How to Lend Money to Organisation

As a private individual, you can lend money to organisations. Many people already do this without realising it. When you invest £1,000 in a bank or building society savings account, for example, you are in fact lending the bank or building society that £1,000, and it will pay you interest for it. The longer you leave the money with the bank, the more interest it will pay.

Again, you should pay special attention to percentages. In this case, however, you should look for the highest percentage possible, because this time the bank is paying you interest, not the other way round.

The difference between how much interest you will earn with one organisation and what you will get somewhere else can be staggering. Sometimes interest rates vary hugely between accounts run by the same organisation. For example, a couple I know very well recently came into an inheritance of £80,000. When the cheque came through, they put it in the same building society savings account they’d had for the last 10 years, trusting that their money was safe there and believing it would grow. I asked them what interest rate they were currently getting from that account, and they didn’t know. When they checked with the building society concerned, they found that they were getting 0.01 per cent per annum. In simple terms, this meant that if they had left their money in there for a year, it would have earned them only £8 in interest.

‘That doesn’t sound like much interest for all that money,’ they said, and they were right. It was a terrible rate. So we shopped around for other options. Simply by opening a new but similar account with the same building society, they found they could earn 2.5 per cent interest – that worked out at £2,000 a year, a whopping £1,992 more than if they had left it where it was.

Organisations such as building societies often pay a good interest rate on a new savings account when they first introduce it, but later make that account obsolete, reduce the rate of interest on it drastically, and then bring in a new savings account with a more acceptable rate of interest. New savers will automatically get the better interest rate by opening a new account, but loyal, long-term savers who have kept their money in the same account for years, will suddenly lose out because the interest rate has fallen dramatically. The worst thing about this practice is that these loyal savers are often unaware that this has happened because they receive no notification from the building society, and they continue to lose money year in, year out. This is what was happening with the couple who had put their £80,000 into their old building society account. When they first opened the account, it was earning a much better rate of interest, but this account had been phased out for everyone except the existing investors, many of whom would have had no idea that they were now losing out. In this couple’s case, when they went to pay in their £80,000, they were not even told at the counter that they would be much better off putting it into a new account. While many staff at banks and building societies will tell you about better rates of interest on new accounts when you go there, this doesn’t always happen, so make sure you shop around.

Going back to the couple’s case, we continued shopping around. We found that, if they put their £80,000 into an internet savings account, they could get even more interest – 4 per cent per annum – which worked out at £3,200 a year – an enormous £3,192 more than they would have got if they had left it where it was. It made the £8 a year they were getting in their old account look absolutely pitiful.

In the end they decided against the internet route because they weren’t comfortable with the idea of banking by computer, but they did agree to switch to a new account with their existing building society so that they could take advantage of the 2.5 per cent interest rate instead of the meagre 0.01 per cent they had been receiving under the old account. So simply by shopping around and switching accounts, they had earned themselves an extra £2,000 a year instead of just £8.

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About the Author: Marie Mayle is a contributor to the MegaHowTo team, writer, and entrepreneur based in California USA. She holds a degree in Business Administration. She loves to write about business and finance issues and how to tackle them.

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