Nine tips to boost your personal finances
Everybody wants their money to work harder, but many of us still have money sitting in miserly zero- or low-interest accounts, or run up credit card bills as we put savings away, rather than clearing our debts.
Getting your finances shipshape can be seem a daunting prospect – and it’s true that some long-term investment decisions need a lot of thought plus, perhaps, professional advice – but there are some very simple steps you can start making today without needing to be a money expert. These tiny shifts in attitude and behaviour will wake up your lazy money, and can add up to significant savings throughout the year.
These are the ultimate no-brainer. The best way to maximise returns on savings is to use this annual tax-free savings allowance of £20,000 per year for adults or £4,260 for a Junior Isa.
This annual allowance is renewed each year, on 6 April, for the next 12 months and can be split between the main types of Isa on offer, typically a cash Isa or a stocks and shares Isa.
At the very simplest level, an Isa account protects an individual from being taxed on any interest the account earns. For anyone using their full £20,000 allowance in an Isa earning 2% interest, that would mean £400 in interest over 12 months is not taxed. This would save a lower-rate taxpayer £80 and a higher-rate taxpayer £160.
Clear debts before saving
It may sound obvious, but one of the easiest ways to make money stretch further is to pay off debts before saving. It sounds self-explanatory but one only has to speak to a financial expert to realise quite how much of a difference the interest rates on loans compared to savings can make over the duration of a loan.
Adrian Lowcock, head of personal investing at Willis Owen uses the example of a five-year loan of £5,000 at 8% interest – where doubling repayments could save more than £600 in interest.
Reclaim money from forgotten accounts
We all probably wonder if there is an old bank account we left with a few pounds in it, or a building society book with a decent balance lying forgotten in a box in the loft. If you have moved since setting up the account and forgotten to tell a bank, they may not have been able to get in contact.
According to the government’s Money Advice Service there is as much as £850m sitting in forgotten bank accounts and premium bonds. People can use My Lost Account to see if they have forgotten bank accounts – and for lost pensions, there is the Pension Tracing Service.
The average consumer cannot help but notice the daily offers of interest-free credit cards. Although these start to attract interest on spending after a certain date, for the period the offer is running they can make very good sense.
So long as the balance is paid off before the offer period runs out, they are effectively an interest-free loan, which the user can take advantage of while saving money and earning interest. This is what the experts call “stoozing”.
This is a tactic best used by the well organised. It can be too easy to overspend or accidentally slip out of the offer period, and end up paying high interest rates.
Invest in a pension
Investing in a self-invested personal pension (Sipp) yields a similar tax reward to investing in an Isa.
“There are lots of ways to save for retirement, but the government offers generous tax incentives to save into pension products,” says Ian Taunt, head of product design and development at Willis Owen. He believes the tax break makes the benefit of a Sipp hard to ignore.
“A basic-rate taxpayer putting £800 into a SIPP will get that topped up to £1,000 by the government. If the pot grew at 5% each year (after platform charges of 0.6%) then the £1,000 would be worth more than £4,300 after 30 years, compared to around £3,500 if the same £800 was invested outside a SIPP and grew at the same rate. From that £4,300 you could normally take 25% or nearly £1,100 tax free, with the remainder subject to tax at your marginal rate when you take it out of the Sipp.”
Recycle for cash
Recycling isn’t just the environmentally friendly option: it can also earn you a decent amount of cash or money off a new purchase.
“Some companies such as Game, for computer games and consoles or Mazuma and Currys, for mobile phones, laptops and tablets, will pay cash for and recycle items,” says Liz Rees, head of research at Willis Owen.
“Others, such as AO, will give generous discounts against new products, for example household appliances.”
Bank accounts and cards with discounts
If your bank doesn’t pay interest on your current account, consider switching to one that does. Some also offer rewards for switching, or issue cards that offer discounts from retailers who are part of their shopper club.
When it comes to credit cards, some offer discounts or cashback on general purchases, such as the Amex Everyday or the Santander All In One Credit Card. Some banks and card issuers offer discount-specific retailers, such as Halifax’s Cashback Extras or Nat West’s MyRewards programme.
Some brands that run loyalty schemes also run shopping sites that enable consumers to earn extra points with partner retailers, such as the BA Shopping service or Nectar’s shopping hub. They may not put cash back in your hand, but when those points are added up, they can result in serious discounts on subsequent purchases.
It isn’t just banks offering shopping discounts – there are also websites and apps that provide cashback on purchases, including Quidco and TopCashBack. The sums you can expect to have refunded vary greatly, but are definitely worth considering, particularly on larger items.
Savvy shoppers can combine a cashback offer with a credit or debit card’s points or discount scheme to double up on savings and points.
Be a switcher, not a zombie
A “super-complaint” raised by Citizens Advice last September was upheld three months later, when the Competition and Markets Authority found that loyal customers are ripped off to the tune of £4bn per year. It has asked industry regulators to come back with guidelines on improving best practice by the middle of 2019.
In the meantime, don’t be a zombie by letting a policy or utility renew or change prices without taking a look at the competition. Switching providers means getting the introductory offer, rather than the unattractive price handed out to those who stay loyal. There are several websites that can help the public compare utilities and insurance prices, and switching is normally far simpler than you might imagine, with the company you are migrating to handling all the paperwork.