
• Bonds: Loaning money to governments or corporations in exchange for interest. These are generally safer/lower risk but offer lower returns.
• Property: Commercial real estate like warehouses and office blocks.

By investing in a fund, you don’t choose specific investments yourself. The aim of holding a fund is to spread your risk over hundreds or even thousands of assets, to smooth out the ups and downs of the market.

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What is a target date fund? 

A target date fund (TDF) is a type of pension fund designed to make retirement planning simple and automatic.

Instead of asking you to choose a level of risk when you start pension saving, you simply enter the year you plan to retire.

• In the early years (when retirement is far away) the fund automatically invests mostly in shares to maximise growth. You can afford to take risks because you have time to recover from market dips.
• In the later years (as you approach retirement) the fund gradually shifts your money into safer assets like bonds. This protects your pot from volatility as you get closer to needing the money.

The ‘glide path’ approach removes the need for you to constantly monitor and rebalance your portfolio, as the fund does this for you.

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Choosing a pension fund 

If you are managing your own pension (like in a SIPP) or looking at your workplace options, choosing the ‘right’ fund depends on your timeline.

• Timeframe: If you have 30+ years until retirement, inflation could erode the returns from lower risk assets, so some exposure to shares can help beat rising prices. If you’re retiring next year, you’ll likely want the safety from cash or bonds. 
• Risk tolerance: Think about the risk you’re comfortable with. Can you handle watching some ups and downs as the market moves? If not, a lower-risk fund might be better suited to you, even if returns are lower.

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What is a default pension fund?

A default pension fund is the investment option you’re automatically allocated when you join a workplace pension scheme. It’s a ‘one-size-fits-all’ solution for the average employee.

While default funds are regulated to be suitable for most people, they are not tailored to your specific circumstances or retirement savings trajectory.

They typically take a balanced approach that’s potentially too cautious for the younger saver or too risky for someone closer to retirement.

Some default funds use a target date approach and adjust automatically, check whether yours does. 

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How to check your pension fund  

To check which pension fund you’re invested in and how it's performing:

1. Log in to your provider’s app or website
2. Find your fund ‘factsheet’. This document will give you a breakdown of what the fund is invested in, along with past performance and the risk profile.
3. Check your fees: Look for the Ongoing Charge Figure (OCF) or Annual Management Charge (AMC). Just as investment returns compound over time, so do the costs of high fees, making them more damaging than they might initially appear.  

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Pension consolidation

Understanding where your pension savings are invested is crucial, but this can be very difficult to track if you have a lot of different pots from previous jobs; some of which you may have difficulty accessing.

Managing a portfolio of scattered funds can mean you’re paying higher fees, losing track of documentation, and lacking a clear strategy. One solution to this may be  to consolidate; bringing your pensions to one provider that gives you complete oversight over how much you have and where it’s invested.

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Note: Before consolidating, check whether any of your existing pots have valuable guarantees, such as a guaranteed annuity rate, that would be lost on transfer. Read our next guide to learn more.

‍Important limitation: The Chip SIPP does not currently offer a drawdown service. To access your funds at retirement, you will need to transfer your pension to a provider that supports drawdown.

For millions of people, podcasts are a valuable source of information and entertainment, covering a wide range of topics. It is unsurprising, therefore, that a number of them focus on finance and money management. 

Whether you're looking to learn about budgeting, investing, or staying updated on economic trends, podcasts offer a convenient way to access expert insights and advice. Below are some of the best finance podcasts in the UK that cater to both beginners and seasoned savers alike.

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Money Box

Money Box, from BBC Radio 4, is a longstanding podcast that delves into various financial issues affecting individuals and businesses across the UK.

Hosted by Paul Lewis, it covers everything from pensions and mortgages to consumer rights and tax implications. Each episode features in-depth analysis, interviews with experts, and practical advice, making it a reliable resource for staying informed about personal finance matters.

Listen here

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The Martin Lewis Podcast

Hosted by finance guru Martin Lewis, the man behind MoneySavingExpert, this podcast aims to answer financial questions from listeners, offering valuable money-saving tips and simple, easy to grasp guidance. 

Listen here

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The Meaningful Money Personal Finance Podcast

Hosted by Pete Matthew, this podcast is — as the name suggests — dedicated to giving listeners the knowledge and skills to make informed financial decisions.

Pete covers essential topics such as budgeting, saving, investing, and planning for retirement in a straightforward and accessible manner. Whether you're just starting your financial journey or looking to enhance your money management skills, this podcast offers practical tips and tangible, actionable advice.

Listen here

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The Property Podcast

Hosted by property experts Rob Bence and Rob Dix, this podcast focuses on the UK property market and property investment strategies.

Whether you're a first-time buyer, seasoned investor, or simply interested in the real estate sector, it provides insights into buying, selling, and managing property. Episodes include discussions on market trends, property financing, and tips for successful property investments, making it a valuable resource for anyone looking to navigate the complexities of property ownership.

Listen here

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The Money To The Masses Podcast

Hosted by Damien Fahy, The Money To The Masses Podcast offers practical advice on personal finance, investing, and money-saving strategies.

Released every Sunday, Damien breaks down complex financial topics into easily understandable concepts, providing listeners with actionable insights to improve their financial wellbeing. 

Listen here

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The Rest is Money

Produced by podcast giants Goalhanger, the company behind The Rest Is Politics, We Have Ways of Making You Talk and The Rest Is History, The Rest is Money delves into the stories behind the money, looking at who's making it, who's spending it, and who's investing it.

Hosted by Robert Peston and Steph McGovern, each episode offers valuable insights into navigating the complexities of the financial landscape.

Listen here

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Money Clinic with Claer Barrett

Hosted by the FT’s money-making expert Claer Barrett, this podcast responds to real-life money questions from a range of guests — predominantly millennials — who are gearing up to battle the cost of living crisis. Each episode contains information, tips and takeaways shared by top FT writers and financial experts. 

Listen here

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Why listen to finance podcasts?

Finance podcasts provide a wealth of information and insights that can help you enhance your financial literacy and make better, more informed decisions about money management.

Whether you're looking to learn about investment opportunities, save for retirement, or simply improve your financial habits, podcasts offer a convenient way to access expert advice and stay updated on the latest trends in finance.

What is a private pension? 

A private pension is a pension you build yourself, separate from your workplace pension. tIn most cases only you contribute, though limited company directors can also receive employer contributions from their own company."  Either way, you’ll still receive tax relief on qualifying contributions and you decide how much to pay in and where the money is invested.

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The main types of private pensions

‘Private’ or ‘personal’ pension is often used as a blanket term for all of these options, there are actually three distinct types of pension ‘wrappers’. They all offer the same tax-relief, they differ in fees, investment choice and flexibility.

What is a personal pension?

Sometimes called a standard personal pension, this is the most common off-the-shelf option offered by large providers such as Aviva, Royal London etc. 

• You pay into a pot which is invested in a range of funds managed by the provider. 
• It’s a straightforward option for those who want a hands-off approach, as the provider handles your investments based on your risk profile.
• You’ll have less control and a narrower choice of investments compared to a Self-Invested Personal Pension (SIPP).

What is a stakeholder pension?

A stakeholder pension is a specific type of personal pension that has to meet strict government rules around fairness and accessibility.

• Providers can charge a maximum of 1.5% (drops to 1% after 10 years), and they must accept low minimum contributions (£20). 
• They are a popular choice for people on lower incomes or those who need to stop and start payments frequently without penalties.

What is a SIPP?

We’ve already covered the Self-Invested Personal Pension, but here’s a quick reminder in the context of other private pensions. 

This is the ‘DIY’ version of a personal pension, where you can select your investments yourself and have full control over your investment decisions. You typically aren’t limited to a standardised set of investment options, you can choose what works for you, and keep full oversight.

What is a junior SIPP?

A junior SIPP is a tax-efficient way to save for a child’s retirement. A parent or guardian can open the account, but the money belongs to the child.

You can pay up to £2,880 a year into the account. The government adds tax relief of £720 to this bringing the total to £3,600. The child cannot access the money until they reach age 55 (rising to 57 in 2028). 

What is a Lifetime ISA? 

A Lifetime ISA (LISA) is not technically a pension, but it is often used as an alternative for self-employed people. 

• You can save or invest up to £4,000 a year, and the government adds a 25% bonus (up to £1,000 free). 
• You must open a LISA before your 40th birthday, and can only continue making contributions until age 50. 
• You can withdraw the money tax-free after age 60. If you take it out earlier (unless buying a first home), you pay a 25% penalty. Note that the 25% penalty claws back more than just the government bonus — on a £100 contribution you'd receive £125 with the bonus added, but the penalty takes £31.25, leaving you with just £93.75. You effectively lose a small portion of your own money, not just the bonus. 
• Pension vs LISA: A pension is often preferred by higher-rate taxpayers (because you get 40% relief), while a LISA can be excellent for basic-rate taxpayers who want tax-free access at 60.

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Private pensions for the self-employed

If you’re self-employed your income may fluctuate, and pension saving can seem daunting if you’re unable to commit to a fixed monthly Direct Debit. A SIPP can give you:

• Flexibility to adjust contributions to your pension. You can pay in lump sums when you have a good month, and pay nothing if you need to take a break.
• Full transparency and low fees make SIPPs a good option if you aren’t ready to invest immediately.

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Private pensions for a limited company director

If you run your own limited company, a good way to save is actually through employer contributions:

• Instead of paying yourself a salary (which is taxed) and then paying into a pension, your company pays directly into your pension.
• This counts as an allowable business expense. Your company saves Corporation Tax on the contribution, and you pay no Income Tax or National Insurance on the money entering your pot. 

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What age can I draw my private pension? 

Private pots are designed to support you in later life, so the government has set rules for when you can start withdrawing the money from your pension.

• Under current rules you can access your pension from age 55.
• From 6 April 2028, the minimum pension age will rise to 57.

This applies to almost all private pensions (SIPPs, stakeholder and personal). The main common exceptions are if you are unable to work due to serious ill health, in which case you may be able to access it earlier.

Also, if you joined certain pension schemes before 3 November 2021, you may have a 'protected pension age' allowing you to access that pension from 55 even after the 2028 change. 

Read our full guide on retirement ages.

Many couples do not share a bank account. Some claim to be blissfully unaware of their partner’s penchant for purchasing campervans and coffee machines.

But, in all seriousness, do you actually know how much (or little) your partner has stashed in their pension?

In my experience, most couples don’t know the size of their personal “pensions gap”. Most of us have a ragtag collection of pensions from previous jobs and millions of people have lost track of one or more of these. But the higher earner is likely to have the lion’s share of the pension savings — especially so if the couple have children.

The person with the smallest pension is almost always a woman. It’s not always the case — I am an exception to this rule — but raising a family weighs more heavily on a woman’s lifetime earnings potential.

The associated “gender pensions gap” means that by the age of 55, the average manh as amassed a pot that’s nearly twice as big as the average woman’s.

You might think: “Well, if one of us has an OK-sized pension, we’ll muddle through.”

But there is a powerful case for the higher earner paying into what can be one of the family’s most neglected financial assets — the lower earner’s pension.

Yet, even if couples wanted to do so, there’s a big reason why they wouldn’t: tax relief. If the higher earner can enjoy higher- or additional-rate tax relief on their own pension contributions, why fund contributions for a lower earner, who may only get basic-rate relief? As millions more workers are dragged into higher-rate tax bands, this issue will intensify.

It’s an even worse deal for non-earners. The higher earner can pay a paltry £2,880 per year into their pension (topped up to £3,600 with tax relief). Introduced in 2001, this threshold has scandalously never increased with inflation. If it had, it would be around double this level by now.

Sir Steve Webb, the former pensions minister and partner at pension consultancy LCP, has a bold request for the new chancellor: let’s change pensions policy to make it more attractive for couples to even out their pension saving by making higher-rate tax relief transferable.

“We don’t need yet another report on the gender pension gap, we need some action to close it,” he says.

Changing tax relief rules to incentivise higher earners to divert pension savings into their partner’s name is one of the only meaningful ways to close it. Crucially, this would benefit couples that stay together, and those who split up.

“It is far better for women to have decent pensions in their own right while part of a couple than to hope that pension sharing after a relationship breaks down will do the job,” he says.

Webb is urging the government’s Pensions Commission to consider the dramatic rise in the number of single pensioners. The number of divorced over-65-year-olds has trebled in the space of two decades (see chart). Technically, pensions should be part of divorce settlements, yet only 13 percent of divorcing couples consider pensions in financial settlements, according to L&G.

In fact, solicitors tell me the new “no-fault” divorce rules discourage couples from pursuing the admin hassle of a pension-sharing order in their desire to achieve a quick uncontested split.

But that’s assuming you’re married. The number of cohabiting adults has nearly doubled to 5.4mn over the past two decades. Nowadays, nearly 15 per cent of all couples who cohabit are over 50, up from just 2.6 per cent.

Solicitors tell me that when relationships break down, older women in this position are flabbergasted to learn they’re entitled to nothing from their partner’s pension or future earnings (the myth of the “common-law partner” has a lot to answer for). The government recently launched a consultation into this problem, but that won’t yield quick results. Webb notes that pensioner poverty is rising fastest among the divorced and those who have never married, and women are the worst affected.

Changing tax relief to incentivise couples to build up pensions more equally while they are together would help to address this, but why would any chancellor agree?

“The question to ask is, what would happen otherwise?” Webb argues.

If one half of the couple benefits from the tax relief that the other half would have received anyway, there’s no additional cost to the taxpayer. And if the lower earner ends up with a much better pension, they’ll be less likely to claim means-tested benefits in future should the couple split up.

But even if you are married and stay together, another emerging risk is that your future pension could die with your partner.

The person whose name is on the pension is solely responsible for deciding how this money will be invested or accessed. Presently, record numbers of retirees are trading their defined contribution pension pots for annuities, but two-thirds of those sold are single-life policies. Buying a joint-life policy would leave a widowed partner with an income after the policyholder dies, but many shun this as it reduces the amount of income paid out every year.

All of the UK’s big workplace pension schemes are currently designing “default” retirement journeys for members who do not make an active choice when accessing their pots. Many industry watchers fear that if single-life annuities become the default, the potential damage to women’s pension prospects in later life will be even more acute — something that must not be allowed to happen.

We may wait in vain for policymakers to address any of these risks. So, here are three basic things couples could do this weekend to boost their joint pension prospects.

First, check your state pension forecast — if the lower earner has missing years of national insurance contributions, it could be worth paying to top these up and boost their state pension in retirement.

Second, if they work, they should email HR to ask if their employer will match any extra workplace pension contributions (this is worth doing even if they only get basic-rate tax relief).

And third, make sure you’re each other’s “nominated beneficiary” on all of your pensions. This takes less than a minute to sort on most workplace pension apps, but considerably longer if one of you dies without doing so.

Pensions might not sound like the most romantic of topics, but there’s a lot to be said for caring about a more secure retirement for your partner.

How are pensions taxed? 

Many people believe pensions are completely tax-free, however, they are actually ‘tax-deferred’. You are deferring tax today, to pay it later, usually when your income (and tax bill) is typically lower in retirement. 

Do you pay tax on your personal pension? 

Yes. Once you have taken your tax-free cash, any regular pension income or lump sums you withdraw from your private or workplace pension are usually treated as  income.

This is added to any other income you have (like the State Pension) and taxed at your standard Income Tax band i.e. 20%, 40%, or 45% for England and Wales (Scotland Tax Bands are different. 

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Do you pay tax on your State Pension? 

Yes, the State Pension is taxable income. However, the government will not deduct the tax from the State Pension payment itself. 

• The State Pension uses up part (or soon to be all) of your Personal Allowance of £12,570 that you can earn tax-free.
• If your total income (State Pension and private pot) exceeds the Personal Allowance, the tax is usually deducted from your private pension provider before they pay you.

Read our full guide on the State Pension.

Do you pay tax on pension contributions? 

No, you won’t pay tax on pension contributions. In fact, the opposite happens. You receive tax relief on contributions, meaning the money enters your pension free of Income Tax.

With tax relief, the government is technically ‘paying you back’ for the tax you already paid. 

Do you pay tax on your pension lump sum? 

Usually, the first 25% of your pension pot can be taken completely tax-free. The remaining 75% is taxed as income.

• It’s important to note if you take a single lump sum that includes both the tax-free and taxable parts, the taxable portion could push you into a higher tax bracket for that year, resulting in a large tax bill.

Read our full guide on the tax-free lump sum.

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How does pension tax relief work? 

Pension tax relief is designed to refund the Income Tax you would have otherwise paid on your earnings. It acts as a government top-up to your retirement savings, boosting the amount that goes into your pot.

The "Net" vs. "Gross" Calculation

Tax relief is calculated as 20% of the "gross" contribution (the total amount in your pot after the top-up). This is equivalent to a 25% top-up on the "net" amount you pay in.

• Example: If you pay in £80 (your net contribution), the government adds £20 (25% of your payment). This totals £100 in your pension. That £20 represents exactly 20% of the final £100 gross total.

How tax relief is applied depends on the type of scheme you're in:

• Relief at source (most personal and some workplace pensions): You contribute from your take-home pay, and your provider automatically claims 20% basic rate relief from HMRC, adding it to your pot. If you're a higher or additional rate taxpayer, you claim the extra back through Self Assessment.
• Net pay (most workplace pensions): Your contributions are deducted from your salary before tax is calculated, so you automatically receive full relief at your marginal rate, no claiming required.

Taxpayer Brackets

• Basic rate taxpayers: You receive the automatic 25% top-up on your net contributions as shown above.
• Higher rate taxpayers: You can claim back an additional 20% through your Self-Assessment tax return. This means a £100 total contribution effectively costs you only £60 out of pocket.
• Additional rate taxpayers: You can claim back an additional 25%, meaning a £100 total contribution effectively costs you only £55.

This relief doesn't happen automatically, you need to claim it via a Self Assessment tax return. If you're a higher or additional rate taxpayer and haven't been doing this, you may be owed a significant rebate. 

Remember: If you are in a ‘net pay’ workplace scheme, this relief usually happens automatically before tax is deducted from your salary. Tax treatment depends on your individual circumstances and may be subject to change in the future.

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The allowances

While the tax breaks are generous, they are not unlimited. If you save too much into a pension, or hold too much wealth, you hit the government's thresholds.

What is the pension annual allowance? 

The pension Annual Allowance is the threshold for how much you can save into your pensions each tax year while still receiving tax relief.

• The limit For the 2025/26 tax year is £60,000 (or 100% of your earnings, whichever is lower).
• This £60,000 limit includes your contributions, your employer's contributions, and the government's tax relief.

What is the tapered annual allowance? 

If you are a very high earner, your annual allowance threshold may be reduced (tapered) below £60,000.

Generally, this only applies if your ‘adjusted income’ (total taxable income and pension contributions) is over £260,000.

For every £2 your income goes over £260,000, your annual allowance is reduced by £1. The allowance can drop as low as £10,000 for the highest earners.

This only applies if your threshold income (total taxable income, excluding pension contributions) exceeds £200,000 and your adjusted income exceeds £260,000. 

What is the lump sum allowance? 

In April 2024, the government abolished the ‘Lifetime allowance’ (the cap on the total size of your pension pot). However, they kept a strict threshold on the tax-free cash you can take.

This is called the Lump Sum Allowance (LSA).

• The limit on the tax-free amount you can take over your lifetime is currently £268,275.
• You cannot take the excess tax-free if your 25% lump sum would exceed this amount, and this portion would be subject to Income Tax.

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Pension funds

Once your money is inside the pension wrapper, it doesn't just sit there like cash in a bank account. It is put to work.

Your contributions are used to buy assets like shares in companies or government bonds, which are grouped together into a ‘fund’.

Understanding what this fund is, and whether you are in the right one for you, is one of the most significant factors in how much your pot will grow over time. Learn more about pension funds.

What is investing?

Investing is the act of putting your money into assets – like stocks, bonds, funds, property or businesses – with the goal of growing your wealth over time (we’ll come back to assets). 

Unlike saving, which typically means holding cash in a bank account, investing allows your money to work for you, potentially earning returns through compounding – the further returns that your reinvested returns earn, or dividends – payouts of cash from positive returns. 

Another key difference is that with investing, your money can go up or down in value, which we’ll explain in more detail. 

Whether you're investing for retirement, buying your first home, or building long-term financial security – starting early and staying consistent can make a huge difference.

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How does investing work?

Investing works by buying an asset at its current value, with the aim of selling it at a higher, ‘appreciated’ value, and generating a profitable return. 

Depending on the type of asset an investor holds, any potential gains can be ‘realised’ in a number of ways. For the purpose of this guide, we will focus on stock markets, but this concept can be applied to most investments. Learn about stock market basics.

Think of the stock market like a real market: a place where you can buy and sell your shares. If you buy a share for £10, and the value moves up to £15 in the stock market, and you sell, you have made £5. The sale of your share for a profit is called ‘realising’ your gains. 

For the period you own your share, you are a ‘shareholder’. You can learn about how stocks work here.

The movement of share prices within the stock market relates to the performance and value estimations of a company. As previously mentioned, these prices can move up or down, sometimes dramatically, and this is an important thing to consider when thinking about investing. 

The degree of risk an investor is comfortable with enduring onto assets during price movements, is called ‘risk tolerance’. You can read more about investment risk here.‍

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What are the basic types of investments?

Investors have a number of asset classes they can invest in:

• Equities, stocks or shares are a stake in a company or property. 
• Bonds or fixed-income investments are loans to companies or governments who pay fixed interest as a return. 
• Cash or cash equivalents, such as money market funds, invest in short-term debts.
• Property is where the value of your investment is held within a property’s price.
• Commodities are assets such as gold or silver.
• Cryptocurrencies are digital currencies created and stored electronically. 

A collection of assets is called a portfolio. You can invest in one or more of these assets at the same time, and investors generally choose to hold a mix of asset classes, to make their portfolio diverse. You can read more about asset classes in our full guide. 

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Investing vs saving: what’s the difference

As we’ve already touched on, the value of your investments can go up or down. This differs from a savings account, where you are given an interest rate.

This interest rate is a guarantee that the nominal value of your savings will appreciate, and pay out interest within your savings account. 

For example, if you save £100 at 5% AER, the value of your savings will be £105 at the end of year one. Simple, right? Well, there is an invisible force at work against your money, called inflation. 

Think of inflation, simply, as things getting more expensive over time. If a loaf of bread costs £1, but inflation is 5%, the next year it will cost £1.05.

The same goes for your savings. If inflation is 5%, and your interest rate on your savings is 5%, the purchasing power of your money will remain the same after a year.

With investing, your money is closely tied to the performance of the assets you’ve invested in.

For example, if you bought a share in a company for £100, and after the first year, the value of that company had appreciated 5%, your investment would be worth £105. 

Historically, investment returns have outperformed the interest of cash savings accounts, and can act as a better protection against inflation, if your returns are higher than the inflation rate.

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How much do I need to start investing?

With Chip, you can start investing from £1. Traditionally, investing has been viewed as an expensive activity, due to previously high brokerage fees and minimum investments. 

The rise of online investing has made investing far more accessible, and sustainable for all of us.

Investing little and often, with a proper investment strategy is the most effective way to grow your money, and this is far more important than having loads of cash to get started.

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Understanding investment accounts

If you’re ready to get started with investing, the first step is to choose which investment account is right for you. 

With Chip, you can choose to invest with either a Stocks & Shares ISA, or a General Investment Account. The core difference between these two accounts, is the Stocks & Shares ISA gives you access to tax-free returns (invest or save £20,000 each tax-year across all ISAs) and the General Investment Account does not. 

So, if you have some of your £20,000 allowance to use, a Stocks & Shares ISA could be your best option, and if you have used your allowance this tax-year, you can opt for a General Investment Account. 

These aren’t your only options when it comes to an investment account, and our next guide covers what’s out there in the UK, to give you the full picture. 

Seccl Custody Limited is the ISA Manager for the Chip Stocks and Shares ISA. Fund management charges apply. ISA limits apply. Invest £20k per tax year. Chip does not provide tax advice or financial advice. Tax treatment depends on individual circumstances and may be subject to change in the future. GIA proceeds are potentially taxable, subject to any annual exemption that may apply.

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How does a Savings Account Work?

‍Banks tend to offer a range of savings accounts with various interest rates. When you deposit money into a savings account, the bank will usually pay a small amount of interest on that money, which means that your balance will grow over time.

You can usually withdraw money from a savings account at any time unless it’s an account which requires you to send a notice to withdraw funds.

In general, savings accounts are a safe and easy way to help save money and earn interest on that money too. Learn some money saving tips.

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What Types of Savings Accounts are available in the UK?

‍There are a variety of savings accounts available in the UK. Some of the more common accounts are:

1. Easy Access Savings Account: This type of savings account allows you to deposit and withdraw money at any time, typically with no notice period or penalty for withdrawals. They usually have no minimum deposit requirements. Learn more.
2. Notice Savings Accounts: These accounts require you to give notice before making a withdrawal, usually 30, 90 or 120 days. Notice accounts tend to have a higher interest rate than easy access accounts.
3. ISA (Individual Savings Account): ISAs are tax-free savings or investment accounts that allow you to save money without paying tax on the interest earned. There are different types of ISAs, such as cash ISA or stocks and shares ISA.

Chip does not provide tax advice. Tax treatment depends on individual circumstances and may be subject to change in the future.

It’s always important to do your own research into the various savings accounts available and find one that best fits your needs.

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Opening up a Savings Account

‍It’s typically very simple to open up a savings account. However, you should make sure you do your research to ensure you open a savings account that’s right for you. Some tips for finding the right savings account include:

1. Interest Rate: Look for savings accounts that have a high AER (annual equivalent rate). The higher the AER, the more interest you can earn through deposits and the account balance. Learn more about interest rates.
2. Fees: Some savings accounts may come with fees, which could be for monthly maintenance or fees for withdrawing. Make sure you check the terms and conditions to ensure you don’t have to pay unexpected fees.
3. Accessibility: You should consider whether your cash can be instantly accessed or you need to give notice to withdraw funds. As a general rule you shouldn’t put savings you may need to access instantly in notice or fixed term savings accounts.
4. Minimum Deposit Requirement: Some savings accounts require a minimum deposit to open the account, while others don’t. Choose an account that best fits your financial situation.

It’s a good idea to shop around and compare the different savings accounts available, to find the one that best fits your needs.