With the state retirement age recently being pushed back again, and with current pensioners “enjoying” a maximum of £160 a week in state pension benefits, saving for retirement isn’t something you should be putting off.
According to figures from insurance company Standard Life, a male who starts saving at age 30 can get a pension of £10,000 a year at age 68 by saving £149 a month. A lot of people fall into the trap of thinking “that’s a lot, I’ll wait until I’m earning a bit more”. Nice idea, but there’s a nasty sting in the tail.
If our male waits until aged 40 he would have to put by £290 a month to receive the same £10,000 at state retirement age. Ouch.
Ideally, you should be (or should have been?) in your 20s when you start your retirement savings. In fact, as soon as you get your first “proper job” is the best time to start.
The two best ways to save involve keeping your money away from the taxman as much as possible – these are currently using a pension plan, or an ISA.
Pensions offer tax relief on the money you pay in as well as your returns, and come in two forms: workplace and personal.
A workplace pension – also known as an occupational or company pension scheme – is a way of saving for your retirement that’s arranged by your employer.
And under recently introduced rules, all employees aged between 22 and the state pension age who earn more than £10,000 a year should be offered one, although it’s not compulsory that they actually join a scheme (although we think there’s a strong argument that it should be).
The big advantage of pensions like this is that your employer puts money into your fund as well as you, with most companies paying in somewhere between 3% and 10% of your pay each month.
Ideally, your total pension contributions should top this up to around 15% of your salary. That sounds a lot to most people, but you need to be aiming to get as close to this as possible if you want a decent standard of living in retirement.
You do not have to limit yourself to your workplace scheme. Many people also take out a personal pension, where they pay regular amounts or one-off lump sums to a pension provider (often an insurance company) that invests the money.
The amount you pay into your personal pension can be changed as your income changes throughout your working life, and the insurance company will often give you a large range of investment funds to choose from. This usually means more investment freedom than a company pension scheme, although of course there’s no employer contribution.
Cash ISAs (“Individual Savings Accounts”) differ from a normal bank savings account in that they don’t attract any tax on the interest you earn up to a yearly limit.
If you’re lucky enough to be a higher-rate taxpayer this means avoiding income tax at 40% on any savings interest, for everyone else it’s a saving of 20%.
You can also invest in the stock market using an ISA. These stocks and shares ISAs are free from both income tax and capital gains tax, which can be up to 28% if you make a gains of more than the annual allowance of £11,300.
You can transfer money invested either this year or in previous tax years between both cash and stocks and shares ISAs without losing the tax-free status – as long as you don’t physically take the money out. In the 2017/18 tax year you can shelter up to £20,000 from tax in an ISA.
It’s a question we’d all like to know the answer to if we’re looking to borrow money. And if your credit history is less than squeaky clean you might not want to risk denting it further by leaving a trail of applications on your credit file without knowing if you’re likely to succeed.
Luckily our friends at http://www.moneysavingexpert.com have a brilliant Loans Eligibility Calculator on their website that will give you a great idea of your chances of success without leaving a visible search with the credit reference agencies.
By entering your details and how much you want to borrow, this clever widget performs what’s called a “soft search” of your credit file. This means that you can see the search, but any banks or other prospective lenders you may approach afterwards won’t – and as some lenders don’t like seeing too many applications in too short a period this is a great way to see what your loan eligibility is likely to be without actually applying.
The company which helped MoneySavingExpert build the calculator is called HD Decisions, and they work with banks to find out the type of customers they normally accept for each loan. This is based on both the answers you give to the calculator, and the ‘soft search’ of your credit file.
HD Decisions has been around for a few years, and it regularly checks its predicted approval rates against the actual amount of people accepted when they apply. On the testing it’s done, these two match up well. The accuracy varies between providers and can be improved by more people using the tool – so the more of you that have a go, the better it gets!
If things look promising that you can get a good rate loan from the high street, congratulations! It’s likely you’ll be able to borrow reasonably cheaply. But what if the calculator didn’t give you such good news?
Well first of all, don’t rush off to one of those payday lenders who advertise all over the internet, TV and the papers. Even though they’ve been forced to cap their interest rates, the average APR they offer is still over 1,700%! Unless you’re absolutely certain you can pay back the loan when it’s due, it’s likely to roll over and the cost to borrow will escalate.
If you’ve got short-term money issues and you could use a loan to help you through why not check out your local credit union? Unlike a payday lender they don’t operate to make a profit, and they charge fair loan rates for people with less than perfect credit histories. To see an example of the rates you could pay, check out our loan application out we offer soft search function so it won’t impact your credit score.
Paying the minimum payment on your credit card each month will cost you the maximum amount of money
Credit cards can be a useful financial tool. Pay it off in full each month and you can enjoy up to 50 days or so of interest-free credit. Make a large purchase and clear it down over a few months and it can be cheaper than a personal loan for the same amount.
The trouble is, those kinds of behaviours don’t make the credit card company much money. Interest charges are effectively their profit margin, so it’s in their “interest” to make you pay more… interest!
So here’s an example of how paying the minimum balance each month can avoid an immediate problem, but store up an expensive long-term one.
If you have a £1,000 credit card balance that’s subject to the national average purchase interest rate of 19%, and you only make the minimum payment each month (usually 1%), it will take you 18 years and 5 months to pay off that £1,000, and it will have cost you a whopping £1,271 in interest! That means you’ll have handed over a total of £2,271 and been in debt for nearly 2 decades.
Ditch the minimum, and pay it off at a constant £20 each month and you’ll be clear in 7 years 7 months, and that £1,000 will cost you £807 in interest. Not great, but a lot better than sticking with the minimum.
If you can stretch that constant monthly payment to £50 then your £1,000 will be gone in just 2 years for a total cost of £1,191.
If you want to clear the debt in exactly a year (perhaps you’ve spent out on Christmas?) then you’ll need to pay that £1,000 off at £95 a month, and the total cost would be £1,093.
Of course all these examples assume you don’t put any additional spending on the card at all over the repayment periods…
Yes, paying just the minimum each month keeps the reminder letters away, but it will cost you dearly in the long run! Always try and pay more than the minimum balance on your credit card in order to pay less interest overall. If you find yourself getting to the stage where you feel that the minimum payment is going to become all you can afford to pay then it’s definitely time to seek some debt advice.
Thinking about paying the minimum repayment, even only for one month to “tide you over” is an early warning sign that you need to take a good look at your finances and see what you can do to get yourself in a healthier budget position.
Whether you’re starting to feel like money is taking control of you and not the other way round, or you’re looking to boost your credit score, or save up for something amazing, taking a good look at your financial situation is the first step in getting where you want to be.
Luckily taking a financial selfie doesn’t require any fancy filters, a mirror, or a great pout! All you need is a computer, tablet or phone and 2 columns. If you’re old school (or just old, like me) you can even go ultimate retro and use pencil and paper…
If you don’t have any spreadsheet software available, use Google Docs – it’s completely free and it’s cloud based so you can access it anywhere from almost any device. All you need is 2 columns.
Put a heading on the top line of column one – “Income”. On each line put in amounts for all the money that comes in each month. Wages, benefits, any cash you receive from anywhere. Column two needs to be labelled “Outgoings”. This one does what it says on the tin as well – list line by line everything you spend. Mortgage or rent, groceries, insurances, petrol, nights out, new shoes, loan payments. You need to be honest with yourself – remember this selfie has no filters!
Once you’ve got a total for those columns, you can extend the picture further by having a column marked “savings” and another marked “debts”. Again, any balances you’ve got in ISAs, deposit accounts, emergency fund you should list out. In the other column put down how much you owe on loans, credit cards, overdrafts, store cards, etc.
That’s it – that’s your financial “selfie”, a simple portrait of income versus expenditure and assets versus debts.
Knowing where you are month-to-month is a fantastic first step towards building a working budget and getting in control of your finances before they get you out of control. You might be pleasantly surprised at how well you’re doing. You might wonder why you’re always skint if you’re supposed to have £200 a month left over. It’s worth checking out where the money goes if you don’t have anything spare to save (my guess is it comes out of the hole in the wall and you don’t realise…).
If the picture looks like you’re going to get into difficulties at some point then now’s the time to do something about it. You can get free and impartial advice from the government’s Money Advice Service or from your local Citizens Advice Bureau.
Unauthorised overdraft fees can be huge – so here’s some tips to avoid a financial chill…
Last year, the Competition and Markets Authority (CMA) said that lenders should introduce a cap on the maximum monthly charge they make for unauthorised overdrafts. The trouble is their report left it up to the lenders to set their own cap. With the CMA finding that the banks make over £1 billion a year out of overdraft charges it’s no wonder that even these caps are being set at £90 to £100 a month by the high street lenders.
With interest and charges to pay for unauthorised borrowing making your money problems worse, here are some tips to help you manage an overdraft on your bank account.
Okay, so it’s not exciting, but most people can easily go overdrawn thanks to that “free money” device – the ATM or hole-in-the-wall machine. Before you hit that tempting “£50” button, get an on-screen balance advice. Maybe it’s better to wait until after payday this month, or withdraw a bit less?
Another good way to keep in control is to download your bank’s secure banking app to your phone. This should allow you to get a quick and up to date balance anytime, anywhere. Armed with this information you can manage your spending better and hopefully avoid a stinging penalty charge.
If you tend to run out of money before the end of the month, then consider using the interest-free credit period on your credit card for purchases, rather than your debit card. This does require you to be disciplined and to pay off the card in full, but most cards will allow you to change the repayment date.
As your employer is unlikely to pay you any sooner, by setting the card payment date to the week after payday, you can use the credit card as an interest free loan to tide you over. Be warned, though, this only works if you either pay the card off in full. Don’t fall into the trap of increasing your credit card debts to avoid overdraft charges, and building up a card bill you eventually can’t afford.
If your account’s been run well previously and you’ve just had a one-off blip that’s incurred some charges, it’s worth calling your bank and seeing if you can ask them to waive the charges this once because of your previous good behaviour.
There’s no guarantee this will work (you have breached the conditions of your account, so they are entitled to charge) but you might find they will let you off for a first offence. This is only going to work once though, if at all, so if you go overdrawn again next month, all bets are off for this working a second time.
If you know that you’re going to have to dip into overdraft more than once while your circumstances adjust it might be worth applying for an authorised overdraft, particularly if you only need to have a buffer of £100 or £200. If accepted (and it’s subject to status, so a reasonable credit history will help) then you will no longer get charged the penalty fees associated with unauthorised withdrawals. You will have to pay interest on what you borrow in this way, and most lenders also charge a fixed “usage” fee. However these two combined will always be a lot less than paying the unauthorised borrowing charges,
“Ho ho ho” or “boo hoo hoo”?
Christmas. If you’re reading this between January and June, I’m sorry to bring it up so soon. If you’re reading this between July and December… IT’S NEARLY HERE!
Christmas is portrayed as a great time of family get togethers, fun, excitement and goodwill to all. However, for many people Christmas can be a time of financial stress, money problems and even tip people over the financial edge. Here’s an idea how to survive Christmas – at least from a financial point of view, there’s nothing I can do about the in-laws coming to stay I’m afraid.
Let’s face it, Christmas shouldn’t be a surprise. In fact I bet you can tell me the date of the next 20 Christmases. Knowing that it comes around one a year, it’s surprising that more people don’t save up for it. But how to do it?
Don’t use any of the commercial “Christmas Saving” companies unless you have a particular reason to do so. They are run to make a profit, so you won’t get any interest or bonus on your cash, and if they go bust (as happened 10 years ago with a company called Farepak) your money is not protected, you might be subject to a hefty penalty if you stop contributing or need your money back early, and you’re limited as to what you can spend it on to the retail partners these companies have deals with.
If you’re disciplined, you could find yourself with the same amount of Christmas money that you’re free to spend anywhere simply by putting the money aside each month. But for savvy savers there’s a better way.
Credit unions are non-profit financial co-operatives run for the benefit of their members who save money with the Union and can access fair borrowing rates if they need a loan. Many of them offer specific Christmas Savings accounts. Crucially these are fully protected under the same government compensation scheme that protects our money saved in banks and building societies, and many of the accounts offer a dividend rate so that your money actually works for you while you save.
As an incentive to keep the savings going, some of them will charge you a fee if you withdraw before November of each year, or you fail to keep regular savings coming in – but in most cases this is around £5 or less.
If you know you lack the discipline to self-save, then opening an account with a credit union and setting up a regular transfer from your wages is a great way of spreading the cost of Christmas. If you save £25 a month between January and November you’ll have at least £275 to spend however and wherever you like in December without having to trouble your credit card or overdraft.
For more information on how the My Community Bank Network works and to find one you could join click here
APR… Agency Procurement Request? Accreditation in Public Relations? American Public Radio? It could be all these things, but for us the one I want to talk about is “Annual Percentage Rate” – and if you’ve ever seen an ad for loans or credit you’ll certainly have seen it mentioned, sometimes followed by a rather large number if the ad’s for a payday lender. So what does it do for us, and perhaps more importantly, what doesn’t it do?
The Annual Percentage Rate (or APR) is something that lenders are legally required to display against their loan products. It was designed to help us borrowers easily compare loans from different lenders, or even compare different types of borrowing easily by showing the “true cost”. The APR has to take into account not only the interest rate you’re charged, but also any fees or other costs you’d incur over the year when borrowing. An example is if a credit card company charges an annual fee for their card as well as charging interest on any unpaid balances.
So far, so good. But of course it’s often not going to be that easy. Many companies use what’s called a “Representative” APR on their advertising. This is the rate that a minimum of 51% of successful applicants could be charged. No prizes for guessing that these are going to be the most creditworthy 51%, which means that pretty much half of people are going to be charged more than this rate. The interest rate they actually charge is known as your personal APR, and you won’t know exactly what that’s going to be until you apply.
If you’re looking at credit cards, remember that the APR only shows the rate for borrowing money for buying things with the card. If you want to take cash out of the hole in the wall with the card, or transfer a balance, you might be in for a surprise when it comes to how much paying that back will cost you.
If you’re looking for a credit card deal for an existing balance transfer, forget the APR and make sure you compare balance transfer rates instead as this is the rate you’ll be paying. Using independent comparison sites credit scores will help you to dig a little deeper and make sure you’re comparing like with like.
As ever, to maximise your chances of getting the best loan rates you need to make sure your credit rating is as good as it can be. If you know that your credit report is going to flag up some issues then it’s highly unlikely you’ll be offered the APR you’ve seen on the ads or through the comparison sites. If your credit file is less than squeaky clean then the High Street lenders may offer you much higher borrowing rates. If this is your situation then it’s certainly worth apply for a credit union loan through www.communitybanknetwork.co.uk and seeing what rates we can offer you. Stay away from payday lenders and their eye-watering 4-digit APR numbers…
For most people, the question “what have the government ever done for you” might provoke a few unprintable answers! But one thing that’s been really useful is the free and independent Money Advice Service they set up in 2010, with the aim of helping people to improve their money management.
The website at moneyadviceservice.org.uk has a wealth of really useful information on it, but one of the best features is its massive range of tools and calculators. Amongst them are handy calculators that help you to see the true cost of any borrowing you have or would like to have.
By using their loan calculator you can check not only how much interest you’ll pay over the course of your agreement, but what the effect would be of making larger or smaller payments, including how much you’ll save in interest if you pay more, or if your loan repayments run over a shorter term.
Other excellent tools include savings calculators, credit card calculators, a mortgage affordability tool and many more.
So whilst the politicians don’t often seem to get it right, the Money Advice Service is certainly one good thing they did for us!
Even if you don’t think that you play the credit game, everyone’s got a credit score. In an nutshell it tells potential lenders how likely it is that they’ll get their money back if they lend it to you. The trouble is it’s not as simple as looking at whether or not you’ve been well-behaved with your plastic or your overdraft in the past. If you’ve been refused the best loan rates or even been turned down for credit, there could be a few factors at play.
The credit reference agencies use a range of information and different categories to determine your creditworthiness, or “credit score”. Each of the categories makes up a percentage of your score. Here’s the breakdown on what weight the reference agencies give the categories they look at:
35% – Late payments, repossessions, bankruptcies;
30% – Your total amount of debt;
15% – How far back your credit history goes;
10% – What type of credit you’ve got;
10% – Checks on your file and new credit applications.
If you know where you’ve been a bit naughty with your credit in the past then making amends and tidying up your credit score will go a long way towards getting you access to the lowest loan rates, and better APRs on any credit you need.
You can check your credit file for free at the below places:
Banks are big businesses, of course. That means they need to make big profits to keep their investors and shareholders happy. And that means that unless you’ve got a squeaky clean credit record with lots of good borrowing history you’re not going to get their best deal, and maybe no deal at all. It’s this approach that has seen the rise of the “payday” loans industry, with their eye-watering interest rates of up to 1,500% APR.
If the big banks aren’t interested lending to you then there is a better alternative to the payday lenders with their glossy TV ads – it’s time to check out your local Credit Union.
The My Community Bank Network of credit unions means we have most of the country covered, we want to help as many people as we can so we took our credit unions digital!
As the name implies, a Credit Union is a coming together of people to pool savings to allow local people to access credit at sensible rates of interest, even if they’ve got a few bumps in the road on their credit history.
Credit unions are not run for profit and have no shareholders – everyone who borrows or saves is a member, and they all have a right to share in any surplus the union makes, this is shared out as a dividend rather than a traditional savings interest rate.
For borrowers, the lack of shareholders demanding fat profits means that people with less than ideal circumstances are more likely to be accepted for a loan, and the interest rates you pay are much lower than the payday companies. Credit unions also pride themselves on their ethical stance of looking out for their members, so they’ll never encourage you to borrow more than you can afford, or to roll over loans.