Five Ways to Fund Retirement
Not sure of the best way to plan for retirement? You don't have to put all your money in the hands of City cowboys who could lose you everything - check out these five different ways to fund your retirement.
Downsize
The kid’s have flown the nest, leaving you and your partner, if you have one, rattling around in a property that is too big for your needs as you reach retirement. Downsizing to a smaller, more comfortable property as you reach retirement age is a popular way to finance retirement, allowing you the opportunity to cash in on spiralling property prices and access the equity in your home. While downsizing within the same locality will give you access to additional money during retirement, many retirees choose to downsize to a different area, where property prices are cheaper and they get more value-for-money. For example, a couple selling a three bedroom property in Wimbledon, London, for approximately £450,000, would be able to buy a three bedroom bungalow in Brecon, Mid Wales, for approximately £225,000, allowing, if they have paid off their mortgage, a surplus of £225,000 on which to live off during retirement.
Best for: Those who have paid off their mortgage and seen their property rise considerably in value and who are looking to relocate to a different, cheaper, area to live.
Equity Release
For those who have a strong emotional attachment to their home, or who do not want the stress and strain of moving, but are ‘equity-rich-cash poor,’ equity release schemes are proving a popular option. As many as 23,470 lifetime mortgages worth over £1.015 billion were taken out between July 2005 and July 2006 by pensioners looking to raise extra capital through their homes. Equity release refers to the process of releasing or 'unlocking' part or all of the excess value on a property - excluding what is still owed on any mortgage. In order to apply for an equity release scheme, candidates need to be in their mid fifties, although some schemes start at sixty, and should own their home with no mortgage or have only a small loan outstanding. SHIP, the UK equity release industry body which represents more than 90% of the Equity Release sector, claims that interest rates for lifetime mortgages are currently more favourable than those for normal mortgages, especially when you consider that interest rates for equity release remains fixed for the life of the loan, unlike mainstream mortgages which can fluctuate in line with the Bank of England’s inflation base rate. However, many schemes charge a far higher level of interest, and anyone considering such a scheme should seek independent financial advice.
Best for: Those who do not want to move from their existing home, but are keen to tap into the increased value of their property.
Work
Perhaps not the most popular choice for anyone contemplating retirement, but at least now, following new anti-ageist legislation on 1st October, if you want to continue to work passed the traditional retirement age of sixty or sixty-five then you can. Also, new legislation, known as A-Day, have made it easier to continue to work, full or part-time, without it eating into your pension rights. Under previous legislation members of occupational pension schemes had to retire from work in order to draw their pension, whether they wanted to work or not. The new legislation allows people to ease their way into retirement, so that you can begin drawing on your pension while continuing to work, or choosing to work part-time. As the population ages, and state pensions continue to dwindle in size, working, even on a temporary or part-time basis, is likely to figure as prominently in the lives of the over-65s as it does with the younger generation.
Best for: Those with less money to live off during retirement than they would like, and for those who enjoy working, albeit on a part-time basis.
Pensions
Although they have suffered a justified bad press in recent years, with miss-selling scandals and shortfalls in many a scheme knocking consumer confidence and trust in pensions overall, the tax incentives to those who choose to fund their retirement in this way are extremely advantageous. New rules allow schemes the opportunity to be able to pay a tax free lump sum of up to 25% of the fund value and to a maximum of 25% of the lifetime allowance irrespective of the type of pension held, be it a private, occupational or voluntary contribution pension scheme. New rules also mean that if you want, you can even contribute a year’s salary into your pension, so long as it does not exceed the annual allowance limit for each tax year. The annual allowance for the 2006/7 tax year has been set at £215,000, rising by £10,000 each year to £255,000 in the 2010/11 tax year. However, if you make additional contributions above this excess, it will be taxed at 40%. Also, remember that if you hold too much money in your pension scheme, anything over £1.5 million, held over a lifetime, will be liable to 55 per-cent recovery charge tax.
Best for: Regular savers looking to plan ahead for their retirement by saving in a tax-efficient way.
Investment
Those who have had their finger’s burnt with pension-schemes-gone-bad, or those who like to keep a firm grip on their finances and be able to access their cash whenever their circumstances might change, rather than hang on until reaching retirement age, may prefer to simply invest their money and hope it generates enough money to fund retirement. A popular alternative to pensions in recent years has been buy-to-let property, which has seen massive returns as property prices increase. Research from the Society of Mortgage Lenders revealed that buy-to-let borrowing set new UK records in the first half of 2006, with lenders advancing 152,500 loans, worth a staggering £17.5 billion. But as the market becomes fiercely competitive, consumer group Which? stresses that the key for anyone thinking about investing in buy-to-let is to think of it in terms of running a business: turnover in the form of rent needs to exceed the costs of buying and maintaining the property. They suggest that as a rough guide, rent from a property should exceed the actual running costs by 25-30 per cent. The idea being that this profit will cover the owner for times when the property is not rented out and cover any large expenses such as a broken boiler, as well as costs such as tax on rental income.
But there are other investment options available to those looking to generate a retirement income, some of which include: investing in the stock market, either through the purchase of individual shares, or through investment trusts or funds, which offer a greater degree of security by spreading where your money is invested; bonds or gilts, which offer a far greater degree of investment security than shares and usually tie your money up for a certain period, typically, 5 – 10 years, and; ISAs, which are tax free wrappers that can be used for saving cash or investing in equities or equity related products and offer many tax breaks, as ISAs are exempt from
Capital Gains Tax.
Good for: Those who like to keep control of their finances and are weary of pensions, but are willing to spread their money around and take controlled risks where necessary in order to generate a retirement income.
Friday, 19 December 2008
What is an Annuity?
What exactly is an annuity?
Financial Advice for Retirement Planning: A regular income paid until the death of you or a dependant (wife, husband) bought with a fund of money (normally a pension fund).
What criteria do annuity providers rely on to determine how much they will pay you?
Financial Advice for Retirement Planning: How much money you have and how long you or your dependant included in the annuity are likely to live – that is receive the income.
Why is it important to shop around for an annuity?
Financial Advice for Retirement Planning: Everyone has the right to shop around. This is called the Open Market Option. Exercising that option may lead you to find that you are already with the top company but annuity rates vary from time to time and are based on your age, health, etc. Even a healthy person can increase their annuity income by a quarter or more if their existing pension company has low annuity rates. If you, or your dependant, smoke or are in poor health the increase can be substantially greater than this.
What different types of annuity are there?
Financial Advice for Retirement Planning: Guaranteed annuity; where either a level or increasing income is fixed at the outset.
Investment-linked annuity; where the income can go up or down (normally within limits) dependent upon the underlying investment.
Enhanced or impaired life annuity; if either the annuitant or his/her dependant is in poor health or smokes, etc, rates can be higher. This can be on a joint life or single life basis. Joint life pays a fixed percentage of the annuity to the dependant which is fixed at the outset. The annuity can be paid for a guaranteed period of up to 10 years, regardless of the death of the annuitant.
What are the risks involved in purchasing an annuity?
Financial Advice for Retirement Planning: That the annuitant dies earlier than the insurance company expects. Poor investment performance with investment linked annuities can lead to falling income. Significant increases in interest rates in the future could mean that you would be better off to have delayed purchasing the annuity. To delay can result in lower income due to annuity rates having fallen (much the most common occurrence).
Do annuities cover increased expenses such as nursing care?
Financial Advice for Retirement Planning: Pension annuities do not change in order to cover increased expenses such as nursing care using non pension capital. A specific type of annuity called an Immediate Care Annuity can be purchased to cover such costs.
Can you pass your annuity on to your estate if you die?
Financial Advice for Retirement Planning: Pension annuity income can pass to the estate during the guarantee period if the annuitant dies prior to the end of such a period. Otherwise no residual value is available to the estate. With non-pension annuities such as those covering nursing care, you can buy guarantees which effectively do rebate a set proportion of the capital if the annuitant has not received the benefit and these guarantee amounts do become part of your estate.
Will my partner be covered by my annuity?
Financial Advice for Retirement Planning: Your partner will be covered by an annuity only if you set it up on a joint life basis at outset. This can provide either the same amount of income as you or a specified amount or percentage.
Are pensions the best way to save for retirement?
Financial Advice for Retirement Planning: Pension savings have the highest tax breaks of any savings product. They are however designed for the purpose of providing pension income and are relatively inflexible, particularly as a source of capital to pass to the next generation.
If the fund you accumulate in a pension is planned to provide you and your dependants with the core income that you will need in retirement then there is no better way to accumulate a fund for this purpose.
However, you have to ensure that just because it is tax efficient you do not end up with an imbalance in your savings and too high a proportion of your assets in pension. However, given current levels of pension savings, this is a very rare problem
Financial Advice for Retirement Planning: A regular income paid until the death of you or a dependant (wife, husband) bought with a fund of money (normally a pension fund).
What criteria do annuity providers rely on to determine how much they will pay you?
Financial Advice for Retirement Planning: How much money you have and how long you or your dependant included in the annuity are likely to live – that is receive the income.
Why is it important to shop around for an annuity?
Financial Advice for Retirement Planning: Everyone has the right to shop around. This is called the Open Market Option. Exercising that option may lead you to find that you are already with the top company but annuity rates vary from time to time and are based on your age, health, etc. Even a healthy person can increase their annuity income by a quarter or more if their existing pension company has low annuity rates. If you, or your dependant, smoke or are in poor health the increase can be substantially greater than this.
What different types of annuity are there?
Financial Advice for Retirement Planning: Guaranteed annuity; where either a level or increasing income is fixed at the outset.
Investment-linked annuity; where the income can go up or down (normally within limits) dependent upon the underlying investment.
Enhanced or impaired life annuity; if either the annuitant or his/her dependant is in poor health or smokes, etc, rates can be higher. This can be on a joint life or single life basis. Joint life pays a fixed percentage of the annuity to the dependant which is fixed at the outset. The annuity can be paid for a guaranteed period of up to 10 years, regardless of the death of the annuitant.
What are the risks involved in purchasing an annuity?
Financial Advice for Retirement Planning: That the annuitant dies earlier than the insurance company expects. Poor investment performance with investment linked annuities can lead to falling income. Significant increases in interest rates in the future could mean that you would be better off to have delayed purchasing the annuity. To delay can result in lower income due to annuity rates having fallen (much the most common occurrence).
Do annuities cover increased expenses such as nursing care?
Financial Advice for Retirement Planning: Pension annuities do not change in order to cover increased expenses such as nursing care using non pension capital. A specific type of annuity called an Immediate Care Annuity can be purchased to cover such costs.
Can you pass your annuity on to your estate if you die?
Financial Advice for Retirement Planning: Pension annuity income can pass to the estate during the guarantee period if the annuitant dies prior to the end of such a period. Otherwise no residual value is available to the estate. With non-pension annuities such as those covering nursing care, you can buy guarantees which effectively do rebate a set proportion of the capital if the annuitant has not received the benefit and these guarantee amounts do become part of your estate.
Will my partner be covered by my annuity?
Financial Advice for Retirement Planning: Your partner will be covered by an annuity only if you set it up on a joint life basis at outset. This can provide either the same amount of income as you or a specified amount or percentage.
Are pensions the best way to save for retirement?
Financial Advice for Retirement Planning: Pension savings have the highest tax breaks of any savings product. They are however designed for the purpose of providing pension income and are relatively inflexible, particularly as a source of capital to pass to the next generation.
If the fund you accumulate in a pension is planned to provide you and your dependants with the core income that you will need in retirement then there is no better way to accumulate a fund for this purpose.
However, you have to ensure that just because it is tax efficient you do not end up with an imbalance in your savings and too high a proportion of your assets in pension. However, given current levels of pension savings, this is a very rare problem
Travel Insurance Tips for Older Travellers
Travel Insurance Check List
1. About You
Ensure that you are honest with yourself and the insurance companies by asking yourself questions such as these: Do you have any pre-existing medical conditions? Failing to declare these could invalidate your policy should you need treatment because of this condition treatment. What age will you be on the date of travel? All policies have age limits. Check you will not be over the age limit by the end of the travel period.
Consult a doctor before you travel to ensure you understand the risk associated with your travel destination – for example, what will the climate be like? Will this affect any medication you are taking? Ask your doctor for adequate medications to cover the whole trip and with some to cover possible delays as it may be more difficult to obtain overseas.
Regular exercises on flights can help reduce ankle swelling, and more seriously, the risk of thrombosis. Be prepared for long flights – make sure you drink enough water to avoid dehydration and ensure you have enough of any medication you require on your hand luggage. Angina and breathlessness can be worse at high altitude and sometimes in aircraft – it is wise to alert the cabin crew if you suffer from these conditions.
2. Where you are going?
Going to the EU? Make sure you have a European Health Insurance Card (EHIC). It will help to significantly reduce medical bills and enable travellers to receive the same medical treatment as local residents. Is the destination country deemed safe for travel? You may not be insured if you are travelling to a country where the Foreign and Commonwealth Office have advised against travel. For advice on countries not to travel to and for global information prior to travel visit www.fco.gov.uk/travel.
3. What about the small print?
Check the cancellation policy. Some insurers do not include this as standard. Likewise, check you are covered if you need to cancel your holiday because of a pre-existing condition. How much cover does your policy provide? Check the limits on what the insurer will pay for each claim on e.g. medical expenses. Do you need personal baggage cover? Many travel insurance policies do not include this as standard, but you may not need to add it if you are already covered under your home and contents policy; check the small print before you decide.
Check where valuables should be kept. Many policy conditions insist that valuables be kept in a safe place, as defined by your insurer, otherwise you may not be covered.
“As with any insurance policy, it’s important to scratch beneath the surface and check the small print to ensure you comply with your policy conditions," says Richard Mason of Moneysupermarket.com.
“Older travellers may want to consider approaching specific organisations such as Age Concern or Help the Aged for insurance, but as always it is worth comparing these quotes to check they are competitive.”
1. About You
Ensure that you are honest with yourself and the insurance companies by asking yourself questions such as these: Do you have any pre-existing medical conditions? Failing to declare these could invalidate your policy should you need treatment because of this condition treatment. What age will you be on the date of travel? All policies have age limits. Check you will not be over the age limit by the end of the travel period.
Consult a doctor before you travel to ensure you understand the risk associated with your travel destination – for example, what will the climate be like? Will this affect any medication you are taking? Ask your doctor for adequate medications to cover the whole trip and with some to cover possible delays as it may be more difficult to obtain overseas.
Regular exercises on flights can help reduce ankle swelling, and more seriously, the risk of thrombosis. Be prepared for long flights – make sure you drink enough water to avoid dehydration and ensure you have enough of any medication you require on your hand luggage. Angina and breathlessness can be worse at high altitude and sometimes in aircraft – it is wise to alert the cabin crew if you suffer from these conditions.
2. Where you are going?
Going to the EU? Make sure you have a European Health Insurance Card (EHIC). It will help to significantly reduce medical bills and enable travellers to receive the same medical treatment as local residents. Is the destination country deemed safe for travel? You may not be insured if you are travelling to a country where the Foreign and Commonwealth Office have advised against travel. For advice on countries not to travel to and for global information prior to travel visit www.fco.gov.uk/travel.
3. What about the small print?
Check the cancellation policy. Some insurers do not include this as standard. Likewise, check you are covered if you need to cancel your holiday because of a pre-existing condition. How much cover does your policy provide? Check the limits on what the insurer will pay for each claim on e.g. medical expenses. Do you need personal baggage cover? Many travel insurance policies do not include this as standard, but you may not need to add it if you are already covered under your home and contents policy; check the small print before you decide.
Check where valuables should be kept. Many policy conditions insist that valuables be kept in a safe place, as defined by your insurer, otherwise you may not be covered.
“As with any insurance policy, it’s important to scratch beneath the surface and check the small print to ensure you comply with your policy conditions," says Richard Mason of Moneysupermarket.com.
“Older travellers may want to consider approaching specific organisations such as Age Concern or Help the Aged for insurance, but as always it is worth comparing these quotes to check they are competitive.”
Women & Money - Avoid These Mistakes
Find out what mistakes women mainly make when dealing with money
The number of female millionaires in the UK is growing by around 11% each year – accounting for 46% of Britain's 376,000 millionaires, and recent research suggests women are set to dominate the rich lists in the years to come.
Plus, when it comes to entrepreneurship, in several regions across the country, women have overtaken men in starting up new businesses.
But at the same time, many women also make common financial mistakes that could prove costly in the future. Read on to make sure it’s not you.
Shopping Debt
It’s fun to joke about your Jimmy Choo habit, but being a shopaholic is no laughing matter – it can throw you into financial strife, often for an item you’ll never even use. Price comparison website uSwitch.com estimates that almost 800,000 British women can attribute half of their unsecured debt to fashion, and having an average personal shopping debt of a massive £8 000. In all, British women spend an average of more than £1,800 a year on clothes, totalling an astonishing £20 billion.
“In today's celebrity obsessed society, where women emulate the shopping habits of their favourite fashionistas, it's not surprising that many are becoming more interested in size zero clothing than nought per cent APR," says Ann Robinson, director of consumer policy for uSwitch.
If you think you have a problem, start setting yourself savings goals, shop at Primark instead of Prada, and make some cash off your unwanted items by selling them on eBay – seeing how much money you’ve spent on useless items may also help you think twice in the future.
Keeping Up With the Beckhams
It’s not just celebrity clothing that British women feel the need to splash cash on – it’s their designer lifestyles, too. In fact, they spend a shocking £4.3bn a year in a desperate attempt to match celebrity style.
When it comes to shopping, more than three quarters of women admit to pulling out the plastic to copy celebrity chic, with beauty products and treatments like facials and manicures topping their ‘Celebrity Spending’ lists. And they’re using their credit cards to spend around £713 a year on fake tans, hair extensions and other beauty treats.
It may seem harmless, but channelling all your extra cash into your nearest salon could have a shocking affect on your future finances. Research from Virgin Money claims that 45% of people with no savings say they cannot afford to save for retirement, yet about £1.8m is spent every single day on cosmetic surgery and each year the average household pays out £769 on alcohol, £1,908 on restaurants and hotels, and £3,542 on debt interest payments.
“It all comes down to choices,” says Simon Fraser, President of Institutional Business at Fidelity International Limited. “Live for the now and cope with old age poverty when it hits, or make a few lifestyle tweaks based on the possibility of living until we are 100.”
To find out how much celebrities spend on life’s luxuries.
Pension? What Pension?
Over 60% of women do not contribute to a pension, and those who do contribute 22% less than men, according to findings by Prudential. Worryingly, the research also reveals one in five women have no additional means of boosting their pension compared to just one in 10 men.
Those women who do save are putting away an average of £236.54 a month compared with £304.56 on average for men, a difference of 22% per month. For a woman, this would equate to £42,577 over their lifetime, which would give them an income of just £3,603 a year for the rest of their retirement – so millions of women will go into retirement either having to rely on a partner or facing a struggle to maintain basic standards of living.
“Women simply cannot afford to close their eyes and hope for the best,” says Ian Martin, head of pensions and retirement income at HSBC. “By the time a 27 year-old woman reaches the age at which she can claim basic state pension, she would be entitled to around £135 a week, but only if she has made National Insurance contributions for most of her life. She should be asking herself whether she can really live on £135 a week.”
If you haven’t begun saving for a pension yet, don’t panic. In an ideal world, saving for your retirement should begin sooner rather than later. Unfortunately, it can seem less of a priority compared to other factors, such as buying a first home or starting a family, but even a contribution of just £50 a month can make a difference. Start now, and look carefully at your finances to see where you can cut expenses and where you can make plans for extra income too.
Relying on a Man
According to research from National Savings and Investments, 60% of women are financial fantasists, meaning that they refuse to accept the realities and responsibilities of financial planning, often leaving it to a partner or ignoring it completely – banking on future inheritance or assistance instead of exploring realistic strategies to boost a savings or retirement fund.
A worrying 60% of women say they do not bother to think about their finances at all and 5% say they will rely on loans when times get tough. Surprisingly, the problem is even worse among widowed, divorced and separated women – with 70% neglecting their financial future.
And women who think they will always be able to rely on their partner for financial support are putting their future at massive risk.
“With the number of divorces at high levels it is undeniable that individuals cannot rely on partners for their retirement finances,” says Gary Shaughnessy, Managing Director, Prudential Retail Life & Pensions.
The number of female millionaires in the UK is growing by around 11% each year – accounting for 46% of Britain's 376,000 millionaires, and recent research suggests women are set to dominate the rich lists in the years to come.
Plus, when it comes to entrepreneurship, in several regions across the country, women have overtaken men in starting up new businesses.
But at the same time, many women also make common financial mistakes that could prove costly in the future. Read on to make sure it’s not you.
Shopping Debt
It’s fun to joke about your Jimmy Choo habit, but being a shopaholic is no laughing matter – it can throw you into financial strife, often for an item you’ll never even use. Price comparison website uSwitch.com estimates that almost 800,000 British women can attribute half of their unsecured debt to fashion, and having an average personal shopping debt of a massive £8 000. In all, British women spend an average of more than £1,800 a year on clothes, totalling an astonishing £20 billion.
“In today's celebrity obsessed society, where women emulate the shopping habits of their favourite fashionistas, it's not surprising that many are becoming more interested in size zero clothing than nought per cent APR," says Ann Robinson, director of consumer policy for uSwitch.
If you think you have a problem, start setting yourself savings goals, shop at Primark instead of Prada, and make some cash off your unwanted items by selling them on eBay – seeing how much money you’ve spent on useless items may also help you think twice in the future.
Keeping Up With the Beckhams
It’s not just celebrity clothing that British women feel the need to splash cash on – it’s their designer lifestyles, too. In fact, they spend a shocking £4.3bn a year in a desperate attempt to match celebrity style.
When it comes to shopping, more than three quarters of women admit to pulling out the plastic to copy celebrity chic, with beauty products and treatments like facials and manicures topping their ‘Celebrity Spending’ lists. And they’re using their credit cards to spend around £713 a year on fake tans, hair extensions and other beauty treats.
It may seem harmless, but channelling all your extra cash into your nearest salon could have a shocking affect on your future finances. Research from Virgin Money claims that 45% of people with no savings say they cannot afford to save for retirement, yet about £1.8m is spent every single day on cosmetic surgery and each year the average household pays out £769 on alcohol, £1,908 on restaurants and hotels, and £3,542 on debt interest payments.
“It all comes down to choices,” says Simon Fraser, President of Institutional Business at Fidelity International Limited. “Live for the now and cope with old age poverty when it hits, or make a few lifestyle tweaks based on the possibility of living until we are 100.”
To find out how much celebrities spend on life’s luxuries.
Pension? What Pension?
Over 60% of women do not contribute to a pension, and those who do contribute 22% less than men, according to findings by Prudential. Worryingly, the research also reveals one in five women have no additional means of boosting their pension compared to just one in 10 men.
Those women who do save are putting away an average of £236.54 a month compared with £304.56 on average for men, a difference of 22% per month. For a woman, this would equate to £42,577 over their lifetime, which would give them an income of just £3,603 a year for the rest of their retirement – so millions of women will go into retirement either having to rely on a partner or facing a struggle to maintain basic standards of living.
“Women simply cannot afford to close their eyes and hope for the best,” says Ian Martin, head of pensions and retirement income at HSBC. “By the time a 27 year-old woman reaches the age at which she can claim basic state pension, she would be entitled to around £135 a week, but only if she has made National Insurance contributions for most of her life. She should be asking herself whether she can really live on £135 a week.”
If you haven’t begun saving for a pension yet, don’t panic. In an ideal world, saving for your retirement should begin sooner rather than later. Unfortunately, it can seem less of a priority compared to other factors, such as buying a first home or starting a family, but even a contribution of just £50 a month can make a difference. Start now, and look carefully at your finances to see where you can cut expenses and where you can make plans for extra income too.
Relying on a Man
According to research from National Savings and Investments, 60% of women are financial fantasists, meaning that they refuse to accept the realities and responsibilities of financial planning, often leaving it to a partner or ignoring it completely – banking on future inheritance or assistance instead of exploring realistic strategies to boost a savings or retirement fund.
A worrying 60% of women say they do not bother to think about their finances at all and 5% say they will rely on loans when times get tough. Surprisingly, the problem is even worse among widowed, divorced and separated women – with 70% neglecting their financial future.
And women who think they will always be able to rely on their partner for financial support are putting their future at massive risk.
“With the number of divorces at high levels it is undeniable that individuals cannot rely on partners for their retirement finances,” says Gary Shaughnessy, Managing Director, Prudential Retail Life & Pensions.
Tuesday, 16 December 2008
Make Money Online: Deal in Shares
Share Dealing Online: The Benefits of Online Share Dealing
Online share dealing saves you paying a stocker broker and gives you full control of your accounts without interference. According to a survey by Saga Share Direct, online share traders can also receive better returns on investments, compared to those who go through a stock broker.
Share Dealing Online: More Share Traders Deal Online
The pace and profits of share dealing can now be enjoyed at the click of a mouse - just remember that the virtual trading floor deals in real – your - money.
Share Dealing Online: Online Share Dealing Tips
You will however have to operate through an online share dealing service and a small fee is often charged with prices varying between services. For help on choosing the ideal and best value for money online share dealing price and for more information on online share dealing, go to: What to Look For in a Share Dealing Service
The natural drawback of 'DIY' execution-only transactions is the absence of professional advice and support in making share decisions. However if you are keen to trade online, read our top tips to online share dealing by visiting: A Guide to Online Share Dealing
Top 5 Ways to Save Money- Do It Yourself: Online Banking
Online banking is essential for the 21st century and there are huge benefits to getting online to manage your money.
Online Banking: Save Money and Bank Online
To do this you can either use online services provided by your current bank, all of which are free of charge, or you may like to consider opening an account with an online bank- whose rates are normally better than your high street banker.
Online Banking: Banking Services Available Online
Some of the services available online include;
Check your balances and view statements online
Move money between accounts
Make payments to others
Set up regular payments/ direct debits and
Order chequebooks and statements
Online Banking: Save Money, Time and Effort with Internet Banking
The facilities listed are all free for online customers to use and will reduce the money and time you spend on phone calls, posting and visits to your bank.
Plus online banking is safe, easy to use and lets you access your money anytime, anywhere.
Online share dealing saves you paying a stocker broker and gives you full control of your accounts without interference. According to a survey by Saga Share Direct, online share traders can also receive better returns on investments, compared to those who go through a stock broker.
Share Dealing Online: More Share Traders Deal Online
The pace and profits of share dealing can now be enjoyed at the click of a mouse - just remember that the virtual trading floor deals in real – your - money.
Share Dealing Online: Online Share Dealing Tips
You will however have to operate through an online share dealing service and a small fee is often charged with prices varying between services. For help on choosing the ideal and best value for money online share dealing price and for more information on online share dealing, go to: What to Look For in a Share Dealing Service
The natural drawback of 'DIY' execution-only transactions is the absence of professional advice and support in making share decisions. However if you are keen to trade online, read our top tips to online share dealing by visiting: A Guide to Online Share Dealing
Top 5 Ways to Save Money- Do It Yourself: Online Banking
Online banking is essential for the 21st century and there are huge benefits to getting online to manage your money.
Online Banking: Save Money and Bank Online
To do this you can either use online services provided by your current bank, all of which are free of charge, or you may like to consider opening an account with an online bank- whose rates are normally better than your high street banker.
Online Banking: Banking Services Available Online
Some of the services available online include;
Check your balances and view statements online
Move money between accounts
Make payments to others
Set up regular payments/ direct debits and
Order chequebooks and statements
Online Banking: Save Money, Time and Effort with Internet Banking
The facilities listed are all free for online customers to use and will reduce the money and time you spend on phone calls, posting and visits to your bank.
Plus online banking is safe, easy to use and lets you access your money anytime, anywhere.
Save Money Online: Do Your Own Tax Return
Top 5 Ways to Save Money- Do It Yourself: Do Your Own Tax Return
If you are one of the millions of people who have to fill in a tax return this year it’s worth your while to complete the form yourself, otherwise you’ll have to pay an accountant or possibly even HM Revenue and Customs (HMRC) to calculate it for you.
Do Your Own Tax Return: What is a Tax Return
A tax return is requested by HMCR from those who are self employed, receive an income through rented property; are higher rate tax payers; company directors or have not had tax deducted from other income which is received gross, such as interest on National Savings investment accounts.
Do Your Own Tax Return: How To Do Your Own Tax Return
On your tax form you must give details of your income and expenses in order for HM Revenue and Customs (HMRC) to calculate the amount of tax that you are due to pay.
Details on the form must be accurate and any errors may lead to delays in the process of your tax return.
In the view of the HMRC you should always keep records of your income and expenses, these will be very important when it comes to completing the form. Figures given must be accurate and if you’re unsure of a particular figure, you must give an estimate and tell HMRC when you can give the correct figure.
Do Your Own Tax Return: Tips To Do Your Own Tax Return
While many are daunted by tax return forms, it’s important to remember there are a large number of guidelines to help you, including the free guide book which comes free with the tax form and your local citizen’s advice bureau. Visit:
You can also read our handy tips to completing your tax reform by visiting: Financial Advice: Tax Return Tips
If you do get into difficulty, you can also ring the HM Revenue and Customs Helpline on 0845 9000 444, or visit the website at www.hmrc.gov.uk
If you are one of the millions of people who have to fill in a tax return this year it’s worth your while to complete the form yourself, otherwise you’ll have to pay an accountant or possibly even HM Revenue and Customs (HMRC) to calculate it for you.
Do Your Own Tax Return: What is a Tax Return
A tax return is requested by HMCR from those who are self employed, receive an income through rented property; are higher rate tax payers; company directors or have not had tax deducted from other income which is received gross, such as interest on National Savings investment accounts.
Do Your Own Tax Return: How To Do Your Own Tax Return
On your tax form you must give details of your income and expenses in order for HM Revenue and Customs (HMRC) to calculate the amount of tax that you are due to pay.
Details on the form must be accurate and any errors may lead to delays in the process of your tax return.
In the view of the HMRC you should always keep records of your income and expenses, these will be very important when it comes to completing the form. Figures given must be accurate and if you’re unsure of a particular figure, you must give an estimate and tell HMRC when you can give the correct figure.
Do Your Own Tax Return: Tips To Do Your Own Tax Return
While many are daunted by tax return forms, it’s important to remember there are a large number of guidelines to help you, including the free guide book which comes free with the tax form and your local citizen’s advice bureau. Visit:
You can also read our handy tips to completing your tax reform by visiting: Financial Advice: Tax Return Tips
If you do get into difficulty, you can also ring the HM Revenue and Customs Helpline on 0845 9000 444, or visit the website at www.hmrc.gov.uk
Make Money Online: Sell Your House Without an Estate Agent
Top 5 Ways to Save Money- Do It Yourself: Sell a House without an Estate Agent
Choosing to sell your house without an estate agent can save you a ton of money. Those with experience will know estate agents can be expensive and customers are often left with the feeling that they do very little for their sale commission.
Sell a House without an Estate Agent: How to Sell a House without an Estate Agent
Selling your house without an estate agent is easier than you may think. Experts in the field say it’s all about exposure. This means getting your property in your local newspapers and on a range of websites.
The internet in particular is a handy tool for those keen to sell their house without an estate agent. Many property portals charge absolutely nothing for you to post your property or charge a one off fee - which would still be cheaper than paying an estate agent.
Sell a House without an Estate Agent: Tips to Sell a House without an Estate Agent
When it comes to showing people your home its worth imitating the traditional approach of an estate agent. According to research by Channel 4 this would mean ensuring your have accurate details of your house to hand, for example room dimensions, allowing visitors to enter rooms before you do (apparently this make the room feel less crowded) and keeping to hand the service history of your boiler and average bill costs.
Most importantly keep your cool- advice also supported by the National Association of Estate Agents (NAEA). This is because an over enthusiastic seller is often a cause for concern for buyers. According to the NAEA buyers will immediately think you’re hiding something about the house or are just a little bit strange. Such behaviour may also encourage potential buyers to offer a significantly lower figure than the asking price.
Sell a House without an Estate Agent: Calculate Your Asking Price
On the topic of asking prices to ensure you give an accurate selling price you may want to research the cost of other properties in your area, by scanning properties up for grabs on the net and in the paper. Even though the whole idea is not to pay for the services of an estate agent, most estate agents will evaluate your house without the obligation to continue selling your home through them.
Choosing to sell your house without an estate agent can save you a ton of money. Those with experience will know estate agents can be expensive and customers are often left with the feeling that they do very little for their sale commission.
Sell a House without an Estate Agent: How to Sell a House without an Estate Agent
Selling your house without an estate agent is easier than you may think. Experts in the field say it’s all about exposure. This means getting your property in your local newspapers and on a range of websites.
The internet in particular is a handy tool for those keen to sell their house without an estate agent. Many property portals charge absolutely nothing for you to post your property or charge a one off fee - which would still be cheaper than paying an estate agent.
Sell a House without an Estate Agent: Tips to Sell a House without an Estate Agent
When it comes to showing people your home its worth imitating the traditional approach of an estate agent. According to research by Channel 4 this would mean ensuring your have accurate details of your house to hand, for example room dimensions, allowing visitors to enter rooms before you do (apparently this make the room feel less crowded) and keeping to hand the service history of your boiler and average bill costs.
Most importantly keep your cool- advice also supported by the National Association of Estate Agents (NAEA). This is because an over enthusiastic seller is often a cause for concern for buyers. According to the NAEA buyers will immediately think you’re hiding something about the house or are just a little bit strange. Such behaviour may also encourage potential buyers to offer a significantly lower figure than the asking price.
Sell a House without an Estate Agent: Calculate Your Asking Price
On the topic of asking prices to ensure you give an accurate selling price you may want to research the cost of other properties in your area, by scanning properties up for grabs on the net and in the paper. Even though the whole idea is not to pay for the services of an estate agent, most estate agents will evaluate your house without the obligation to continue selling your home through them.
Save Money Online: Make Your Own Will Online
Make Money Online: Ways to Save Money Online - Number 1
Sort out your money from the comfort of your own home with our online money guide to personal finance on the web - make money online, research money and save money online too.
For more information on how to save money on your personal finances, read our top tips to DIY personal finance - includes writing your own will, selling a house without an estate agent, completing your own tax return, building an HIP, online share dealing and online banking.
Top 5 Ways to Save Money- Do It Yourself: Write Your Own Will
Most would agree that having a Will is very important and the most popular way to write your Will is to hire a solicitor. However, a solicitor can cost well into the hundreds and a letter writer can cost between £30- £75.
Write Your Own Will: Save Money and Write Your Own Will
A study by The Co-operative Legal Services (CLS) even claims that solicitor charges have resulted in an alarming 34 million UK adults going without a will. However don’t let the fear of will charges put your off writing this important document. Instead do it yourself and save some vital cash.
Write Your Own Will: How to Write Your Own Will
Before you write a will there are a few questions and calculations that you will have to figure out. These include how much money you have, who you would like to benefit from your will, if you have children under 18 who will look after them and after you have passed away who you would like to carry out your will wishes.
Write Your Own Will: Update Your Will
It is also important to remember your will needs to be kept up to date preferably every 5 years and or after significant changes, such as a divorce, remarriage, birth of children or house move.
Write Your Own Will: Why Do I Need A Will
It is sadly all too easy for us to die at any time of life. The well publicised death and subsequent legal wrangling following the death of singer Barry White in 2003, who died without having a will, only goes to show the importance of having a will.
Write Your Own Will: Write Your Own Will Online
For a guide to writing your will online, visit:
www.tenminutewill.co.uk
www.epoq-wills.co.uk
Sort out your money from the comfort of your own home with our online money guide to personal finance on the web - make money online, research money and save money online too.
For more information on how to save money on your personal finances, read our top tips to DIY personal finance - includes writing your own will, selling a house without an estate agent, completing your own tax return, building an HIP, online share dealing and online banking.
Top 5 Ways to Save Money- Do It Yourself: Write Your Own Will
Most would agree that having a Will is very important and the most popular way to write your Will is to hire a solicitor. However, a solicitor can cost well into the hundreds and a letter writer can cost between £30- £75.
Write Your Own Will: Save Money and Write Your Own Will
A study by The Co-operative Legal Services (CLS) even claims that solicitor charges have resulted in an alarming 34 million UK adults going without a will. However don’t let the fear of will charges put your off writing this important document. Instead do it yourself and save some vital cash.
Write Your Own Will: How to Write Your Own Will
Before you write a will there are a few questions and calculations that you will have to figure out. These include how much money you have, who you would like to benefit from your will, if you have children under 18 who will look after them and after you have passed away who you would like to carry out your will wishes.
Write Your Own Will: Update Your Will
It is also important to remember your will needs to be kept up to date preferably every 5 years and or after significant changes, such as a divorce, remarriage, birth of children or house move.
Write Your Own Will: Why Do I Need A Will
It is sadly all too easy for us to die at any time of life. The well publicised death and subsequent legal wrangling following the death of singer Barry White in 2003, who died without having a will, only goes to show the importance of having a will.
Write Your Own Will: Write Your Own Will Online
For a guide to writing your will online, visit:
www.tenminutewill.co.uk
www.epoq-wills.co.uk
Money Guides: Writing a Business Plan - Tips for Successful Business Plans
Business Plan: Writing Tips for your Business Success
A business plan is not just a means to getting funding – it’s a necessity to make your business work. Business plans set out your business goals, strengths and weaknesses, and map out a viable plan for the future. Find out why business plans are so important, plus how to write the perfect business plan to get your company noticed.
How to Write a Business Plan
Less than half of all small businesses have a concrete business plan, and even fewer stick to their goals. Yet a business plan is not just for show. To get anywhere in business, you need to know where you’re going – and then set out manageable steps to make it happen.
What is a Business Plan: Why Write a Business Plan?
But why exactly is having a business plan so crucial, what should every business plan include, and how can you make your business plan stand out from the pack? Read on to find out.
How to Write a Business Plan: Why You Need a Business Plan
• Studies show that companies with business plans are far more likely to succeed in the all-important start-up phases.
• If you’re just starting out in business, it’s important to make sure your product is really viable, fills a gap in the market and will make you money. It may be disappointing to find out that your great idea won’t work in the real world, but it’s far better to discover this at the outset than risking all of your time and savings on a failed opportunity.
• It will help you manage your business more efficiently and give you the opportunity to analyse your business, helping you spot problems as soon as they come up.
• Having a plan lets everyone know where you’re headed and what your common business aims are, encouraging teamwork and focus.
• To gain funding. Your business will only be considered by potential investors and bank managers if you have an up to date and comprehensive business plan to show how you plan to grow in the future. If your business plan is not compelling enough, they won’t part with their cash.
• With your growth plans mapped out, you’ll be able to pinpoint whether your forecasted growth requires new assets or justifies extra expenses, such as renting premises. You’ll also be able to tell if you need more employees, and whether you will be able to pay them.
• A promising business plan will also make your business stand out to clients, contacts and business alliances.
• A business plan forces you to set out what your main goals and projects will be in each particular time frame, so you’ll know exactly what you need to focus on and won’t waste time dealing with things that don’t really matter.
• With goals and time-frames mapped out, you will know exactly what you’re working towards and are more likely to reach your major long-term goals when you’re easily achieving them in bite-sized chunks. In other words, having a business plan increases your chances of long term success.
• A business plan helps you decide on a course of action to achieve your goals – that way you can check if you’re on track by whether you’re reaching the targets you’ve set yourself.
• To help you keep track of your cashflow. Cashflow mismanagement is the most common reason small businesses fail. “You can have a hugely successful business but if you run out of cash it’s game over,” explains ex-Dragon’s Den TV entrepreneur Rachel Elnaugh. But with a carefully structured business plan, you can organise when your money will be going out and coming in by forecasting sales and costs, and plan for emergencies when you may need some extra cash to help with seasonal expenses or lulls in sales.
• When it comes to liquidating or selling your business, you’ll have an exit plan in place – and your business plan will be hugely important to potential buyers. It will also establish how much your business is worth.
How to Write a Business Plan: What Your Business Plan Should Include
Every business plan is different, but they should all have the same basic structure, and should be written clearly using simple, concise language – but should include all relevant details and figures to back up your plans. Here’s everything you should discuss in your business plan.
• The Executive Summary: This is a summary of what your business is actually about and plans to achieve. It’s often best to write this after you have completed all the other sections as you will have a clearer idea of where you are headed and what your objectives are. Here you should emphasise what your business has to offer and how it is different, as well as what your targets are.
• The Business Opportunity: This refers to what you are selling, and to whom. This is where you explain what gap in the market you will be filling, or how you’ll provide a service much better than any that are already available. It’s helpful to discuss your competition, how your business will grow and possible obstacles you may face. It’s also important to show how what you are selling will service a need your customers have, and what potential your product could have on the market.
• Your Strategic Marketing Plan: Here you explain how you will sell your business or product, and why people will want to buy it. Be specific about what your strategies will be for making, selling and getting your products on the market. You also need a plan for how you’re going to advertise your products to consumers.
• Your Business Team: Here you will explain why you have what it takes to run the business, as well as listing the skills of your employees – plus information about jobs you plan to recruit people for in the future.
• Financial Forecasts. Here you set out exactly how much your business will cost at each stage of growth, how much you expect to make and what you predict your turnover will be in the coming years. Include timescales, costs, recourses, outputs, returns and margins. Importantly, include how your business will be funded, what you will use the money for and how long it will take for your business to start making money.
• Your Recommendations. This is a practical explanation of where you will run your business from, what recourses and assets you will need and how your IT systems will work. Basically, this is where you prove you’ve planned exactly what you need to do to make your business happen.
How to Write a Business Plan: Tips to Make Your Business Plan Stand Out From the Pack
• Don’t try to make your plan too verbose – rather use simple, understandable language that gets your point across. If you’re using your plan for a reason other than just to help your business, for example looking for funding, then tailor it to whoever you are showing it to – the focus should be on explaining clearly how your business will help them!
• Be flexible. If writing your business plan helps you discover problems with your product or planning, all the better.
• If you’re presenting your business plan to potential investors, make it crystal clear how – and when – they can expect you to start making profit so they can get their money’s worth.
• Include all the important details, but don’t ramble on. As a general rule, a business plan should be between ten and twenty pages long.
• Take advantage of the help offered to small businesses. Several banks offer free advisory services. Or try showing it to an honest friend who can pick up on any holes in your argument.
• Adapt your plan as circumstances change. If something isn’t working, change it!
• Don’t just say you don’t have any competitors – do real research so you know exactly what products are on the market, and then explain exactly why what you have is better.
• The numbers are especially important. Make sure they are correct.
• Make sure your executive summary grabs attention and keeps the reader interested – remember that as it’s the introduction, if it’s not gripping the reader may not even get to the other information.
• Include a clear conclusion at the end to drive home the key points.
Money Guides: Going Bankrupt
Worried that you could go under in the current economic climate? Follow Your Money Guides tips on how to go bankrupt with our guide to going bankrupt.
Today alone, around 300 people will declare themselves bankrupt or insolvent and 74 homes will be repossessed. And, according to online credit information provider Equifax, 130,000 people are expected to be declared insolvent by the end of this year – a large increase on the 2007 figure of just over 100,000.
When Going Bankrupt is the Best Option: What is Bankruptcy?
Bankruptcy is a court order that you can apply for and in some cases is inflicted upon you. If you declare Bankruptcy a civil servant titled an Official Receiver gains control of your money and property. Creditors you owe money to will be forced to leave you alone and take up issues of debt with your Official Receiver.
Your Official Receiver will usually sell off your assets and use the proceeds to pay your creditors. Any outstanding debt is then written off.
When Going Bankrupt is the Best Option: How Do You Go Bankrupt?
To go bankrupt you must fill in a bankruptcy petition (form 6.27) and statement of affairs (form 6.28) available from your local court that deals with bankruptcy. You will have to pay a fee of around £495 which covers a court fee of £150 and the Official Receiver fee of £345 (although figures may vary depending on each situation). Those who wish to go bankrupt are advised to check they have enough cash to live off if your bankruptcy petition is accepted. The reason for this is that all bank accounts will be frozen during your bankruptcy.
In your request to go bankrupt you will be required to detail your income, outgoings, debts and assets. Your petition will then be examined and a court will decide whether your petition is successful and make a Bankruptcy Order. Afterwards you will be interviewed by the Official Receiver.
If you are unable to pay bankruptcy fees you may be able to request exemption using an EX160A form. Additionally, if you receive income support the £150 court fee will be waived. Otherwise organisations such as the Council Credit of Counselling Service advise you try and save for bankruptcy if this is the best solution for you.
When Going Bankrupt is the Best Option: What Are the Benefits of Going Bankrupt?
According to Advice.org.uk some people in severe debt may benefit from going bankrupt. This is because the procedure will mean you no longer have to deal with your creditors – this can be an extreme relief to those in debt, lifting away the heavy weight of concern and worry off your shoulders. Creditors will also have to drop court charges against you (however bailiffs may still be able to take your belongings).
Once you’ve completed your bankruptcy order you can make a fresh start with your finances. In most cases this would be a year after the order has been put into action.
When Going Bankrupt is the Best Option: When Should You Go Bankrupt
Bankruptcy should only be used by those who are in severe debt and even then bankruptcy should be your absolute last option. This means you have explored and tested all other available options in order to relieve yourself from debt.
Other solutions to severe debt may include the following: Individual Voluntary Arrangements (IVA), a Debt Management Plan, an Administration Order, Consolidation Loan or Full and Final Settlements. Below is a description of these options.
When Going Bankrupt is the Best Option: Alternatives to Bankruptcy
Avoid Bankruptcy: Individual Voluntary Arrangements (IVA)
Individual Voluntary Arrangements (IVA) is a formal agreement set up by an Insolvency Practitioner between you and your creditors where you come to an agreement to make reduced payments towards to amount you owe, with the debt generally being settled after 5 years. However this option is only suitable if you have an income which can cover the agreed payments. The main benefit is that you keep your assets, but it will still affect your future credit rating.
Avoid Bankruptcy: Debt Management Plan
A Debt Management plan requires your financial situation to be fully assessed by a debt management professional. Once your total income, expenditure and the money you owe are calculated, a realistic figure of how much you could afford to pay back each month will be estimated. Your creditors will then be approached and asked to accept the reduced payments. Most creditors will accept the proposal.
Avoid Bankruptcy: Consolidation Loans
For those who are juggling debts from credit cards, store cards and loans you may benefit from taking out a consolidation loan. A consolidation loan allows you to pay off a large number of debts at once, leaving you with just one monthly payment to deal with. Also, if you owe lenders varying rates of interest it is possible to get a consolidation loan with a much lower interest rate. This means you could save hundreds of pounds by paying less interest. However there are disadvantages and you must examine all types of consolidation loans available before signing up.
Avoid Bankruptcy: Administration Order
Similarly to bankruptcy an Administration Order is a court order; however it works in a very different way. This order requires you to pay the court a monthly fee which will then be distributed amongst your creditors dependent on a pro rata basis. Like bankruptcy creditors will not be able to take court action against you or harass you for the debt. However the court will take 10 percent of your monthly payment as a fee.
Avoid Bankruptcy: Full and Final Settlements
Full and Final Settlements allow debtors to pay a significant proportion of what they owe to their creditors but not necessarily the full amount. To do this you must come to an agreement of how much you will pay with your creditors. You must then pay the settlement as a lump sum, all at once and the remaining debt will be cleared.
When Going Bankrupt is the Best Option: Disadvantages of Bankruptcy?
Mel Mitchley from building society and consumer credit information service MyCallcredit, argues that bankruptcy has serious consequences in terms of the current and future assets held by an individual.
Bankruptcy can affect your financial status and options for a long time after you have served the court order.
“Any hopes of future home ownership may be ruined and even something as simple as opening a bank account may become difficult,” comments Mitchley.
Ann Robinson, Director of Consumer Policy at price comparison website uSwitch.com, agrees. She says that it is worrying that so many people are resorting to individual insolvencies, be it an IVA or bankruptcy, to resolve their personal debt problems.
“These measures should always be the last resort for anyone with financial problems as they have a very serious impact on people's credit histories and their ability to borrow in the future,” she says.
“In the case of bankruptcy, it could also impact on employment prospects.”
A separate study uSwitch claims those who declare themselves bankrupt are effectively destroying their credit history, making it difficult to obtain a mortgage in the future or if they are successful they could be charged extremely high interest rates.
To summarise, it is important to remember that job opportunities after bankruptcy may be limited and unattainable in certain professions, for example an Estate Agent, Insolvency Practitioner or Stock Broker. You may also find it difficult to obtain credit cards and your chances of getting a mortgage are significantly lowered.
When Going Bankrupt is the Best Option: Other Disadvantages of Going Bankrupt
According to the Consumer Credit Counselling Service (CCCS) - a registered charity responsible to give impartial and independent advice to those in financial difficulty by providing free recognise the benefits of going Bankrupt. However they also point out a number of disadvantages to bankruptcy. Below is a summary of those points.
1. You may lose your home.
2. Your possessions may have to be sold which means you could lose valuable or luxury items.
3. If you own your own business you’re more than likely to have it sold buy your Official Receiver.
4. Future immigration will be made difficult.
5. Knowledge of your Bankruptcy will be made public this is so that all creditors you owe money to are notified. This means that your name and notice of your bankruptcy will appear in the legal section of your local newspaper and the London Gazette.
6. Bankruptcy does not rid you off all debts- student loans for example are not written off by Bankruptcy.
7. An Official Receiver could ask the court to make a Bankruptcy Restrictions Order (BRO) against you. This would mean the limitations of a Bankruptcy order could last up to 15 years.
Money Guides Advice: What is AER, EAR & APR?
What is APR, AER and EAR?
Confused by the terms APR, AER and EAR - find out what they mean and how to use them with our definitions guide to APR, AER and EAR.
If you’ve been shopping for loans, current accounts and or overdrafts, it’s more than likely you’ve been bombarded with APRs, AERs and EARs. While they are all important in helping us decide which financial product we should opt for, most of us just don’t understand these terms and what they really mean.
To help guide you on your quest for a value-for-money financial product follow our terms guide to APR, AER and EAR to discover what they each mean and how they can help.
Annual percentage rate (APR)
APR refers to ‘annual percentage rate’. It is used by companies offering personal loans and credit cards to measure how much it will cost you, the consumer, to borrow money over the course of a year.
Every provider must quote an APR to allow customers compare products on the financial market and find out which one is best for you.
The APR includes upfront fees charged by the lender with the exception of payment protection insurance (optional cover which protects borrowers from unemployment, sickness and accidents - meaning you can’t cover the costs of your loan or credit card statement).
Lenders will commonly quote a ‘typical APR’. However APR is dependant on an assessment of your credit report and personal circumstances. This means the typical APR advertised could change due to an evaluation of your situation.
A lot of the time lenders will provide you with a ‘headline rate’. The headline rate often makes a product or deal look very attractive but this figure often excludes additional fees borrowers must pay - the APR may therefore be a lot higher than you may think. If in doubt ask your lender or double check your loan or credit card contract.
APR and How it Works
If you borrow £100 at an APR of 9%, for example, you will pay £9 in interest and charges over the first year.
Equivalent annual rate (EAR)
EAR stands for the ‘equivalent annual rate’. The EAR applies to an overdraft or an account that can be in credit and go overdrawn - as opposed to a loan or credit card (which would receive an annual percentage rate).
The EAR lets you know how much you’re borrowing will cost you, if you were to remain overdrawn for a whole year.
The calculations include the rate of interest being charged, how often it is charged, and the effect of compounding it (charging interest on interest) over the year.
While the EAR excludes payment protection insurance the figure gives a total cost of your overdraft facility.
Annual equivalent rate (AER)
AER stands for ‘annual equivalent rate’ and is provided on savings and current accounts- which are in credit.
The AER will show you what interest you will earn from your credited account over the course of 1 year.
The AER is a good tool for comparing accounts and finding out which accounts will make the most from your savings. It will also help you differentiate between accounts which pay interest monthly and those who pay annually- allowing you to see which one will earn you the most interest on the funds in your account.
If an account includes an introductory bonus for a few months, your account providers should tell you whether or not this is in included in the AER. If it is not, looking at the AER will enable you to compare it fairly with an account that offers a level rate of interest all year.
It is worth keeping in mind that the AER is an estimated calculation and may not reflect true cash return. You may also like to look out for ‘gross’ AER and ‘net’ AER as the two are different. The gross AER is the rate of interest payable before the deduction of income tax, whereas net AER is the amount of interest payable after allowing for the deduction of 20% tax for basic rate taxpayers.
AER and How it Works
An account offering a rate of 6.25% paid annually, for example, may look more appealing than an account paying 6.12% with monthly interest payments; however the AER on the monthly account is 6.29%, as opposed to an AER of 6.25% on the account with annual interest payments.
Confused by the terms APR, AER and EAR - find out what they mean and how to use them with our definitions guide to APR, AER and EAR.
If you’ve been shopping for loans, current accounts and or overdrafts, it’s more than likely you’ve been bombarded with APRs, AERs and EARs. While they are all important in helping us decide which financial product we should opt for, most of us just don’t understand these terms and what they really mean.
To help guide you on your quest for a value-for-money financial product follow our terms guide to APR, AER and EAR to discover what they each mean and how they can help.
Annual percentage rate (APR)
APR refers to ‘annual percentage rate’. It is used by companies offering personal loans and credit cards to measure how much it will cost you, the consumer, to borrow money over the course of a year.
Every provider must quote an APR to allow customers compare products on the financial market and find out which one is best for you.
The APR includes upfront fees charged by the lender with the exception of payment protection insurance (optional cover which protects borrowers from unemployment, sickness and accidents - meaning you can’t cover the costs of your loan or credit card statement).
Lenders will commonly quote a ‘typical APR’. However APR is dependant on an assessment of your credit report and personal circumstances. This means the typical APR advertised could change due to an evaluation of your situation.
A lot of the time lenders will provide you with a ‘headline rate’. The headline rate often makes a product or deal look very attractive but this figure often excludes additional fees borrowers must pay - the APR may therefore be a lot higher than you may think. If in doubt ask your lender or double check your loan or credit card contract.
APR and How it Works
If you borrow £100 at an APR of 9%, for example, you will pay £9 in interest and charges over the first year.
Equivalent annual rate (EAR)
EAR stands for the ‘equivalent annual rate’. The EAR applies to an overdraft or an account that can be in credit and go overdrawn - as opposed to a loan or credit card (which would receive an annual percentage rate).
The EAR lets you know how much you’re borrowing will cost you, if you were to remain overdrawn for a whole year.
The calculations include the rate of interest being charged, how often it is charged, and the effect of compounding it (charging interest on interest) over the year.
While the EAR excludes payment protection insurance the figure gives a total cost of your overdraft facility.
Annual equivalent rate (AER)
AER stands for ‘annual equivalent rate’ and is provided on savings and current accounts- which are in credit.
The AER will show you what interest you will earn from your credited account over the course of 1 year.
The AER is a good tool for comparing accounts and finding out which accounts will make the most from your savings. It will also help you differentiate between accounts which pay interest monthly and those who pay annually- allowing you to see which one will earn you the most interest on the funds in your account.
If an account includes an introductory bonus for a few months, your account providers should tell you whether or not this is in included in the AER. If it is not, looking at the AER will enable you to compare it fairly with an account that offers a level rate of interest all year.
It is worth keeping in mind that the AER is an estimated calculation and may not reflect true cash return. You may also like to look out for ‘gross’ AER and ‘net’ AER as the two are different. The gross AER is the rate of interest payable before the deduction of income tax, whereas net AER is the amount of interest payable after allowing for the deduction of 20% tax for basic rate taxpayers.
AER and How it Works
An account offering a rate of 6.25% paid annually, for example, may look more appealing than an account paying 6.12% with monthly interest payments; however the AER on the monthly account is 6.29%, as opposed to an AER of 6.25% on the account with annual interest payments.
What to Look For When Choosing a Loan: Fact from Fiction with our Loan Guides
Loan Guides & Advice: What to Look For When Choosing a Loan
It may be easier to simply accept the first loan you see, but sticking with your current bank and failing to shop around could cost you – big time! Read on to find out how to get the best deal for you. Whether you want to consolidate existing debt, splash out on a lavish holiday or wedding, buy an overseas property or even invest in the latest cosmetic surgery trend, taking out a loan is a huge decision you should never make without looking into all the options carefully. Yet it’s one that many people take lightly, which has led to massive and increasing debt problems in the UK. Find out which option, if any, is for you. Look Before You LeapBefore you do anything, consider whether a loan is absolutely necessary. It may seem like the easy option to your money problems, but a loan can all too easily become a huge weight you just can’t get out of.
“It is always a good idea to consider alternatives before taking out a loan. If you have some savings, then dipping into your nest egg is likely to cost far less than borrowing money, even if it is a low-cost loan,” says David Kuo, Head of Personal Finance at Fool.co.uk. “Additionally, delaying your purchase and putting away some spare cash is bound to work out cheaper in the long-run.”Plan a budget to make sure you borrow as much as you need, but not a penny more, even if it’s tempting to have more money now and worry later. The more you borrow, the more interest you’ll have to pay. Work out how much you are able to pay monthly. Keep your payments affordable so you don’t fall behind, but at the same time don’t make them too small – keeping the loan as short term as possible minimises interest payments. Fixed? Variable? Flexible?The first thing you need to do is to decide which type of loan will best suit your circumstances. If you’re disciplined and you’d like the amount you pay off each month to be up to you depending on your circumstances, a flexible or offset loan is best.
That way, if you have extra cash lying around, you can pay your loan off more quickly and reduce interest payments.
What to Look For When Choosing a Loan
“Any unexpected changes to personal circumstances can quickly send us down a spiral of debt. Consequently, it is a good idea to get a flexible loan, and make extra payments when we can afford to do so,” says Kuo.Alternatively, if you’d like to be sure that your payment rate each month will stay the same no matter what the economy is doing, choose a fixed rate loan. This means that you will not be hit by scary interest rate hikes. But always check for early payment penalties. For the majority of personal loans, you need to be aware that if you wish to pay your loan off earlier than expected you could be slapped with a repayment penalty of two months interest or more – so check up on this beforehand and if possible, opt for a loan that is flexible in this regard.
On the other hand, if you’d like your loan payments to fluctuate in line with the economy, choose a variable rate loan – but for this option you need to be sure you have the budget for higher repayments if the interest rate increases.Consolidation LoansLooking for a consolidation loan? You’re not alone – rising debt has led to massive increase in consolidation loans in the last couple of years.It makes sense to roll up all your debts into one manageable payment, but it may not be the best option for you – especially since you will usually end up paying more money in the long run. Plus, people who take out consolidation loans often feel more secure and run up further debts thanks to additional credit card spending limits, which can be very difficult to resist, especially if money worries have kept you from splashing out on treats for months.
Instead, you could choose to pay off your debts with the highest interest rates first, while you only make minimal payments into other loans that are on another rate.If you choose a consolidation loan however, do so carefully. “Around half of all consolidation loans carry a penalty for early settlement,” continues Kuo at Fool.co.uk.
“This is unreasonable, and is unlikely to encourage borrowers to pay off their loans sooner.” And whatever you do, don’t use your credit cards until you have fully paid off your consolidation loan!
It may be easier to simply accept the first loan you see, but sticking with your current bank and failing to shop around could cost you – big time! Read on to find out how to get the best deal for you. Whether you want to consolidate existing debt, splash out on a lavish holiday or wedding, buy an overseas property or even invest in the latest cosmetic surgery trend, taking out a loan is a huge decision you should never make without looking into all the options carefully. Yet it’s one that many people take lightly, which has led to massive and increasing debt problems in the UK. Find out which option, if any, is for you. Look Before You LeapBefore you do anything, consider whether a loan is absolutely necessary. It may seem like the easy option to your money problems, but a loan can all too easily become a huge weight you just can’t get out of.
“It is always a good idea to consider alternatives before taking out a loan. If you have some savings, then dipping into your nest egg is likely to cost far less than borrowing money, even if it is a low-cost loan,” says David Kuo, Head of Personal Finance at Fool.co.uk. “Additionally, delaying your purchase and putting away some spare cash is bound to work out cheaper in the long-run.”Plan a budget to make sure you borrow as much as you need, but not a penny more, even if it’s tempting to have more money now and worry later. The more you borrow, the more interest you’ll have to pay. Work out how much you are able to pay monthly. Keep your payments affordable so you don’t fall behind, but at the same time don’t make them too small – keeping the loan as short term as possible minimises interest payments. Fixed? Variable? Flexible?The first thing you need to do is to decide which type of loan will best suit your circumstances. If you’re disciplined and you’d like the amount you pay off each month to be up to you depending on your circumstances, a flexible or offset loan is best.
That way, if you have extra cash lying around, you can pay your loan off more quickly and reduce interest payments.
What to Look For When Choosing a Loan
“Any unexpected changes to personal circumstances can quickly send us down a spiral of debt. Consequently, it is a good idea to get a flexible loan, and make extra payments when we can afford to do so,” says Kuo.Alternatively, if you’d like to be sure that your payment rate each month will stay the same no matter what the economy is doing, choose a fixed rate loan. This means that you will not be hit by scary interest rate hikes. But always check for early payment penalties. For the majority of personal loans, you need to be aware that if you wish to pay your loan off earlier than expected you could be slapped with a repayment penalty of two months interest or more – so check up on this beforehand and if possible, opt for a loan that is flexible in this regard.
On the other hand, if you’d like your loan payments to fluctuate in line with the economy, choose a variable rate loan – but for this option you need to be sure you have the budget for higher repayments if the interest rate increases.Consolidation LoansLooking for a consolidation loan? You’re not alone – rising debt has led to massive increase in consolidation loans in the last couple of years.It makes sense to roll up all your debts into one manageable payment, but it may not be the best option for you – especially since you will usually end up paying more money in the long run. Plus, people who take out consolidation loans often feel more secure and run up further debts thanks to additional credit card spending limits, which can be very difficult to resist, especially if money worries have kept you from splashing out on treats for months.
Instead, you could choose to pay off your debts with the highest interest rates first, while you only make minimal payments into other loans that are on another rate.If you choose a consolidation loan however, do so carefully. “Around half of all consolidation loans carry a penalty for early settlement,” continues Kuo at Fool.co.uk.
“This is unreasonable, and is unlikely to encourage borrowers to pay off their loans sooner.” And whatever you do, don’t use your credit cards until you have fully paid off your consolidation loan!
10 Credit Crunch Terms Explained
10 Credit Crunch Terms you may have come across lately. Find out what they mean with these great explanations.
Liquidity
The liquidity of an investment is how easy it is to turn it into cash. Some assets owned by banks cannot be turned into cash very easily, but are instead valuable over time. These assets are no good in times of urgency when real money is needed. When banks find themselves in this situation, strapped for cash, banks can go bankrupt.
Deleveraging
Deleverage occurs when a company decreases the amount of money it borrows. It is considered high risk when companies increase leverage.
In the past investment companies have borrowed more money than required, when investing in a product. They do this so they can potentially make more money, if they put more in - even if it means borrowing the money to do so (increasing leverage). However this can lead to losing more money than originally invested. During a Credit Crunch this is too risky and with most unwilling to lend more money, investment companies practise deleveraging.
Unwind
When big banks trade with oil, gold or any other valuable product most traders agree to sell or buy the product by a future date. Traders do not actually want to see barrels of oil arrive at their offices, so it is very important to ‘unwind’ your position during the time agreed. To unwind you must carry out the opposite of your first trading transaction. For example if you pay $50,000 for 500 barrels of oil to be delivered in January you must sell $50,000 for 500 barrels of oil to be delivered to a specific location in January.
In regards to the credit crunch the US Government, now responsible for the bankruptcy of Lehman Brothers, will have to ensure all of these types of deals are unwound by their due date, otherwise they can expect to see truck loads of oil and gold and whatever else traders dealt with delivered on their doorsteps.
Investment bank
There are two types of bank - commercial banks and investment banks. Investment banks provide financial services for businesses, government and very wealthy people.
Traditionally if an investment bank gets into trouble the government would not lend a helping hand. However, if a commercial bank, like Northern Rock or HBOS, looks set to go bust the Government will step in, in order to make sure ordinary people do not lose their savings.
Securitisation
Whether it is a stock, bond or mortgage debt, securitisation turns the item in question into a security. Once it becomes a security it is assigned a value and traded.
For example, if a mortgage debt is made into a security and a bank decides to buy it, the bank who buys this security will receive income when the original home-buyers make their mortgage payments.
In regards to the credit crunch, securitisation has proven a problem for several banks that have traded in this way, because they did not realise the original home-buyers were at a high risk of not paying.
Chapter 11
Chapter 11 refers to a chapter of the US Bankruptcy Code. A code that allows businesses who find themselves unable to pay those they owe money to (creditors), to ask the bankruptcy court for protection from creditors.
Dead Cat Bounce
A term regularly used to describe the temporary rise in otherwise poorly performing shares on the stock market. The term is used mostly by those on the trading floor.
Short Selling
Short selling occurs when a share trader borrows shares from banks and sells them immediately, so if the price falls the trader can buy the shares back at a discount rate and keep the difference. Under normal circumstances it’s a legitimate trading technique – but under the current volatile market conditions, the Financial Services Authority (FSA) believes it has been undermining confidence in financial markets. Short selling was largely to blame for the devaluation of HBOS shares.
Financial Services Compensation Scheme
Consumers with savings of £50,000 stored in authorised financial services firms have their money protected by the Financial Services Compensation Scheme (FSCS) - an independent body, set up under the Financial Services and Markets Act 2000 (FSMA).
Under the current climate Government, in an attempt to restore consumer confidence, has upped the compensation limit from £35, 000. Read more: Government to Extend Saver Guarantee to £50k.
Libor
Libor stands for the London Interbank Offered Rate and is used by banks world wide to determine the rate at which they lend to each other - whether that’s receiving or giving loans (including 24 hour - 5 year loans). Libor rates are set daily and released at the same time everyday - 11am London time.
Throughout the credit crisis the Libor rates have increased, revealing a reluctance banks to lend to one another. The fact it could not get credit from other banks was the main reason that Northern Rock collapsed.
Add your own credit crunch definitions below.
Liquidity
The liquidity of an investment is how easy it is to turn it into cash. Some assets owned by banks cannot be turned into cash very easily, but are instead valuable over time. These assets are no good in times of urgency when real money is needed. When banks find themselves in this situation, strapped for cash, banks can go bankrupt.
Deleveraging
Deleverage occurs when a company decreases the amount of money it borrows. It is considered high risk when companies increase leverage.
In the past investment companies have borrowed more money than required, when investing in a product. They do this so they can potentially make more money, if they put more in - even if it means borrowing the money to do so (increasing leverage). However this can lead to losing more money than originally invested. During a Credit Crunch this is too risky and with most unwilling to lend more money, investment companies practise deleveraging.
Unwind
When big banks trade with oil, gold or any other valuable product most traders agree to sell or buy the product by a future date. Traders do not actually want to see barrels of oil arrive at their offices, so it is very important to ‘unwind’ your position during the time agreed. To unwind you must carry out the opposite of your first trading transaction. For example if you pay $50,000 for 500 barrels of oil to be delivered in January you must sell $50,000 for 500 barrels of oil to be delivered to a specific location in January.
In regards to the credit crunch the US Government, now responsible for the bankruptcy of Lehman Brothers, will have to ensure all of these types of deals are unwound by their due date, otherwise they can expect to see truck loads of oil and gold and whatever else traders dealt with delivered on their doorsteps.
Investment bank
There are two types of bank - commercial banks and investment banks. Investment banks provide financial services for businesses, government and very wealthy people.
Traditionally if an investment bank gets into trouble the government would not lend a helping hand. However, if a commercial bank, like Northern Rock or HBOS, looks set to go bust the Government will step in, in order to make sure ordinary people do not lose their savings.
Securitisation
Whether it is a stock, bond or mortgage debt, securitisation turns the item in question into a security. Once it becomes a security it is assigned a value and traded.
For example, if a mortgage debt is made into a security and a bank decides to buy it, the bank who buys this security will receive income when the original home-buyers make their mortgage payments.
In regards to the credit crunch, securitisation has proven a problem for several banks that have traded in this way, because they did not realise the original home-buyers were at a high risk of not paying.
Chapter 11
Chapter 11 refers to a chapter of the US Bankruptcy Code. A code that allows businesses who find themselves unable to pay those they owe money to (creditors), to ask the bankruptcy court for protection from creditors.
Dead Cat Bounce
A term regularly used to describe the temporary rise in otherwise poorly performing shares on the stock market. The term is used mostly by those on the trading floor.
Short Selling
Short selling occurs when a share trader borrows shares from banks and sells them immediately, so if the price falls the trader can buy the shares back at a discount rate and keep the difference. Under normal circumstances it’s a legitimate trading technique – but under the current volatile market conditions, the Financial Services Authority (FSA) believes it has been undermining confidence in financial markets. Short selling was largely to blame for the devaluation of HBOS shares.
Financial Services Compensation Scheme
Consumers with savings of £50,000 stored in authorised financial services firms have their money protected by the Financial Services Compensation Scheme (FSCS) - an independent body, set up under the Financial Services and Markets Act 2000 (FSMA).
Under the current climate Government, in an attempt to restore consumer confidence, has upped the compensation limit from £35, 000. Read more: Government to Extend Saver Guarantee to £50k.
Libor
Libor stands for the London Interbank Offered Rate and is used by banks world wide to determine the rate at which they lend to each other - whether that’s receiving or giving loans (including 24 hour - 5 year loans). Libor rates are set daily and released at the same time everyday - 11am London time.
Throughout the credit crisis the Libor rates have increased, revealing a reluctance banks to lend to one another. The fact it could not get credit from other banks was the main reason that Northern Rock collapsed.
Add your own credit crunch definitions below.
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