The 20 most pressing personal finance questions
How much should I set aside for a “rainy day”? And where do I keep it?
First, pay down your debts. It is foolish to keep, say, a £3,000 balance in savings while repaying the monthly minimum on a £5,000 credit card debt. That said, try to keep about £500 aside for emergencies – a car or boiler breakdown, for instance. Once your credit cards are paid off, the rule of thumb is that you should keep between two and three months’ worth of take-home pay as an “instant access” reserve fund. But banks typically pay a lousy 0.1%-0.2% interest on these accounts. Put some of it through a “regular” savings account instead – you can save £250 a month at Nationwide building society, and get 5% interest. Patrick Collinson
How big a pension pot do you need before you retire?
Aim for a minimum of £200,000 to £250,000. That will be enough to give you about £9,000-£10,000 a year from the age of 65, which, added to your state pension (roughly £6,500-£8,500 a year depending on how many years you paid national insurance) will leave you just enough to get through retirement, unless you are still paying rent. If you want a “comfortable” retirement, on £25,000 to £30,000 a year, then you need a £500,000 pension pot. Gulp. But don’t give up – a couple, both aged 40, who each put aside £175 a month into a pension, should, with a fair wind, make it there. PC
Is there a property crash coming?
Probably not, but a hard Brexit could change that. Look at supply and demand: the population is increasing (the UK will overtake Germany and France to become the most populous nation in Europe, according to the EU), while the supply of new homes, though rising, is behind most projections for what is needed. These are not the conditions in which property markets collapse. The immediate risk is a hard Brexit, which is likely to see prices tumble, particularly in London and the south-east. The longer-term risk is interest rates; if the Bank of England raises the base rate much above 3% (it is now at 0.75%) then all bets are off. In the event of a hard Brexit, rates are likely to be cut and the financial system flooded with “liquidity” by the Bank. PC
Is the APR different from the interest rate, and should I care?
Generally, the APR – the annual percentage rate – is a smidgen higher than the advertised interest rate, as it includes all other potential costs and charges that can be added to a loan. Don’t worry too much about it. PC
Should I pay off my credit card, or put money into a savings account?
This is easy. Pay off your credit card first. Paying just the minimum each month on a credit card is the path to financial disaster. PC
Should I pay off my mortgage, or save into a pension?
This is much less easy. It appears to make sense to rid yourself of debt before saving elsewhere. But it would be ridiculous to wait until the end of a 30-year mortgage to begin saving for a pension. Pensions have huge tax advantages, especially for higher-rate taxpayers. If possible, try to “overpay” your mortgage by 10% a year while contributing into your company pension. Once the mortgage is paid off, rapidly increase your pension contributions. PC
Ryanair is nagging me to buy insurance for a weekend trip to Barcelona. Should I pay?
If you are young, not carrying much with you and have a free Ehic (European health insurance card), then it’s not really worth buying. Home insurance may cover you for your goods outside your home – although rarely bikes or laptops. Cheap weekend travel insurance policies often have such high “excesses” that, when you come to claim, they hardly pay out anything. But beware – Ehic cover is likely to disappear when the UK leaves the EU, which will be a bonanza for the insurers. PC
Can I drive my sister’s car on my insurance?
Basically, the answer is yes, but it is crucial to check first. If you have fully comprehensive insurance on your own car, then in the past you generally had third-party cover included. So, if you drove your sister’s car and had a crash, the insurance would pay for the vehicle you crashed into – but not to repair or replace her car. However, some insurers now don’t include this, so if you then drive your sister’s car you will be driving illegally. And if you are under 25, it is almost certain you are not covered. Call your insurance company before driving. Crucially, your sister’s car must also itself be insured by her – you can’t just rock up and drive an uninsured vehicle. PC
When I pay for something online and a box pops up saying it will save my bank card details for later use, should I say yes?
No. When we asked the head of fraud at one of the UK’s biggest banks, and the overall boss of one of the new online challenger banks, both said they don’t do this with their own accounts. PC
Are shared-ownership properties a bad investment?
Go in with your eyes wide open. OK, you get to buy a share of a (usually) new-build property with a smaller mortgage and therefore smaller deposit, while paying rent on the share you don’t own. But they are often overpriced compared with the open market, and buyers may have fewer mortgage choices. Service charges can be high, and few buyers find themselves able to “escalate” up to full ownership. Selling your share in the second-hand market can also be tricky. But you do get a controlled rent, so it can make sense to buy the smallest possible share then enjoy the fact you are living in a rent-controlled flat, free from eviction worries. PC
Should I get a fixed-rate mortgage, or a tracker?
If you are buying now, then long-term fixes look good value; you pay as little as 1.94% interest on Sainsbury’s five-year fixed rate deal, just 0.5% more than the very best two-year fix. Interest rates are expected to climb gently over the next few years, so fixing for five years gives you certainty about your monthly payments – essentially you are paying a little extra as insurance against interest rates rocketing. And when you take a two-year fix, it’s amazing how quickly it comes round again, along with the hassle and fees to pay when remortgaging. PC
Can I spend Scottish banknotes in England, and are shops south of the border obliged to accept them?
In England and Wales, the only things that are technically “legal tender” are Bank of England notes and Royal Mint coins. Scottish banknotes are not legal tender, even in Scotland. Technically, no banknote qualifies for the term “legal tender” in Scotland, though they are legal currency. But, in a way, this is all irrelevant because, as the Bank explains, shops aren’t even obliged to accept legal tender. If you hand over a note to pay for something in a shop, the staff are within their rights to choose not to accept it. “Whether you pay with banknotes, coins, debit cards or anything else is a decision [arrived at] between you and the other person involved in the transaction,” says the Bank. Rupert Jones
Does a shop have to honour the price of something even if it says it made a mistake?
In England, your legal rights depend on whether or not you have handed over your money. If you take the toaster/pair of jeans to the till and are told the price on the tag is a mistake, then you don’t have the right to buy it at the lower price, says Citizens Advice. But you could ask the seller to honour the lower price, and they may well do so as a goodwill gesture. But if you have just bought the item and then the shop assistant says he charged you too little, you don’t have to give the difference back. “They are only legally entitled to ask you for more money if you talked about the price (eg £100) and they ended up charging you much less instead (eg £10),” says the charity. It is more tricky when it comes to shopping online, when it depends on whether or not you have a “contract” with the retailer. The point at which you have a contract will vary from company to company. RJ
Every year, the taxman sends me a “PAYE coding notice”. Do I need to check it and, if so, what am I looking for?
If you are a worker, you have got a tax code that is used by your employer to work out how much income tax to take from your pay. HM Revenue & Customs (HMRC) will tell them which code to use. HMRC sends out PAYE coding notices to tell people what their code is and how it was calculated. It can also usually be found on your payslips. The code is normally a three- or four-digit number and a letter. HMRC works out your tax-free income, which, for many people, will be the personal allowance – currently £11,850. It then lops off the last digit, which is why the standard code for 2018-19 is 1185L. But various things can reduce your tax-free amount – for example, taxable benefits from your job, such as a company car or medical insurance. So, for many people, the number will be lower than 1185 – for example, yours may be in the 900s. It is vital to check the code is correct – otherwise you could find yourself paying too much or too little tax. The coding notice will usually have details of how HMRC calculated the figure, so go through it with a fine-tooth comb to check it makes sense. For example, do you still have that medical insurance or other benefit? If you don’t understand your code, or think it may be wrong, query it with HMRC, says the Low Incomes Tax Reform Group. RJ
Are premium bonds a waste of time?
Premium bonds don’t pay interest, so are vulnerable to inflation. And they aren’t suitable for those who want a regular income or guaranteed returns. But many people take the view that, with savings rates so low, they may as well have some fun with their cash. You can win from £25 to £1m in the monthly draws. The so-called “prize fund rate” – the proportion of the total amount invested paid out in prizes – stands at 1.4%. That’s roughly the same as you would earn in interest from one of the better easy-access savings accounts on the market, though premium bond fans would say you will never win £1m with a savings account. However, some are sceptical. Martin Lewis at the website MoneySavingExpert.com says that, because of the way the bonds work (it is all to do with mean v median averages), “you are actually likely to get quite a lot less than 1.4%”. He adds: “The more bonds you have, the more likely you are, with average luck, to win closer to the prize rate – though most people will always win less than it.” RJ
Are app-based banking services such as Monzo and Revolut a good idea? Should we all sign up?
Monzo and other new banking players are making a big splash, particularly with younger, digitally minded consumers. Monzo started out offering a prepaid debit card before moving to a full current account, and now has more than a million customers. Fans rave about its budgeting tools and the fact you get a notification the moment you use your card. It is also good for people who travel overseas a lot: payments abroad are free and you can withdraw up to £200 from overseas ATMs in any 30-day period without fees (after that, there’s a 3% charge). Revolut markets itself as a “banking alternative”, and offers a free current account with a card that customers can use overseas in more than 150 currencies, with no fees. They can also withdraw up to £200 a month from ATMs without incurring charges. RJ
I have half a dozen old pension pots from previous jobs – what do I do?
It is said the average person will have about 11 different jobs over their lifetime – which potentially means 11 pension pots. And sometimes people lose track of what they have got. The general advice is that you should consider consolidating several smaller pots into a single, larger one that is easier to manage. One potential advantage of doing this is that some older schemes have high charges, so switching out may save you money. But, equally, you need to make sure you don’t lose out on any valuable benefits, such as guaranteed annuity rates. And check if you will be charged for transferring your cash. Some people will be able to convert the whole of a small pension into a one-off cash payment – this is known as “trivial commutation”. RJ
How do I find a good financial adviser?
As with many things, the best bet is to ask friends, family and trusted colleagues if they can recommend someone. Failing that, you can find an independent financial adviser in your area through the financial advice trade body Unbiased (unbiased.co.uk), or through the website VouchedFor (vouchedfor.co.uk). Or find one via the website of a professional body, such as the Personal Finance Society (thepfs.org/yourmoney/find-an-adviser) or the Chartered Institute for Securities & Investment (financialplanning.org.uk/wayfinder/find-planner). RJ
I use my contactless bank card all the time, but never get asked for my pin number. What’s going on?
Initially, we were told that on every sixth use, the bank would ask you to input your pin. But this doesn’t happen. It is partly because bank computers make super-quick decisions as to whether the contactless purchase fits into previous spending habits. If you always buy a coffee in the same shop at about 9.30am, it is waved through. Try to go contactless in a town you have never been to before, and you may find a pin is required. Any purchase above £30 also needs a pin, meaning the bank has an extra layer of confidence that the card is in your possession and hasn’t been nicked for a Pret a Manger spending spree. Miles Brignall
What’s the single best thing I should do with my personal finances?
Find a rich partner? Win the lottery? The boring reality is that for a very large number of people, paying off your credit card and then only using it when you know it can be repaid in full at the end of the month is the best thing you can do. PC
This article was written by Patrick Collinson, Miles Brignall and Rupert Jones from The Guardian and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to email@example.com.