New Year, New You. You’ve already joined the gym, signed up for Mandarin classes and filled your fridge with kale. Now it’s time to tackle your finances. So where should you begin?
First, check you are getting the best deal on your energy bills. This is likely to be the single step that can trim the most off your household expenses. Five minutes work on a comparison website could save you up to £260 without even needing to switch supplier, according to Ofgem, the energy-market regulator. That’s because around 20 million customers are currently languishing on their energy provider’s standard rate tariff, which are always substantially higher than the best deals offered by the same company. If you’re willing to move to a new supplier, your savings could be even bigger. So grab a recent bill (you’ll need this so that you know how much energy you used in the past year) and check a comparison website such as uSwitch.com or EnergyHelpline.com to see how much you could save. You can also shop around for better deals for you phone, broadband, home insurance and so on, although the savings are often smaller.
Cut the cost of debt
Next, check to see if you could get a lower interest rate on your mortgage. If you haven’t remortgaged in the past couple of years, the chances are you could save yourself hundreds, if not thousands, of pounds by changing deals now. Mortgage rates are close to record lows, with the best short-term fixed interest rates as low as 1.29%.
For someone with a £200,000 25-year mortgage, cutting your interest rate from 4% to 1.29% would save you £265 a month, and almost £80,000 over the life of the mortgage.
Mortgages are the biggest debt for most of us, but if you have other borrowings, such as personal loans or credit cards, see if you can cut the rate on them too. There are some terrific deals on balance-transfer credit cards at the moment. For example, you’d pay no interest on a transfer to the Barclaycard Platinum credit card for up to 32 months and incur just a 0.63% up-front fee. Most credit cards only allow you to transfer balances from other cards, but some will let you transfer money to your current account, which could then be used to pay off a personal loan. Virgin Money’s money transfer card offer a 32-month interest-free period for a 1.69% up-front fee.
Make your savings work harder
Once you’ve sorted out your outgoings, it is time to scrutinise your savings. Interest rates are far from impressive at the moment, but that is no reason to be complacent. Hunt out the best deals and you could earn five times as much interest as you are currently getting.
The best interest rate available on a traditional savings account is 2.05% from Ikano Bank. (This is a Swedish bank owned by the family behind furniture retailer Ikea, so it is not covered by the UK’s Financial Services Compensation Scheme and instead deposits are protected by the equivalent Swedish scheme, which will match the FSCS limit of up to £75,000 per person.) However, to get that rate, you’d have to lock your money up for five years, so you could miss out when interest rates start to rise. We wouldn’t recommend doing that, since we think both inflation and interest rates will pick up well before five years are up. So we’d favour short-term deals.
Ikano, for example, offers a 1.4% one-year fixed-rate deal, as does UK-based start-up Atom Bank (which is covered by the FSCS, but the account can only be operated through a smartphone app). The best easy-access rates include a 1% deal from the government-backed National Savings & Investment, available both as a cash Isa and an “income bond” that pays interest monthly.
In the news this week…
► Most of us are probably wondering whether we can get a refund on a Christmas present or two at the moment, says Olivia Rudgard in The Daily Telegraph. The answer may well be yes. Legally, retailers only have to give a refund for items which are found to be faulty within 30 days. In practice, they are often more generous, particularly since growing competition between retailers in the run-up to Christmas has led to better returns policies even in situations where you don’t have a receipt. John Lewis, for instance, will give you a gift card if you return the item to the store. Asos will accept anything for return bought between 1 November and Christmas Eve until 31 January. If a retailer refuses a return, it’s always worth asking to speak to someone senior “either in the shop or head office”, advises Rebecca Rutt on ThisIsMoney.com.
►Ros Altmann, the former pensions minister, has joined a “stampede” of savers cashing in their final-salary company pensions, says Josephine Cumbo in the Financial Times. Final-salary pensions pay a secure, index-linked income for life, but while financial advisers generally advise against transferring these into other pension arrangements that lack these guarantees, thousands have been tempted by cash transfer values that soared in the wake of the Brexit vote as bond yields plunged. (Lower yields mean higher transfer values due to the way that transfer values are calculated.) Altmann said her decision was partly driven by new rules for personal pensions introduced in April 2015, under which individuals gained more control over how they take their pensions, and can pass on any surplus tax-free to their family if they die before the age of 75.
►Online letting service Airbnb stands to lose more than $400m worth of bookings in London this year as its new 90-night limit comes into force, says Leslie Hook in the Financial Times. The site is having to make “regulatory concessions in markets around the world” after coming under fire from authorities concerned that widespread use of Airbnb has reduced the supply of long-term rentals, forcing it to comply with local restrictions in cities such as London and New York. London users will be blocked from letting through Airbnb for more than 90 days per year unless they have a permit from their council.