If you have a low-risk tolerance, consider prioritising investments that are less likely to lose value. While eliminating risk completely is impossible when it comes to investing, there are steps you can take to mitigate it as a low-risk tolerance investor.

Investment strategies like diversification and rebalancing can offer some stability to your investment portfolio. But if you’re looking for a safer way to grow your wealth, high-interest savings accounts can help you maximise the return on your money, while providing a strong level of protection. We cover the benefits of high-interest savings accounts. Because you don’t have to be a high-risk investor to gain high-interest rates.

Understanding your risk tolerance

Risk and reward work hand in hand when it comes to investing. All investments come with a degree of risk, regardless of the type of assets you have. The more risk you take on, the greater potential for a higher return.

Your risk tolerance is your willingness to cope with a decline in the value of your investments. If you're evaluating your risk tolerance, consider how comfortable you are with the possibility of your investments losing value, while also weighing the potential for above-average gains that this type of asset might offer.

Some investors are prepared to sustain losses in pursuit of a market-beating gain. Others prefer to play it safe, choosing to settle for the lower returns that come with lower risk investments.

Benefits of high-interest savings accounts

If you’re looking to protect your wealth but still receive returns on your account balance, one or multiple high-interest savings accounts could be the most suitable option for you.

Here are some of the benefits of high-interest savings accounts:

FSCS protection

High-interest savings accounts that are regulated by the Financial Conduct Authority (FCA) are protected under the Financial Services Compensation Scheme (FSCS) up to a certain amount. This means should your bank fail, your eligible savings are protected up to £85,000 per financial institution. Just make sure your savings account is both regulated by the FCA and protected under the FSCS to receive this level of security.

Tax-free interest

You can use your Personal Savings Allowance (PSA) to earn tax-free interest up to a certain amount. This allowance amount depends on the rate of income tax you pay. For those with an annual income between £50,271 and £150,000 , you can currently earn up to £500 interest tax-free with the PSA. For more information on how interest works, take a look at our guide to interest rates for savings and investments.

Less risk

Keeping your money in a high-interest savings account can be less risky than investing in other assets like stocks and shares. Investments tend to grow and lose value depending on the market.

Interest rates & account features

The type of savings account you choose can affect the interest you earn. For example, with a fixed-term account, you’ll usually be offered a higher interest rate, and one that is guaranteed. This means your interest rate won’t change during the term. But in return for this higher rate, the withdrawals you’re allowed to make are limited.

With an instant-access account there are no limits to the withdrawals and transfers you can make. But interest rates are likely to be variable, so they may go up and down in line with the Bank of England’s base rate and the bank’s objectives. So, while you’ll have more flexibility, you won’t receive the same return on your deposits as you would with a fixed-term savings account.

Diversification & rebalancing

As a low risk tolerance investor, there are investment strategies that can help you to maximise gains and minimise losses. Spreading your investments across different products and areas is known as diversification. By diversifying your investments, you won’t be relying on just one area to perform well. If your stocks aren’t performing, for example, you can still reap the rewards of your other investments.

Another investment strategy that can benefit you is rebalancing your portfolio. This means buying and selling your assets, or adjusting the weightings of your asset classes to regain your desired level of risk tolerance and asset allocation. It encourages you to review the types of investments you hold, ensuring they align with your risk tolerance and financial goals.

A tailored approach to protecting your wealth

Consulting with a Financial Adviser can alleviate your financial worries, so you can make smarter, more informed investment decisions. Perhaps it’s time to rebalance your portfolio to ensure it’s aligned with your level of risk tolerance. Or maybe a high-interest savings account will give you the peace of mind that your money is protected, as well as giving your finances a boost.

Considering a high-interest rate savings account?

If you’re looking for a way to easily manage and nurture your cash to maximise the return on your savings, our cash-deposit platform is the solution. With just one log in, you’ll gain access to hundreds of accounts from several banks, including exclusive interest rates to help your finances grow.

See how Flagstone can help you - use our cash deposits calculator today to get started.

This article is not advice. If you would like to receive advice on your savings and investments, consider speaking to a Financial Adviser.