Browsing "Banking and Savings Accounts"
Some well-known sayings are there for a reason. “Don’t judge a book by its cover” is among the best of them, and one of the traps we can easily fall into when it comes to judging our banks.
First Direct has just topped a customer service league compiled by Which?. It’s good news for the beleaguered banking industry, and it’s no fluke either. For some time now, the online bank has been lauded for its strong performance and excellent customer service.
But because it’s owned by HSBC, which has gone the other way in recent years, First Direct becomes too easily associated with all the misdemeanours of its parent bank.
Move Your Money, a campaign site that encourages people to switch banks, is one site that is particularly culpable of this blinkered way of thinking. Despite admitting that First Direct ‘has happy customers’, it overlooks this completely, preferring to bracket everything about the bank together with its owner.
Read More »
A fixed-rate bond is a savings product that returns a set amount of interest over a set period of time. So, for example, if you commit to a 2-year bond offering 2%, you’ll receive this annual rate guaranteed for 2 years.
Bonds are generally available for between 1 year and 5 year terms. The longer you commit your funds, the higher rate of interest you’ll normally receive.
Bonds also have a minimum deposit, which can range from £1 to over £10,000. A higher minimum deposit may be less accessible, but it often leads to higher rates.
Once you’ve committed to a bond, you’re not normally allowed to add to it. If you’re looking for an account that allows you to save every month, it may be worth choosing an alternative, such as a regular saver.
You’re also not usually allowed to access your cash once you’ve locked it away, or you could face a hefty interest penalty.
Some bond providers may offer a small number of penalty-free withdrawals or early access to a percentage of your investment (e.g. 25%), but you’re likely to receive a lower interest rate in return for this measure of flexibility.
So a fixed-rate bond is a calculated gamble, in more ways than one. If you think you may access to your cash during the period it’s locked away, it may be worth choosing a different type of account, or sticking to a shorter term.
There’s also a risk that the longer you lock your funds away, the greater the chance that the fixed rate becomes uncompetitive during that time.
But what you do get with a bond is a guaranteed return. And, if we’re honest, there’s no harm in having a little bit of reassurance that you know what you’re getting and for how long.
If you’re a taxpayer, you’ll be used to paying tax on any income derived from your savings. This is why ISAs are important – the returns are completely tax free. So, how do ISAs work?
(Disclaimer: due to changes in regulations, some of the details in this video are now outdated. The script below and our guide to New ISAs both reflect the changes to tax-free acounts.)
Every tax year, savers receive a tax-free allowance. From April 6, this was raised to £11,880. (It has since increased to £15,000.)
You can invest this allowance in cash, which is risk-free and acts like a normal savings accounts. You can invest it into a stocks and shares ISA, if you have an appetite for risk. Or, you can combine, investing some in cash, and some in stocks and shares, up to the maximum limit.
You’re only allowed to invest into one of each type of ISA in any given tax year.
In July 2014, major changes were made to the way that ISAs work. The allowance rose to £15,000, and for the first time, savers became able to invest all of this in cash.
Another advantage of ISAs is that they have cumulative benefits. Once you invest your funds into an ISA, they remain tax free for as long as you want them to.
This means that over several years, you can build up a stockpile of tax-free savings. You should note, however, that any money you withdraw from an ISA is no longer tax free.
If you withdraw money from an ISA or attempt to transfer your ISA funds manually, the cash will lose its tax-free status. Anything you pay back in will count towards your annual allowance.
Not Happy? Transfer Your ISA
But that doesn’t mean that you need to stick to the same account.
If the rate on your account is low or uncompetitive, instead of withdrawing funds from your ISA, you can transfer an ISA from one provider to another.
This doesn’t count towards your annual allowance, and it keeps all of your ISA funds tax free.
Fix for Better Rates
You can also boost your rate of return by locking funds away into a fixed-rate account. But be wary that you could face a loss of interest if you attempt to gain access to funds in a fixed rate product.
Your Yearly Allowance Doesn’t Carry Over
Invest what you can into your ISAs before the end of the tax year. At this point, any unused allowance will be gone forever.
In the years since the financial crisis, banks have restricted access to credit and cut rates for savers. Peer-to-peer sites are designed to bypass the banks and solve both of these problems at the same time.
What is Peer to Peer Lending/Investing?
Peer-to-peer sites act as an introducer – between borrowers looking for credit on the one hand, and savers or investors looking for better returns on the other. Once you take away the bank in the middle, both groups get better rates.
Obviously, peer-to-peer sites need to keep a tight control on where savers’ money goes. They do this by running stringent credit checks on borrowers. When a borrower is accepted, their case will be profiled by risk. This can give investors the ability to opt for high risk/ high return options or vice versa.
The sites do the administration and repayment legwork, taking a fee for their service.
Read More »
On 1st July 2014, the new ISA was launched, which could make a huge difference to millions of savers. Let’s find out more.
ISAs, or individual savings accounts, allow people over the age of 16 to save a certain amount tax free every year.
On July 1st, ISAs became New ISAs (or NISAs) and the annual allowance rose from around £5,000 per year to £15,000 per year.
Previously, savers were only allowed to save half of this allowance in cash. The rest had to go into stock or investment ISAs, which carry greater risk.
Now, savers can invest any combination of cash or stocks, up to the maximum limit. This means that for the first time, savers will be able to invest their entire allowance in cash.
Savers will also have more flexibility over the control of their ISA categories. Previously, it was possible to transfer cash ISA funds into a stock ISA, but not the other way around. That has now changed, and savers can now move their funds freely in both directions.
Savers will also be able to hold cash tax-free within a new stock ISA, whereas previously it was taxed if it wasn’t invested within a certain time period.
Certain aspects of the new ISA will remain the same, so it’s worth re-emphasising these as well.
Staying the Same: 1
Firstly, you can only pay into one of each type of ISA in any given tax year.
Staying the Same: 2
Secondly, you can still transfer your ISA if you’re not happy with the rates you’re receiving. Make sure that you request this transfer from the new provider, as this will keep your funds tax free.
(If you’ve already subscribed to a fixed-rate ISA this term, check with the provider to see if there’s a chance to top this up, and when the deadline is for new contributions.)
Staying the Same: 3
Thirdly, your annual allowance will not roll over to the following tax year, so invest what you can before this point, as any unused allowance gets lost forever.
As we all know, it’s tough to make any decent returns on savings deposits at the moment. It’s become more important than ever to shop around if you want to secure the best deal.
So, how can you make the most of your savings? Here’s a few pointers.
Savings & Tax
Ideally, you want the returns on your savings to at least match the rate of inflation after any tax has been deducted.
So, if inflation is at 2%, a normal rate taxpayer will need to earn at least 2.5% on their savings for their purchasing power to remain the same. A higher-rate taxpayer will need even more.
This is where an ISA comes in handy. An ISA (or individual savings account) allows you to save a certain amount tax-free every year. In July 2014, the individual allowance rose to £15,000, which could take many savers out of tax altogether.
Easy Access or Fixed Term?
Cash ISAs and traditional savings accounts work in the same way. There are easy-access options and fixed-term options.
Easy-access accounts offer the most flexibility. Sometimes, these accounts are propped up by a temporary bonus rate that lasts for just a year. So you may have to chop and change regularly to maintain a competitive rate.
Fixed-term options offer a guaranteed annual rate of interest, so you’ll be unaffected by any changes to interest rates.
The longer you lock away your funds, the better the returns tend to be. But you’re not normally able to add to fixed-term products or withdraw from them. If providers do offer flexibility here, it is normally reflected by a lower rate of interest.
If you prefer to save a little every month, you could benefit from a regular saver account. These accounts tend to offer higher rates because you start from scratch and you’re limited to the amount you can add every month.
Alternatively, have you thought about leaving your savings in a current account? It’s now possible to earn higher rates this way and you’ll maintain full access to your cash.
Now that it’s possible to switch current accounts in just seven days, they now represent another strong option to help savers make the most of their funds.