Saturday, 24 January 2015

Fixed Bonds and Variable Deals

Falling inflation is mixed blessing

Low returns wouldn't be such a huge downer if it weren't for the enormous elephant in the room: inflation.
Prices had been shooting along. Two years ago, inflation on the consumer prices index hit 5.2 per cent.

The good news is the pace has slackened. CPI now stands at 1.6 per cent (March 2014 figure).

However, the inflation fallback eases the pressure on the Bank of England to hike the base rate from 0.5 per cent. Until that happens, savers' cash will struggle to grow in real terms.

Banks are fleecing savers. They suck you in with a good rate, then cut it once you've stopped paying attention. Don't stand for it.

What's going on today with today's savings rates?

  • Isas

Historically, rates on Isas have been best in 'Isa season'. Every year, between February and May, swathes of savers rush to use up their tax-free Isa allowance so that's when competition is most intense.

The allowance for the 2014-15 tax year is £5,940. However, July will see the launch of the super Isa. This will allow savers to stash away £15,000 in the tax-year in a cash Isa. It remains to be seen what impact this will have on rates. For now, you can see our five favourite Isas. We maintain this year-round, sifting through the catches to list only the genuine best deals.

You should also use our independent Isa savings tables for the best buy accounts.
  • Fixed-rate bonds

Today's best bond is Shawbrook's 3.10 per cent - but you have to tie your cash up for five years to get it. An adage applies here: the longer the fix, the better the rate. The best fixed-rate bonds can be found in our best fixed rate bonds table.
At the end of 2013, there was a mini-battle at the top of the five-year fixed rate table as providers entice savers into locking their money away until 2018 - while one provider launched a 10 year fixed-rate account (which has since been shut).

  • Bonus accounts

Today's top rates crash by up to 95 per cent after just a year. The thing is, without the introductory bonus, there isn't much value around. You have to keep a close eye on these and move your cash quickly after 12 months or you could lose out. Keep regular tabs. We've launched a campaign to persuade banks to display rates on customers' internet banking pages. See 'Time to end the great savings rates cover-up'.

CUT TO THE CHASE: What should I do with my savings?

Fixed-rate cash Isas offer the best rates overall when you consider their tax-free status: Halifax offers two per cent fixed over eighteen months while Coventry Building Society 2.75 per cent over four years.

The problem with any fixed-rate account is that savers must be willing to lock their cash away and typically limit the amount they can put in each year.
The best buy easy access cash Isa comes from BM Savings, which offers 1.65 per cent.
Keep in mind that while the market predicts low rates for many years, there is no guarantee of this. If the stimulus measures from the government do stoke inflation, rates would have to rise. Locking into a deal for five years therefore carries risk.
Those who need secure income, such as pensioners may have little option, though. Others could mix variable rates in with medium-term bonds to boost returns.

Monday, 23 June 2014

What is a Super Isa?

From July 1 2014 you can put up to £15,000 a year in tax-free savings and investments.

This is a considerable boost to the current limit  of £11,880.
For those investors keen to sell down some of their shares Isas into cash, the best one-year cash Isa rate currently available is 1.65 per cent from Tesco Bank.

Put in the full allowance and you’ll receive interest of just £247.50 over a year. This means savers hoping for a better bounty will have to keep some exposure to stock market risk. But few people apart from the stock market sophisticates should consider using their whole allowance for investing.

There are a few golden rules for investing: spread your risk, drip-feed your money in and review your investments on a regular basis – twice a year at least.
Try to put your money across more than one fund. By investing in steps, you can build a balanced portfolio and minimise disruption to your investments.

A typically cautious investor seeking to protect their capital but keen to earn income should start with equity income funds and possibly add a dash of risk from an emerging markets fund.
Darius McDermott, managing director at Chelsea Financial Services fund broker, recommends the Threadneedle UK Equity Alpha Income fund. It invests in big UK companies such as oil giant BP and insurers Aviva and Legal & General – businesses very adept at pumping out profits during all kinds of economic weather.
These firms are steady growers and good dividend payers. The fund’s annual dividend is currently 4.2 per cent. If you had invested £1,000 five years ago it would now be worth more than double – £2,223 – figures from Trustnet show.
The Invesco Perpetual Monthly Income Plus is another of McDermott’s fund tips, yielding 4.1 per cent.

The fund is spread across company shares and investment grade and high yield bonds.
An alternative income fund is the slightly higher risk Henderson UK Property fund. This fund, investing in a mix of office blocks, warehouses and retail units generating income from commercial tenants, has a yield of 3.8 per cent.

The added risk comes from the fact property is a relatively illiquid asset which can be difficult to exit during economic turbulence.

For those happy to inject a degree of danger, the Lazard Emerging Markets fund could fit the bill says Ben Yearsley, head of investment research at online broker Charles Stanley Direct. Over the past five years, it would have turned your £1,000 into £1,676.
If you’re looking to grow your capital rather than seeking income, consider including a global equity fund to your portfolio.

Artemis Income’s recent performance has been a little shaky but it would have almost doubled your money over the past five years. This fund is invested mostly in UK shares, with some European and US companies thrown in too.
Another top fund for growth investors is Standard Life GARS. It has been a fair performer and has grown by 46 per cent over the past five years.
Whether you are an income investor or growth investor, you could broaden your risk with an index-linked gilt fund.

These invest in bonds issued by the Government which pay an interest rate linked to inflation.
Although bond funds have traditionally been seen as a safe choice, there are question marks hanging over these at the moment. Fears of a bond sell off have plagued the market since late 2012.
 The Government’s policy of printing money to boost the economy, known as Quantitative Easing, saw the Bank of England flood the economy with cash by buying bonds. This sent their value soaring.

Now that QE has come to an end, and the economy is back on the front foot, interest rates look set to rise soon.

When this happens, bond values will fall – and the interest paid out will seem less attractive. 

However you decide to split your money, it is vital to review your investments regularly. Small blips are fine, but if there is a big shift in sentiment, you need to be aware.


Do You Pay A Fee For Your Bank Account?

Do you go overdrawn?

If your balance creeps into the red or stays permanently overdrawn, you need an account that charges you as little for using your overdraft as possible. If you flick between positive and negative balances, don't assume the best account for one is OK for the other.

Overdrafts are debts, and often they’re much more expensive than credit cards. So avoiding being overdrawn is always a good policy. If you go beyond, you’ll pay through the nose.

Try to get 0% overdrafts. Sometimes the cheapest option is actually to shift the debt to a cheap credit card. Usually, the easiest way to do this is to get a credit card giving 0% spending, for up to 18 months. Now everything you spend on the card is at the cheaper rate.

Spend on a 0% card for purchases instead of a debit card or paying with cash.

Doing this is technically the best solution for those with self-discipline - you can’t allow yourself to spend more on this card or build up more debt. You should stop using the card once your account is in credit, and try to pay the card off by the end of the 0% period.

If you move regularly between being in credit and using your overdraft, it's sensible to keep as much money in your account for as long as possible. Therefore, if you’ve the self-discipline, set all your household bills, direct debits and other standing orders to leave your account towards the end of your working month.

If you go into an overdraft by a marginal amount - usually not more than £15 - some banks will make allowances and not charge you the usual hefty fees. See below for a list of the standard buffer amounts and charges outside this limit.

Always in credit

If you never touch your overdraft, not even by a pound, you should grab the account that pays the most interest on your positive balance.

Top interest-paying accounts

If you never enter your overdraft, focus on earning the most interest on your positive balance. Most accounts only pay interest on a limited amount, so sweep the rest of this cash into the Top Savings Account to maximize your interest.
Before you do, know that it's totally legit to hop about bank accounts, and it's easy to do if they don't require you to link your direct debits and standing orders. To boost your savings rates, set up a monthly standing order from your normal bank account for the required amount, then move it back the next day. See our 5% Savings Loophole guide for a step-by-step guide on how to do this.
Most accounts require a minimum level of monthly income to be paid in, and all require a credit check.

Some current accounts pay higher interest than savings accounts. Take advantage and you could earn 5% on £13,000 without actually switching your banking - more than triple the standard easy-access account rate available now.

Why are banks are offering such good rates? They're basically offering these as loss leaders to get you to switch to them. But you don't actually have to do that.
This means you don't need to have any standing orders or direct debits set up on some accounts, and while you need to credit them with a minimum monthly payment (which differs on each account), you don't need to pay in your salary. It's like 'try before you buy', in the hope you fully switch when you're wowed.