Financial Products That Should Make you Wary

CautionAmid low interest rates and lacklustre performance from even the best bank accounts, more and more people are starting to look elsewhere for better returns on their savings. While there are a lot of opportunities to choose from, there are also plenty of unscrupulous people waiting to take advantage of all the people looking for a place to put their money. You should approach all apparent alternatives to traditional savings strategies with care, and be particularly wary if presented with an of the following:

Easy Forex

Forex or FOReign EXchange involves trading your funds between different currencies to take advantage of fluctuations in exchange rates and ultimately increase their value. This can indeed be profitable, but it can lose you just as much money if you make the wrong decisions. Sometimes, the less-than-scrupulous parties taking advantage of first-time investors are not outright scamming them, but rather understating the hazards of a risky investment. For whatever reason, forex seems to be used in this way particularly often. Despite what the ads say, there is not really any such thing as “easy” forex. There are online plenty of online platforms that make the actual currency transfer easier, but these don’t make it any easier to succeed. If you are fully aware of the risks, believe you may be able to succeed, and want to try your hand at forex, there is nothing actually wrong with this type of investment. However, avoid any company that makes it sound like a get rich quick scheme.

Free Pension Reviews

It’s not just savings from the bank that may be targeted, but also savings for retirement. If you are ever offered a free pension review, avoid it. There is no such thing as a pension review that is free, but it is a popular ploy used by dishonest “experts” to gain access to your pension pot. Unlike the “easy,” “get rich quick” forex companies, these are normally outright scammers who will actively mislead you instead of just downplaying risks. Often, they claim to be associated with or approved by the Financial Conduct Authority (FCA) or to be acting on behalf of the government – claims which have no element of truth at all. Their aim is to persuade you to allow them access to your pension fund or to self-invest it in unregulated and highly risky assets in which they have a financial interest themselves. The result is that they profit while you risk losing all of your retirement savings.

The Benefits of Lean Living

Sometimes a simpler, leaner, more streamlined life can lead to a much healthier bank balance. Cutting out unnecessary financial distractions and wastage can make a real difference to the amount of your paycheque that survives the month. This doesn’t necessarily mean adopting monk-like devotion to leading the simple life, just cutting out a few things that are doing you more financial harm than good.

Food and Drink

Food and drink are obviously not something to cut out, but it is surprisingly easy to spend more than you need to on sustenance. Takeaways, eating out and even ready meals are classic examples. If you find yourself regularly resorting to these things simply to save yourself the effort of cooking, you are probably losing quite a lot of money. Try looking for alternative ways to get a quick meal, such as simple pasta dishes. Alternatively, take some of the effort out of cooking by teaming up with a friend. Take turns cooking a meal for two a couple of days a week so that neither of you will have to cook quite so often.

Energy and Bills

There is little special skill to reducing your energy usage. Mostly, it comes down to simply being a bit more conscious of wastage, such as leaving things on standby unnecessarily, along with a few other tactics such as switching to energy-efficient bulbs and making sure you regularly change supplier.  You might also be surprised at how much you could save in winter by turning down your heating by a single degree. Installing loft insulation can also be worthwhile, as this is one of the most cost-effective of home improvements. The savings on your energy bill can be significant, and will usually offset the installation cost after just a year or two. As the insulation should last for decades before needing replacement, the savings can be huge over time.

Car Costs

Though the price has fallen recently, fuel still remains fairly expensive. You can make noticeable savings simply by walking or, if you prefer, cycling on shorter journeys. However, for many people the majority of fuel is burned on the daily commute to and from work rather than by short trips. Sharing lifts with co-workers can significantly bring down the car running costs of everybody involved. If you manage to cut your annual mileage significantly enough (according to your best estimates), you may even save a little next time you renew your insurance.

What Oil Prices Mean for Energy Bills

Energy BillsFor a few weeks now, the news has been full of news about oil prices plummeting. This has been good news for consumers, as it has eased the average household budget in a couple of different ways. Petrol prices are now the lowest they have been for some time. Energy production is also cheaper and the falling price of oil has led to a similar drop in the price of gas, meaning that utility bills are coming down too.

But what does this really mean for household energy bills, and is the situation quite as it appears? Most of the big energy companies have indeed announced a reduction in prices, but they have been accused of making only “token” cuts which satisfy people’s expectations of a price drop without really passing on the savings they are making.

This view would seem to be supported by the fact that the industry regulator expects companies to benefit from bigger profit margins in the coming year. This suggests that at least some of the savings are being pocketed rather than being passed onto the consumer. Quite how questionable this practice is arguably depends on just how much is being passed on and how much is being kept, and this does not seem to be clear according to the information that is widely available at present.

The energy companies maintain that the cuts to energy bills seem small because there are so many other factors that go into a household’s bill besides the cost of energy. This is true, as wholesale energy costs only account for 44% of the average bill. Nonetheless, many consumers and industry commentators remain sceptical about whether the price cuts are more than a token gesture, and in a climate where energy companies have become no stranger to accusations of profiteering the situation is at best a questionable one.

Electricity tariffs have so far remained unchanged in the face of falling wholesale energy costs. However, the big six energy suppliers have all introduced cuts to gas prices which range from a mere 1.3% (EDF) up to 5.1% (Npower).

Ultimately, the fall in oil prices does mean that many households can expect to see their energy bills drop, but not by much. The fall in prices can make variable-rate tariffs seem attractive. However, given that prices can (and sooner or later will) rise again, many believe that fixed-rate tariffs still offer better value overall. This is particularly pertinent considering how often it has been alleged that the industry is much quicker to increase prices when wholesale costs rise than to bring them down again when prices fall.

Squeezing Better Interest From Banks

Savings AccountInterest rates at the moment are frankly not great. In 2008 – just before the financial crisis – savings accounts paid over 5% on average and there were better-than-average deals on the market do. Now, the average is less than 1.5% and you are doing particularly well if you approach 3%.

While there is no way you can avoid low interest rates, there are a few tricks you can use to make the most of a bad situation. These include:

Abandoning Fixed-Rate Accounts Mid-Term

The best interest rates are available on fixed-term accounts of up to five years. In order to get that rate, you need to tie your money up until the account reaches maturity. The problem is that if you sign up for a five year account, rates might improve in two or three years while you are still tied into your old deal.

However, many accounts do not prohibit withdrawals altogether. Instead, you face penalties such as losing a few months’ interest. This can still leave you better off than if you had gone for an easy-access or shorter-term account. If a better deal comes along in a couple of years, accept the penalty and take out your money. Put it in the new account, and leave the old one harmlessly disused until the term ends.

Stacking High-Interest Current Accounts

High-interest current accounts can offer better rates than savings accounts with the added bonus of easy, instant access. Naturally there are catches. There are sometimes fees, and usually a minimum monthly contribution. The superb interest rates will also only apply to a certain amount, with anything above that amount receiving a much more standard current account interest rate.

However, you are free to open accounts with more than one provider. What’s more, the minimum monthly contribution only has to be paid in. It can be paid out again as soon as you like. This makes it possible to stack these accounts to boost the amount you can save in them at high interest rates.

Supposing Account A and Account B both have a limit of £3000 for high interest and a £1000 minimum monthly input. Open Account A, and have at least £1000 paid in through your wages or a standing order every month. When you have reached your limit for high interest, open Account B and set up a standing order to pay £1000 into it every month from Account A. Leave the original arrangement in place, and you will benefit from the following:

  1. £1000 is paid into Account A every month, satisfying its conditions.
  2. That £1000 is then passed on to Account B, satisfying those conditions as well.
  3. Your combined high-interest current account savings limit is £6000.

This trick can be used with more than two accounts if necessary.

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Credit Card Services You Don’t Need

If there’s one lesson to take from all the recent banking scandals, it this – don’t let your bank swindle you out of your cold hard cash. To avoid being caught out, be on your guard and watch for these tricks when applying for a loan or credit card.

Identity Theft Coverage

You’re thinking, “Yes, I do need that!” A little known fact is, the Truth in Lending Act of 1968 says you’ll be out no more than $50 if your credit card is lost or stolen. Don’t pay for this coverage. If they offer it for free, great, but they’re not really offering you anything you’re not already entitled to.

Payment Protection Insurance

This one comes in many different guises including:

  • Credit Card Protection
  • Repayment Protection Insurance
  • Accident, Sickness and Unemployment Cover
  • Loan Protection Insurance
  • and many more

It is often offered at the point of sale with bank staff usually telling the borrowers that it compulsory or worse still adding it on without the borrowers consent!

Banks across the world, with a customer base in the UK, have now set aside close to £30billion to compensate customers who were mis-sold PPI in this way. So check your statements for anything similar and ensure that you aren’t paying for something that you don’t need.

Credit Score Monitoring

Many credit card companies off credit score monitoring, and they don’t offer it for free. You can utilize a number of other services, for free; to get the job done, so do not put extra money in your credit card company’s pocket for something you can get for free!

Balance Transfers

Unless you can pay off the transferred balance in full by the end of the introductory 0% interest rate period, you’re stabbing yourself in the foot with this one. You’ll have interest accrued on the balance from the original card to pay off when it transfers. If it’s not paid off, it too will start accruing interest there. Be smart about the balance, length of the interest free term, and what your budget says you can pay.

Credit Score Repair

Contrary to what credit card companies want you to think, your credit score isn’t that complex.

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • New credit (10%)
  • Types of credit used (10%)

Credit repair services only use the same things you can do on your own. There is nothing special here, so don’t waste money.

Not falling for these tricks can save you a lot of money. Simply decline at application, and if you’re pushed, stand firm.

Secured vs. Unsecured Debt

You’ve no doubt heard the two terms, and knowing the difference before you apply for a loan is critical to getting the best possible deal.

What is Secured Debt?

Secured debt is a loan that is backed up by collateral; a physical asset the lender puts a lien on. If you do not repay the loan, the lender can take the asset from you. For instance, you can put your land, if you own it free and clear, up as collateral for a mortgage, but if you foreclose, the bank gets the home and the land.

This represents less of a risk to the lender, because they know you’re motivated to make your payments so you don’t lose the collateral. And, they are protected if you do, because they’ll get your asset and can sell it to recoup their loss on your loan.

Secured loans will typically come with a lower interest rate. You can get home loans, auto loans, and personal loans as secured.

What is Unsecured Debt?

These are loans that are not backed with collateral. This is a heavier risk for the lender, because there is nothing for the lender to take away from the borrower if they do not repay the loan according to the terms. Most of the time, the interest rates are higher, and can be variable tied to the current prime rate.

Unsecured debt includes:

  • Student loans
  • Medical bills
  • Credit cards
  • Payday loans

Just because there is no collateral involved in an unsecured loan does not mean you should not worry about paying it back. Defaulting on an unsecured loan will wreck havoc on your credit, preventing you from getting financing in the future, and if you manage it, it will be at much higher interest rates, or require collateral to show you are not a risk.

Below is a great infographic by PayPlan highlighting Debt Perception vs Reality…

Estimated Growth for 2014 and 2015

The Chancellor of the Exchequer, George Osborne commented on the predictions, stating that the British economy is “continuing to recover and recovering faster than forecast.”

Statistics from the Office for Budget Responsibility (OBR) suggest that there may be an increase of 2.7% for GDP in 2014. This is an improvement on the estimate in December of 2.4%. In addition to this, a rise of 2.3% (compared to 2.2% previously estimated), has been forecasted for 2015, with 2016 remaining at 2.6% growth. The estimated figure for 2017 however dropped to 2.6% from 2.7% along with 2018 at 2.5% from 2.7%.

Senior economist from Standard Chartered, Sarah Hewin was sceptical of the predictions, stating that: “The outlook for the UK economy still has a question mark over it”.

In addition to the forecast from the OBR is the fall in anticipated government spending, from £111 billion for this financial year, to £108 billion.

The forecast however was met with scrutiny from Ed Miliband, the Labour Party leader, who criticised the chancellor for not meeting its’ goal of government surplus by 2014 to 2015. He said: “Back in 2010 you told us that at the end of 2014 the economy would have grown by nearly 12%… Today the figures say it’s been barely half that, and you want the country to be grateful.”

George Osborne however pointed towards further forecasts from the OBR which suggest an economic peak towards the end of this year, similar to the economy prior to the financial predicament of 2007 and 2008.

The OBR have also estimated that the UK’s unemployment rate will see a drop to 5.4% between now and 2018, with them expecting, before the end of this year, a drop to 6.8%.

Although the OBR’s predictions are mainly positive for the economy, the chancellor cautioned that there is still a lack of investment, exports and saving and too high an amount of borrowing.

A stronger Bank of England to hold banks accountable

A review is to take place on whether the Bank of England should increase their number of powers allowing them to hold more of a sway over the balance sheets of banks. Currently the Financial Policy Committee of the Bank of England cannot control banks leverage ratio, this along with other functions will be reviewed.

Bank of England governor Mark Carney spoke to the Treasury Committee about how the new powers, similar to those he had while at the central bank in Canada, had made it easier to tackle the global economic predicament.

Carney told them: “If I could pick one element that was essential to the performance of the Canadian banking system during the crisis, it was the presence of a leverage ratio.”

Mr Osborne had written to Mr Carney stating that “Now is an appropriate time for the FPC to consider whether and when it needs any additional powers of direction over the leverage ratio, how it should use these powers and how any new powers would fit in with the rest of its macro-prudential tool-kit.”

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Mr Carney pointed out that he was “more than mildly offended” when accused by John Mann, who belongs to the committee, on trying to show the economy as a “rosier picture”.  Mr Carney also found the claims that RBS were driving feasible businesses to shut down on purpose, “deeply troubling and extremely serious”, stating that “This has to be tracked down to the full extent of the law.”

He faced disapproval with his estimations on interest rates which had caused misunderstanding. In his defence Mr Carney replied stating that: “The exact timing of when that 7% threshold will be achieved is subject to uncertainty. We do our best to give our estimates of that uncertainty… One month’s unemployment figures does not have a material change on those likelihoods.”

Mosquitos and Personal Finance… Attack and Kill!!

Mosquitoes are like pesky debts that need to be paid, there’re always pecking at you. You can wart them off or you can kill them dead. Some debts bite at you constantly and then after a few years of biting, they notice that cannot get much out of you so they give up. However, they make sure they leave you wounded with scars which reflect your credit report.

Some mosquitoes bite every day, some every month. Their main goal is to make you feel uncomfortable so you can give in. Paying the minimum balance is just enough to keep them away temporarily. Problem is they’re still close by and ready to bite again. Now you have to re-up more bug spray. We do this for years.
You have to have a game plan beyond just temporary relief that will kill them so they will never come back. We have so many mosquitoes biting us every month we become sick and wounded making it harder to enjoy life.

Flip the script. Do not hang where bugs are. Avoid places where bugs prey upon humans. Throw more chemicals on the bugs eventually they will die. This will speeds up the process. The less bugs the less stress. Stop inviting bugs into your life to bite you. Every time you sign a contract or buy something on credit you are inviting risk.