Trade Interest Rates To Achieve Top Savings

The economy has undergone a seismic change in recent years and historically low interest rates have radically altered the way people behave in the financial markets. A generation ago it was unusual for individuals to carry any personal debt other than a loan for a vehicle. Traditionally it was the case that savings accounts were built up for purchases of household items and most people only bought items when they had saved up enough money to complete a purchase. There has been an explosion in unsecured lending in recent years in the form of credit card and store card debt and much of this has been driven by retailers who have used credit as a means to fund a continued growth in sales. Shareholders and the markets have expectations of continued growth and it appears that this has been funded by a growth in credit. It is not uncommon for those with relatively high levels of debt to also hold savings accounts but the return on savings is usually linked to a base rate of interest which is currently at rock bottom. The low levels of returns on savings are discouraging new saving and is also creating an opportunity for savers to use their funds to reduce debts.

Clear Down Most Expensive Debt

Basic maths shows that it is better to clear down debts that are incurring charges of up to thirty per cent for a typical storecard than to leave savings in an account that is only earning around one per cent. The decision may not be so clear cut for some people but generally it is recommended that savings are used as a means to cut debt and it is better to start with debt incurring the highest rate of interest. It is important to look at the whole picture as there may be good reasons for not utilising all savings to clear down debt.

Remain Flexible For Genuine Emergencies

People still like to save for emergencies and it may be the case that if debt levels are reduced a credit card firm may decide to reduce a credit limit in order to reduce its own exposure to bad debt. This would mean that an individual may clear down some expensive debt but be left with little or no flexibility if faced with an emergency such as a defect in their central heating system which required urgent attention. With no savings or available credit to rely on there may be few options to resolve an immediate problem so it may be wise to retain some level of saving for such emergencies.

Consider The Term Of Outstanding Finance

It may be sometimes more important to clear debt which has a specific lifespan and would be difficult to replace once that time had elapsed. A saver may be faced with an option to clear an expensive storecard or a relatively low interest mortgage account. Whilst it may appear to be beneficial to reduce the expensive debt it may be the case that the mortgage debt has a fixed term which must be adhered to. If the term is allowed to expire and a solution to clear has not been found it may no longer be possible to simply ask the lender to extend the term as criteria for lending may have changed. In this case it would be more prudent to clear down a low interest account purely because of the fixed term involved. If debts appear to be complex and unmanageable then it may be appropriate to seek debt help so that an effective strategy can be developed. It is important to monitor the financial markets and review savings rates periodically because banks exploit consumer intertia by reducing interest returns on existing products whilst hooking new customers with attractive rates on new products. It may be the case that by switching savings accounts or products it is possible to achieve a higher rate of return that reduces the case for using savings to clear down debt, especially if most of the debt is held in a low interest mortgage.

Are There Short Term Alternatives Available?

Psychologically it may be important to maintain some level of saving as this buffer may offer comfort that would be eroded were a balance used in its entirety to clear debt. Maintaining some level of debt is not a bad thing either as credit scores are enhanced if debts are incurred and payments are met on time. This can be useful when applying for a mortgage as a potential lender will be able to form a view of a borrower that demonstrates a commitment to responsible actions when dealing with debt. There may be little value in removing savings early from a fixed investment plan to clear debt as early withdrawal penalties could offset any interest savings made by debt clearance. A better long term plan may be to seek a cheaper alternative form of credit such as a zero per cent balance transfer period to reduce interest exposure temporarily allowing time for fixed terms to expire so that the savings can be used to clear down debt in a timely manner that does not incur early withdrawal penalties.

Action Is Essential

It is clear that by not taking action there are likely to be inefficiencies in financial arrangements exposing individuals to low rates of return on savings and high levels of interest on debts. Whilst it may appear obvious that high interest rate debts should be cleared with low return savings it is important to review the overall financial situation and factor in long term objectives before making wholesale changes. The term of debt is an important factor as are assessments of medium term cashflow requirements and a balanced approach will lead to an optimum solution.

Share Your Top Savings Tips for the Chance to Win Up To £1,000!

i_love_saving_moneyWe are offering astute savers the chance to win cash prizes for imparting their top ten money-saving hints, tips and tricks. To celebrate the ‘Great Big ISA Event’, blog readers are being offered a chance to win up to £1,000 towards their personal savings.

Consider yourself to be good at looking after the pennies, or a savings maestro perhaps? If you think your Ten Commandments of Saving have got what it takes, simply email them to us at office@thefinancialfairytales.com.

The closing date for submissions is the 29th March, so get typing!

This competition is in conjunction with MoneySupermarket.com as part of the Great Big ISA Event, which is designed to help savers choose the right ISA for their needs and requirements. More information is available at their site.

Once we have received our competition entries, we will compile the ten best money saving ideas to be featured on our blog, as our Ten Commandments of Savings.

The independent judges over at MoneySupermarket.com will then choose the top ten from a variety of blogs overall, in order to compile the ultimate savings bible.

The writers of each successfully selected winning commandment will receive £100 towards their savings, to be stored in an ISA. There is no limit on the number of times you can enter, and you could win up to a maximum of £1,000.

The winning commandments overall will be published both here and on MoneySupermarket.com on April 5th, along with the names of the winning entrants as soon as prizes have been awarded.

 

Celebrate World Book Day 7th March

world book dayThis Thursday 7th March, schools, libraries and families across the UK will be celebrating the love of reading with free book giveaways, book signings, and fancy dress competitions. And it’s not just the UK – the pattern will soon be repeated across the world as people join together to share their love of the written word. But how can you maintain the momentum started by this day of reading? What can you do once the Horrid Henry and Harry Potter costumes have been stashed away in the cupboard again?

World Book Day is a fantastic launch pad from which to start encouraging reading. But when reports show that one fifth of English children still lack basic literacy skills at age 16, it becomes obvious that something more needs to be done. And, as is often the case, much of the onus to increase the pleasure of reading lies with parents. Schools should be teaching the skill of reading. But parents are perfectly placed to supply that vital ingredient: the love of reading. After all, enjoyment is often the key to proficiency: if you truly enjoy an activity, you’ll put more effort into it, engage with it more often, and ultimately become an expert at it.

One of the most obvious, but sadly often overlooked, ways of encouraging literacy is the classic bedtime story. This is a peaceful way to spend quality time with your child, and by placing them at the centre of your attention you make them feel cherished and loved. Encourage your child to ask questions if they don’t understand a word, and you can always keep a dictionary handy for tricky words – it’ll teach them early research skills! Of course bedtime doesn’t have to be the only time you read stories together, but by choosing a certain time of day you create a ritual that both you and your child can look forward to. This was certainly one of our aims when writing The Financial Fairy Tales stories.

As well as reading together, letting your child have choice over the reading material is important. Naturally there will be some books that you don’t feel comfortable letting them read, but once you have filtered the range for inappropriate content, let them make the decisions. An activity can quickly become a chore if you know you have to do it, so give your child the reins for a while – even if you don’t really want to read about the exploits of Captain Underpants!
One of the brilliant aspects of World Book Day, in the UK at least, is that every school child is given a £1 book token. This allows them to buy one of eight specially commissioned books, and provides a great opportunity to try a new author or genre. But it can be harder to keep this sense of freshness going later in the year, particularly if you don’t want to spend a fortune on buying new books. Naturally one answer to this is to visit the local library. In today’s digital world it’s still lovely to browse through a library and discover new things, and your children will enjoy the trip out. But of course digitisation is also providing wonderful reading opportunities. If you own an e-reader, there are a surprising number of children’s books that can be downloaded for free. Just be prepared to spend a bit of time browsing to find the ones you want.

Audio books are another way to make books a part of life. Any trip in the car can become a storytelling opportunity, and since you can listen to many audio books online for free (including on YouTube!), there are no costs involved. Another sociable way to cut the cost of reading is to arrange a book exchange. Swapping books with friends lets you kids share their enthusiasm and distances reading from its often solitary, serious image. Just make sure you keep track of which books went where!
Remember, reading should be a fun activity that both you and your child enjoy. If they don’t seem to be enjoying fiction books, why not have a go with a non-fiction book on one of their favourite subjects? There is a whole world of books out there, and we should all be enjoying it well beyond World Book Day.

Junior ISAs – Ways to Save for Your Children

Here at the Financial Fairy Tales we passionately believe in encouraging children to save and from an early age.

Sometimes parents need a little encouragement too. Junior ISAs are a tax efficient way of saving for your child’s future.

Below is a brief overview. Our advice is to  shop around to find the best deal


Image source: MoneySupermarket;

How to Improve Your Credit Rating

If you don’t have a good credit rating, there are things you can do to improve it. But first, you may be asking yourself; “Why bother?”

Well, there are a number of reasons you may wish to consider doing what you can to improve your rating.

how to improve your credit rating - credit score imageFirstly, you will have a better chance of getting credit card and loan approvals. Just remember that debt can be a good or necessary tool but only when it’s used carefully and effectively and that there’s very rarely any such thing as free debt management advice. Nevertheless, having a good credit rating doesn’t guarantee approval as lenders consider factors like income and debt, but it betters your chances of being approved.

An improved rating will also help give you more power in negotiating lower interest rates on a credit card or a new loan and you can give examples of other offers you’ve received from competitor companies based on your credit score.

Similarly, you are more likely to gain approval for higher limits as you’re able to demonstrate that you pay back what you borrow in a timely manner. You should also be able to benefit from easier approval for houses or apartments you may wish to rent for obvious reasons as landlords often use credit scores to screen tenants. And finally, you should be able to get better car insurance rates.

But how do you achieve a better credit rating?

There are a number of basic steps you need to take:

First of all, make sure your records are intact. If you have gaps in your formal record for residency or the electoral register, do something about it by making sure you ‘exist’, formally, at your current address. Without such a record, you’re unlikely to be able to get any kid of credit. A stable background also helps – for example, if you have been at the same address for a long time, or been with the same bank for a decent length of time. Also, make sure your credit records are accurate. Many people have inaccurate records through no fault of their own whatsoever.

Show that you are good for credit by having credit and using it responsibly. For example, the good use of a credit card or a mobile phone deal will help in this regard. Just make sure you use this credit responsibly to demonstrate that you can pay it back. The credit history will work in your favour in the future.

Finally, don’t exceed any credit limits you have. It’s actually better to have a higher credit limit that you don’t exceed than a lower one that you do. So never miss any payments if you can possibly avoid it. This raises a big flag on your credit score. On the other hand, don’t ask for more credit than is realistic for your official level of income.