Browsing "Money Saving Tips"
As the base rate remains at an all time low, many savers are reaching an unexpected dilemma.
The deputy governor of the Bank of England says that low interest rates should encourage savers to go out and spend their money in order to help kick-start the economy.
Charlie Bean, a member of the committee that determine the Bank rate, advised savers to “eat into” the capital they have built up throughout periods of low rates – now being as good a time as any, as the Bank rate has been at a record low of 0.5% since March 2009.
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While the Bank of England base rate remains a the lowest level ever recorded – 0.5% – most savings accounts offered by banks and building societies pay derisory rates of interest.
At the end of 2009 the average branch based instant access savings account paid a measly 0.17%, which a notice account wasn’t paying much more than 0.33%.
However, if you look at the top 10 savings accounts in the Which4U comparison tables, you will notice that the best rates are offered on fixed rate bonds, so if you’re willing to lock your money away for a fixed period of time, you could be earning up to 4.75%.
How do they work?
A fixed rate savings bond is a bank account that allows you to earn high interest rates in return for agreeing to leave your money without making any withdrawals until the agreed term is reached.
Returns on the investment are limited to the interest paid on the account, which can be calculated before the bond is opened, providing a predictable income.
Fixed bonds differ from standard deposit accounts as the interest rate is guaranteed to remain the same throughout the fixed period. The terms differ, with rates to reflect the term, but they usually last from between 6 months and anything up to around five years.
The interest accumulated every year is added onto the balance and paid on maturity.
It is generally possible to access your funds in an emergency, but doing so would result in the account being charged with a loss of interest.
Banks and building societies offer more attractive rates of interest on this type of investment because it gives them the ability to gain access to secure long term deposits.
Currently, the best five year fixed rate bond pays a rate of 4.75% (Nationwide bond) per annum compared to the best instant access accounts offering 2.80% (Halifax).
You could argue that rates will change over the next 5 years, so you need to consider this when making a decision on the term, as you could find that you are earning less than the current instant access accounts are paying.
Should you consider them?
Savers should consider a number of factors before deciding whether they should invest into a bond and the term they choose.
When will you need the money?
Avoid being drawn in by an attractive rate without fist making sure that you can do without the money until the bond matures.
The cost of borrowing money is usually greater than the return you will get from the bond, so this is a no no.
Are interest rates likely to go up during the term?
This can be a difficult call. The answer is simple, people can make predictions to the direction of interest rates, but no one knows for sure.
But considering how long the Bank of England base rate has stayed at 0.5% (since March 2009) and the fact that some economists believe it will remain this low for another 12 months, savers can be more comfortable with getting good rates for just one or two years, giving them the flexibility to reinvest again in a few years time.
What do you give up to qualify for a better interest rate?
For the better return, savers do give something up – the access to their savings for a set period and access now to the interest earned.
So for savers who need an income now these products may not be suitable.
There is also the possibility of losing the chance to use the money more profitably, perhaps by investing in other assets such as equities, or paying off a mortgage.
Investment bonds are fundamentally different and involve investment not saving.
The policies are typically sold by life assurance companies which allow you to invest in a variety of funds (either investment trusts or unit trusts) managed by professional investment managers.
Bonds are usually used for long term capital growth but can also be used as a means to generate income.
Investment bonds tend to invest in a wider range of assets than savings bonds, including UK and overseas equities, commercial property, fixed interest securities, and cash- like investments.
In most investment bonds, investors can choose the amount in which they wish to invest into and can change the weighting of their investments several times a year.
For tax purposes, investment bonds act as life assurance policies, therefore subjecting them to tax on the returns gained.
By Sam Gooch
The new tax year is approaching, and with it comes a new top rate income tax, meaning that those fortunate enough to be earning over £150,000 will be required to pay 50% income tax on anything above this amount.
In addition, higher rate on dividends will move from 32.5% to 42.5% of the grossed up income (equivalent to 36.11% of the net dividend) for taxable income above £150,000.
As a result of the changes to become effective from 6 April, private banks and wealth managers have been advising those who will be affected to act now in order to protect their income. Many are taking steps to bring forward earnings to this tax year, or plan their finances in an attempt to lower the impact.
Below are some tips outlined by Which4U that higher earners should consider:
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To mark the start of the 2009 National Consumer Week we have focussed on a handful of laws that you may find extremely useful when buying products and services, especially during these turbulent times.
You may or may not have noticed it, but consumers are fighting a war against the firms they have to deal with after falling victim to mindless companies, whether it be due to faulty products that need replacing, or out-right poor service.
Sale Of Goods Act
Think twice before upgrading your cover to a five-year extended warranty.
The scenario: Your 42″ HD-Ready plasma TV, the totemic centre of your life, fails to switch on after just 366 days since you first met in the electric store. The firm you bought it from tells you that as you failed to extend your warranty, there is nothing they can do for you, and suggests you purchase the latest model together with the 5-year guarantee.
Tears begin to fill your eyes, dropping onto your lifeless grey screen as you ponder what to do next.
But as long as your tears didn’t cause your TV to smoke – hold that thought – because lucky for you the TV salesman didn’t know what he was talking about!
Here’s why. The Sale of Goods Act states that your TV must be fit for purpose upon purchase.
Dr Christian Twigg-Flesner, a consumer law expert at the University of Hull, says: “It must be as described. It must be of satisfactory quality, sufficiently durable, free from any defects”.
Before you get too excited, you need to make sure you didn’t ignore any of the warnings provided in the manufacturer’s handbook. This can be obvious things, for example you didn’t install it in your bathroom, or attempt to fix it by removing the back in desperation to try to fix the problem. If this is the case then you’re unlikely to have a leg to stand on.
However, if, in the short time you spent together, you treated your television with respect and despite this it still broke down, it could suggest that there was in fact a fault with it when you bought it, which would not meet the above regulation.
In this position, your legal rights will differ depending on the amount of time that has passed since you bought the TV. You could have a case for faulty items for any period of time up to 6 years. Here’s how it works. From the date of purchase, up until four to five weeks (depending on the retailers policy), you have the “right of rejection” – which basically means that if your TV/MP3 Player/Mobile Phone, stops working within this time, you can demand a refund.
Up to six months after the purchase date you are still entitled to get your TV replaced or repair, and if the retailer contests your request, it is up to them to acquire sufficient proof that it was you that was to blame, therefore avoiding responsibility. After this time, you can still get the retailer to replace or repair faulty goods, but in this case it is your responsibility to prove that you were indeed not at fault.
Many will be surprised to hear the next part. Goods are covered by the Sale of Goods Act for up to six years from the purchase date, but you need to be able to argue your corned, as you need to convince the retailer that your item was not “sufficiently durable”.
Government guidelines state that: “Goods are of satisfactory quality if they reach the standard that a reasonable person would regard as satisfactory, taking into account the price and any description.”
Something that should be pointed out is that if you go to the TV repair man and spend £50 in an attempt to diagnose an inherent fault, only to find out that your dog mistook your TV for the tree in your back garden and you failed to notice the damp spot where your TV once stood, then you will end up footing the bill, so be warned.
Another good piece of advice is to remember that your relationship in the Sale of Goods Act is through the retailer rather than the manufacturer.
Dr Twigg-Flesner points out that “The retailer likes shepherding you off to the manufacturer”.
Looking on the bright side of extended warranties, they can offer ongoing services such as technical support, providing useful information, from setting up your appliance, to getting the best use from it. But I wouldn’t necessarily recommend adding one when buying a new electric toothbrush.
The Sale Of Goods Act applies throughout the UK, but has several minor differences in Scotland.
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1. Keep your tyres fully pumped-up and cut your air-conditioning usage
It is estimated that half of all drivers in the UK are driving with under-inflated tyres. This increases the resistance and therefore raises the amount of fuel used. The RAC advises that your fuel bills will increase by up to 2% if your tyres are not fully inflated to the recommended pressure.
Ensure your tyres pressure is kept at the correct level by checking them once a week. You can find out the recommended pressure readings for your tyres by consulting your car manual.
According to the National Energy Foundation, using air conditioning will increase your fuel consumption by up to 25%, so only use it when absolutely necessary. An alternative method to stay cool is opening the air vents, or even simply opening the windows. However, if you’re travelling over 60mph an open window will increase drag which can end up costing more than having your air-con on.
See also: Hard-Up Drivers Desperate to Save – Could New Tyre Labels Help?
2. Service your vehicle
If you fail to service your vehicle regularly you could be reducing fuel economy by over 10%. Some of the key areas that must be covered are changing the air filters, as according to the RAC, dirty filters can seriously increase fuel usage; and regular oil changes, as clean oil will reduce the wear caused from friction of all the moving engine components, thus improving fuel economy.
Both of the tasks mentioned above are inexpensive and can help to drive your fuel costs down.
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A survey carried out by department store John Lewis reveals that 18-24 year olds are the one of the most ‘house proud’ age groups, with almost a quarter of those that took part in the survey revealing that they are reluctant to entertain at home for fear of potential party accidents – close to three times those aged 65 and over, with just 8% worrying about damage, and more than double 55-64 year olds (10%).
The study, involving 2,014 adults from Greenbee Home Insurance (part of the John Lewis Partnership), also found that 26% of this age group ask guests to remove footwear before entering their homes, almost double that of those aged 65 and over (14%) who have been found to have a more relaxed attitude.
It has been suggested that this new age of thinking has been brought on by the credit crunch, as 14% of Brits said they could not afford to replace damaged or broken items based on their current financial situation.
These findings may come as a surprise, turning stereotypes on their head, with a new breed of CHAPS – Cautious Hosts Against Party Stress.
It appears that the Midlands is Britain’s most house-proud region, with an above-average concern in all areas. Over a fifth (21%) of Midlanders make their friends remove their shoes when visiting (compared to 15% of people in South East/London) and 16% prefer not to host house parties, fearing that a party could result in damages caused by party accidents (compared to just 10% of Scots).
These results confirm that the financial crisis has turned the Britain into a nation of paranoid party poopers, but this view can be seen as well justified, as 14% said they’re more worried about household accidents or breakages than ever before as in the current economic climate as they can’t afford to replace any damaged items – rising to one in five (20%) of 45-54 year olds and 17% of women (compared to 11% of men).
James Furse, managing director, greenbee.com said: “It’s no surprise that people, regardless of their age, are cautiously house-proud, particularly with financial concerns foremost in the thoughts of a significant proportion of people.
“While those without cover are understandably concerned about the cost of an unfortunate accident while entertaining, even those with home insurance may want to consider checking their policy small print to make sure they’re covered for all eventualities. Ensuring you have the right home cover in place may offer peace of mind, along with valuable protection.”
There are a number of insurance providers offering cover that will help to offer peace of mind when hosting such an event, so if you fit into the ‘concerned host’ group, be sure to check them out!