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Forget the Cash ISA! Here are 3 index tracker funds I’d buy and hold forever

The best Cash ISA rate on the market at the moment is just 1.46%. You can get a better a return on your money if you’re willing to lock it up for 12 months or more, but not much. The best one-year fixed ISA rate on the market right now is just 1.63%.

These dismal rates of interest imply equities are a much better place to invest your money. But where do you start? There are hundreds of stocks and funds to choose from, and they all offer something different.

Instead of trying to pick stocks or actively managed funds, I believe the best approach for beginner investors is to buy low-cost passive tracker funds.

Passive tracker funds are great because they offer exposure to the whole market. This means you don’t have to worry about picking stocks or the performance of a single fund manager. As long as the market is rising, you will make money.

With that being a case, here are three index tracker funds I would buy today to hold them forever.

UK Plc

My first pick is a FTSE 250 tracker fund from global investment bank HSBC.

The HSBC FTSE 250 Index fund tracks the performance of the FTSE 250 index, an index of UK focused mid-cap stocks.

While the FTSE 100 is generally considered to be a global stock index because more than 70% of its profits come from outside the UK, the FTSE 250 is more of a bet on UK plc.

These smaller businesses also have a much better growth track record. Over the past 10 years, the index has returned around 10% per annum outperforming the FTSE 100 by about 3% per year.

The fund charges an annual management fee of 0.18%.

Global investing

My second buy and hold forever index tracker recommendation is the Legal & General International Index Trust.

The goal of this tracker fund is to provide capital growth by tracking the performance of the FTSE World (ex UK) Index. Just under 60% of assets under management are invested in US stocks with the bulk of the remainder invested across developed markets such as Japan and Switzerland and Germany.

This provides an excellent way for UK investors to get exposure to international equity markets without having to put too much time into researching opportunities. The fund owns 2,330 different stocks around the world and supports a dividend yield of 1.9% at the time of writing. The annual management fee is just 0.13%.

Safety in bonds

My final tracker fund pick is the iShares Corporate Bond Index. This instrument is an excellent way for investors to get access to the expansive corporate bond market at the click of a button.

The £5bn fund is structured to track the performance of the iBoxx £ Non-Gilts Overall TR Index by investing in fixed income securities contained in the index. It has an annual management charge of 0.17% and a distribution yield of 2.3% at the time of writing.

As many brokers require a minimum investment of at least £5,000 and as much as £100,000 invest in corporate bonds, the iShares tracker offers the average investor a way to get into this market with as little as £100.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.