Hond Financial

Posts Tagged ‘Individual Savings Accounts’

In taking steps to clear off money owed on credit cards as soon as possible, people should find they have more cash to spend on purchasing items, it has been reported.

Claiming money owed on credit cards is “the devil’s debt”, Neil Faulkner writes in a lovemoney.com article that the less interest consumers have to pay on debt will free up disposable income.

One means of getting to grips with how much is owed, he states, is to seek out a 0% balance transfer credit card. Mr Faulkner revealed that by using this feature, borrowers can transfer a balance that is currently incurring interest charges to a new home that will prevent it from accumulating any further interest.

The lovemoney.com writer also claims creating a budget to ensure more than the minimal repayments are made can be helpful, with setting up a direct debit to take money out of an online bank account an effective way of doing this.

An example of how credit card debt can be hard to shift is as follows - if you rack up a debt of £5,000 on your credit card, only making the minimum payment each month, it will take you more than 30 years to wipe the debt, after which time you will have paid over £5,000 extra in interest charges. However, by paying £200 off each month you will be debt free after 3 years.

In doing so, he asserts consumers should be able to avoid the problems that can be caused in missing a demand for payment. If just one repayment is missed, the competetive introductory rates that first made the account attractive, could be lost, as well as charges applied to the account.

Furthermore, a negative mark will be placed on a credit report, which could mean access to credit in the future could be a more difficult and expensive process.

Such claims come as Neil Munroe, external affairs director at Equifax, claimed that in the current financial climate people need to be as informed as possible when making an application for credit. Research by the firm showed requests for credit reports during the first quarter were up 9.6 per cent compared to the same period last year.

With the financial crisis continuing to affect many of us, one expert revealed that Brits are taking a more sensible approach to managing their finances.

According to Motley Fool director David Kuo, consumers "have been scared into being responsible" due to constant reports about the possibility of rising unemployment rates.

He also pointed towards the possibility that as many as one in ten Brits who can work will be jobless by the end of the year.

As a result, consumers are focussing on doing on of, or both of the following to improve their financial status.

One of these, Mr Kuo highlights, is making moves to repay as much debt possible, which could include that accrued on credit cards.

By doing so, he states that should consumers eventually find themselves to be out of work then the burden of what they owe "is not as great".

Such moves to pay down debt comes as the Motley Fool director states that borrowers are taking advantage of the base rate standing at an all-time record low of 0.5 per cent.

He goes on to claim people will begin to spend money more once they see signs of unemployment rates easing, although those who are looking to fund major purchases straightaway may want to consider making use of a credit card that offers 0% purchases.

In addition, he said that there has been an increase in the amount of cash put aside into savings accounts.

Britons looking to compare savings accounts to ensure they receive an attractive rate of return may be interested to hear the Motley Fool’s advice that people should look to set aside between six and nine months worth of expenditure to see them through in case they lose their job.

Taking the time to increase the amount placed into savings accounts and reduce debts, Mr Kuo asserts, "can be no bad thing for the UK because the only way that the UK can dig itself outside of this hole is to get consumer debt down to a more sensible level".

His comments follow statements by Hargreaves Lansdown pensions analyst Laith Khalaf that the recession will hopefully remind people of the need to have a significant sum of money tucked away into a savings account.

UK Price Comparison website Which4U – Compare Credit Cards, Savings Accounts, Compare Fixed Rate Bonds, Bank Accounts, Individual Savings Accounts, Loans, Mortgages, Insurance, TV & Broadband and Gas/Electric bills to find the best UK deals

If you managed to make use of your Individual Savings Account (ISA) allowance in the last tax year, then you will be pleased to know that as of 6th April, you have another £7,200 of potential tax free investments in which you can deposit into ISAs.

If you didn’t manage to use up last years ISA allowance don’t worry, just deposit your savings into an account as soon as possible and benefit from tax free returns on your investment.

If you aren’t familiar with ISAs, it’s well worth checking them out, as you could be missing out on some great tax-free returns on savings and investments.

Savers are given a great opportunity to save at least £3,600 each year (also further possible £3,600 in investment ISAs) and pay no tax on any of the earnings. All individuals aged 16 and over can apply for an ISA, giving them the opportunity to invest upto £7,200 each tax year and earn tax free returns on their investment. The ISA allowance can be made up of either up to the full £7,200 in an investment ISA, or up to £3,600 in a cash ISA, and up to the remaining amount in an investment ISA.

Think of cash ISAs like a savings account, offering all of the features you would expect to see in a number of types of savings accounts, but with the difference being that you don’t have to pay any tax on the returns on your investment. It is common knowledge that with stocks and shares dealing comes risk, and there are no exceptions when it comes to investment ISAs, so you must be careful with where you plan to invest.

There are several different combinations of features that will differ from provider to provider, so it is up to you to choose the one that suits you best. You can choose whether you want to make a lump sum investment, or regular payments, and if you want your interest to added onto the total, or paid into a separate account.

UK Price Comparison website Which4U – Compare Credit Cards, Savings Accounts, Fixed Rate Bonds, Bank Accounts, ISAs, Loans, Mortgages, Insurance, TV & Broadband and Gas/Electric bills to find the best UK deals

Fixed rate bonds are savings accounts with a difference. To start with, they are more of an investment than simply somewhere to save your cash, and like most investments, they come with an element of risk.

Is is important to be aware of how much compensation is offered by your provider, incase it were to collapse. Always aim slightly lower than the maximum compensation limit to allow your investment to grow without exceeding this limit. Alternatively, you could have your interest paid into a separate account

Unlike an instant access savings account that has lots of activity with constant withdrawals and deposits, bonds generally only allow you to make a single lump-sum deposit, with no additional deposits throughout the rate. Earl withdrawals – though possible, will result in penalties such as having your interest capped or in some cases closing the account completely.

Fixed rate bonds are designed to encourage long term saving, offering high 'fixed rates' for accounts that are left untouched for the life of the bond. This is because inflation is used to measure the increase in price, so anything below it would effectively cause your money to erode. Once the term reaches an end you are able to access your balance with the added interest.

The main elements of a bond account are the fixed term – this is the period of time you agree to lock your money away for, and the fixed rate – this is the rate at which your interest will be earned.

Another difference between fixed rate bonds and instant access accounts is that that the rate offered upon opening the account will not fluctuate to reflect changes made to the Bank rate. This allows you to lock your cash in on a rate that will remain the same throughout the chosen term, so you can predict exactly how much the account will earn.

This can allow you to freeze you account on a high rate, allowing you to protect your savings from falling rates and earn the highest returns.

Last year saw the economy suffer a big blow, which resulted in rates being slashed in an attempt to stimulate the economy by reducing some mortgage holders, and encouraging lending. This had a big effect on the rates offered on savings accounts, so anyone that opened a fixed rate bond account before October would be feeling very smug.

This can also work the other way, as you could lock in on a rate, then soon after see rates rise, while you are left behind earning under the odds on your savings.

You can, to an extent, make predictions on the direct the rate is likely to go. Many clever savers took advantage of the credit crunch by spottin a trend in falling interest rates and locking in on a high rate to avoid falling rates. With The Bank of England base rate now at its lowest point on record, savers are getting less returns on investments. Many economists believe the rate will continue to drop as low as 0%, so now may be the time to avoid further losses and freeze your rate with a fixed rate bond.

UK Price Comparison website Which4U – Compare Credit Cards, Savings Accounts, Fixed Rate Bonds, Bank Accounts, ISAs, Loans, Mortgages, Insurance, TV & Broadband and Gas/Electric bills to find the best UK deals

Since the credit-crunch, savers have become much more cautious and are keen to not only seek the best returns, but also a safe haven.

Over the last 6 months, rates have been on a downward turn, so savers must be careful with where they store their cash in order to get the highest returns.

The two obvious choices in today’s savings market are Term Bonds, and Individual Savings Accounts (ISA). Although both types of savings accounts have their similarities, there are several advantages and disadvantages to each and it is this topic of discussion that this article will be focussing on.

Fixed Rate Bonds

Term Bonds provide a rate that is fixed throughout the duration of the bond, giving savers a predictable income with no surprises. Once you have chosen a fixed rate account, you are able to calculate exactly how much interest you will earn, minus the tax, to give you your end balance.

Most Fixed Bonds offer very high deposit limits, generally between £500,000 to £2 million, but some, such as ICICI, will let you invest as much as you like. Fixed rate bonds tend to only allow a single deposit upon opening the account.

There are no limits to how many fixed rate bond accounts you can open within any one year, so unlike ISA accounts, if you decide to close your account for any reason, you can still invest any amount elsewhere at any time.

Fixed Term Bonds generally offer the highest saving rates available, but these tend to be on shorter-term bonds, as they carry less risk to significant rate cuts leading to banks and building societies paying you over the odds in interest for long periods of time.

‘What goes up must come down’
If you are extremely lucky – and do your research, you could open a fixed rate bond before rates significantly fall, allowing you to earn well above savings rates offered to new and variable rate customers. If you cast your mind back to October last year, when the Base rate stood at 5%, you would be very happy with yourself if you were earning this kind of rate on your savings today, with the Base rate now at 0.5%.

A big element to a fixed rate bonds is the fixed term. You must be realistic with your finances and only go for this option if you can afford to lock your money away for some time. If you find that you need to withdraw any amount from your account, the bond will close and in most cases you will lose any interest to accumulated to date.

As well as the possibility of rates falling during the life of your bond, you could see the opposite effect, with rates significantly rising, leaving you locked in at a low rate. Before applying for a fixed rate bond you may wish to consider doing some research into recent trends in the base rate. It has been predicted by some economists that The Bank of England base rate will constinue to fall throughout the year.

Like any normal savings account, you have to pay tax on any interest accumulated, as this counts as income. The general tax rate is 20% for those earning less that £34,800 per annual, and 40% for anything above. There are other conditions to non-earners so check out the HM Revenue for more information.

Individual Savings Accounts

Individual Savings Accounts (ISA’s) offer a tax free alternative to saving. ISA's are very similar to regular savings accounts, but ISAs allow savers to benefit from tax free interest. Every year you are entitled to add up to £3,600 to your ISA, and the interest accumulated from your total balance will be tax free for life. You can deposit up to £3,600 between now and April 2009, which is when your allowance is renewed.

Like many savings accounts, ISA’s offer a variety of options such as instant access, fixed rate, and base rate guarantees.

Unlike a fixed rate bond, most ISA’s allow you to deposit as many times as you like throughout the year, as long as you stay within your £3,600 annual limit. It is better if you can afford to deposit the full amount at the beginning of the tax year, as this will allow you to earn the maximum possible interest, but for those that would rather have the flexibility to save as they earn, ISA’s are great for making monthly deposits from a salary.

Bonds and ISAs both encourage savers to leave their savings to grow, without making withdrawals. However, rather than deducting the interest earned to date and closing the account, ISA’s simply give savers an annual deposit limit of £3,600, and once this has been reached, no more can be added, regardless of any withdrawals.

Because savers can get good returns from paying no tax on the interest they earn, ISA’s tend to offer lower rates than Term Bonds.

Most ISA’s are affected by cuts made to the Bank of England Base rate, so if you open an ISA when rates are high, you cannot guarantee they will stay high. Fixed rate ISA’s allow you to fix in at a rate for a specified term, but this does carry some risk, as rates change, especially over a long term.

Always check out what kind of compensation scheme is used by your proposed bank or building society to ensure that your savings are covered in full. For more information on this, see Which4U’s Top Ten Savings Tips.

The bottom line for all savings accounts is to ensure you are earning the highest possible returns on your money. Although ISA’s offer tax free interest, you may find that the difference in rates offered against fixed rate bonds will in fact leave you worse off. Before making a choice, compare the savings market for the best deals, and use your new found knowledge of these accounts to make an educated decision on where to invest your savings.

One last thing to remember is to always make sure (where possible) you keep the interest rates paid on your account above the rate of inflation (incuding tax deductions), as anything below would result in your money actually losing value. Inflation is used to measure the rate at which prices will increase, so if this level is higher than the interest you are earning, your money will be slowly eroding.

UK Price Comparison website Which4U – Compare Credit Cards, Savings Accounts, Fixed Rate Savings Bonds, Bank Accounts, ISAs, Loans, Mortgages, Insurance, TV & Broadband and Gas/Electric bills to find the best UK deals