Year ahead for personal finance: what will happen to your wealth in 2023?
The past 12 months have been a particularly turbulent time for our finances. Soaring inflation and consequent rising interest rates have been the theme of 2022. But is this set to continue?
Inflation has affected nearly every aspect of our lives. From how much we pay for groceries, to heating our homes and our investment portfolios – nothing is left untouched in financial terms.
But what can we expect in the next 12 months? No two years are ever alike so the challenges ahead will be different from those we have had to face in 2022.
Here are some of the major themes to be aware of.
Prices
Inflation was the watchword of 2022, and this doesn’t look like it is going to get much better very quickly.
In global terms the outlook is beginning to vary, with signs that price rises are beginning to slow in regions such as the US. But in Europe it is unlikely to get much better quickly.
This is because the inflation crisis in Europe and the UK is much more closely associated with energy prices, than in the US where inflation is predominantly a hangover from the COVID-19 pandemic.
Because of the war in Ukraine, energy prices are going to stay higher for longer thanks to limitations on the supply from Russia, on which many European countries had become all too reliant upon in the past few years.
High energy prices are pernicious for the economy because they impact just about everything else in our lives – from powering and heating our homes to the input costs of making and transporting the food we eat, or just about anything else – it all requires energy. If that energy costs more, so will everything that relies on it.
In terms of practical forecasts, the Bank of England sees the consumer price index (CPI) inflation beginning to fall slowly from early next year – but that it will take around two more years to reach its target level of 2%.
So, expect pressure to begin easing, but to persist for some time to come.
Interest rates
This forecast will have direct implications for the level at which the Bank of England sets the base rate. The Bank has hiked the rate hard in the past few months to try and get inflation under control.
However, now it sees inflation beginning to slow its progress, it’s likely that its rate hiking path will also start to ease, as it waits to see the effect on the economy. The Bank has warned that it thinks investment markets are pricing in too many hikes, but those expectations have yet to come down.
The current expectation is that the Bank of England will reach its ‘terminal rate,’ i.e. the high point of interest rates in the cycle of rises, at around 4.25% – it is currently 3%. So, expect more rises to come, with more expensive credit, mortgages, and better savings rates.
Economy
Interest rates and inflation have a major impact on the health of the economy. The Bank of England has already predicted that the UK economy is in a recession, but at the time of writing this is unconfirmed.
An official definition of recession is two consecutive quarters of negative economic growth. The UK did contract by 0.2% between July and September, according to the Office for National Statistics.
If the economy does continue to contract, inflation could come down more quickly than expected as people stop spending to protect their core assets. Unemployment could also begin to rise, something we’ve yet to see much sign of despite tough economic conditions already prevailing.
The Bank of England ultimately predicts that we’ll go through one of the longest economic recessions on record. But the good news is that it expects this recession to be relatively shallow compared to others, with GDP ultimately not falling more than 2.5% in its projections. By contrast the Great Financial Crisis saw the UK economy fall by around 6%.
Taxation
The health of the economy has a direct impact on how the Government plans and organises its economic plans and taxation measures.
As we’ve written elsewhere this month, the Government has hiked taxes and cut allowances already to help it balance its budget.
But if economic conditions worsen then the Government might feel compelled to tighten tax rules further in March to bring in more money.
There has been much debate about whether or not raising taxes as the economy contracts is a good idea, but the reality is that the Government has to pay its bills or else cut services. With its debts getting more expensive thanks to rising rates, it faces little else in the way of choices.
Housing
The property market is one of the most high-profile casualties of rising rates, and has been further impacted by the financial and bond market implications for mortgages caused by the disastrous mini budget in September.
According to Halifax Bank, house prices fell 2.3% in November, the biggest monthly drop since the financial crisis in 2008.
Unfortunately for homeowners looking to sell in the next year, this situation is unlikely to improve significantly. That being said, mortgage rates have improved somewhat since the worst effects of the mini budget eased, making it slightly easier for prospective homebuyers.
But the overall economic issues, inflation and interest rate rises combined could depress prices for the foreseeable future, after many years of explosive growth.
Investing
It has certainly been a tough year for investments, from equities to bonds – nothing has gone unaffected by rising rates.
While it is impossible to predict where investment markets will go, what is consistently true is that there will always be good opportunities available, especially for those that use carefully planned wealth management to achieve their long-term goals.
It’s important to remember that building wealth through investing is a long-term pursuit, so the short-term impacts of market movements have to be managed with a bigger-picture perspective in mind.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 13th December 2022.
Autumn Statement 2022: everything you need to know for your money
After a controversial mini budget in September, new Chancellor Jeremy Hunt announced a series of measures in his Autumn Statement on 17 November.
The update contained a raft of measures that will affect households – some quickly and directly and others obliquely, affecting your wallet over time.
Here is a breakdown of everything you need to know that is changing.
Income tax – the thresholds at which we pay income tax have been frozen for longer. This means the personal allowance will stay at £12,571 and the higher rate of 40% which kicks in at £50,271 will remain until 2028 at least. The 45% additional rate has been lowered from £150,000 to £125,140. This will take effect in the new tax year on 6 April 2023.
Dividend allowance – the dividend allowance will be slashed by 50% – from £2,000 to £1,000 from the new 2023/24 tax year. It will then be cut even further to just £500 in April 2024.
Capital gains annual exemption – the capital gains tax (CGT) annual exemption is being more than halved from £12,300 to £6,000 from the new tax year. This will be halved again in April 2024 to just £3,000.
National Insurance – the current thresholds, like income tax, will stay at the same level until 2028.
Inheritance tax – the thresholds for inheritance tax (IHT) will stay the same until April 2028. The nil-rate band for IHT is £325,000 with an additional residence nil-rate of £175,000. The taper for the residence nil-rate band kicks in at £2 million.
Stamp Duty – Stamp Duty Land Tax (SDLT), which was cut in the mini budget in September, will retain the new nil-rate threshold of £250,000 for normal buyers and £425,000 for first-time buyers. But this will only remain in place until March 2025 at which point the thresholds will revert to their previous levels of £125,000 and £300,000 respectively.
How will the changes affect your wealth?
As mentioned above the changes to financial rules by the Government will have some quick effects on your money, while others will take more time to be felt.
For instance – the dividend allowance and CGT exemption cuts will be felt quickly, and measures will need to be considered to mitigate the impact. With little time left to benefit from the higher allowances, anyone with tax-free allowances in pensions or ISAs should consider using those up if possible.
The changes to income tax – or lack of changes – have a more oblique impact on your earnings. While there are no changes to the thresholds, this will mean that whenever you receive a pay or income increase you won’t feel as much benefit as you might have previously.
This is especially pernicious in a high-inflation environment as pay rises tend to be pushed higher to meet living costs. This just serves to send more money towards the Treasury, especially as people are tipped into higher tax bands.
Other moves – such as the sunsetting of the Stamp Duty Land Tax (SDLT) nil-rate band levels – have been criticised by experts who warn that setting an end-date for such measures in the future sets a target time for sellers and buyers which could cause chaos in the market.
What’s clear from these measures is that managing money and wealth isn’t getting easier, making financial advice more relevant than ever. Don’t hesitate to get in touch if you want to discuss your options.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 13th December 2022.
Car finance rates rising: what’s the best way to pay for your next car?
Prospective car owners are finding that buying their next vehicle isn’t as straightforward as it once was, thanks to rising interest rates.
The economy has benefitted from over a decade of low rates, making car financing affordable for many. But those rates are now rising considerably, with the indication that the Bank of England isn’t going to stop hiking yet. With that in mind, buying a car with finance isn’t as good value as it used to be. But there are still some good options for prospective owners.
Here are some key ideas to consider when deciding on your next car.
PCPs
Personal contract purchases or PCPs have become a ubiquitous way to buy a new car in the past few years.
Typically, these kinds of deals mean that you pay lower monthly instalments than hire purchase or via personal loan, making it more affordable for families.
But the upshot of this is you never really own the car. At the end of the deal (typically around three years) you either:
- Pay the ‘balloon’ payment – a lump sum – and take full ownership of the car
- Return the car to the dealership and get a new PCP deal with a new car
- Return the car and walk away.
The trouble with option three is that, typically, the dealer will become a lot more officious about any scratches, dents, or mileage overuse and is likely to charge you fees. It’s in their interest to see you roll into a new finance deal.
As interest rates rise, credit on PCP deals is getting more expensive. This means opting for longer four-year contracts or facing higher monthly repayments. According to data from motoring group What Car, PCP costs have risen around 40% since 2019, reflecting a tight car market and rising interest rates.
Recent stats from automotive IT firm NTT Data UK&I suggest that the majority of people who have PCP contracts currently are now likely to try and refinance their current cars when their deal comes up rather than opt for a new PCP loan with a new car.
Hire purchase
Hire purchase is the more traditional route for anyone looking to buy a car and comes with less caveats. Once you’ve paid off the HP loan, the car is yours and there is nothing further to worry about.
But this means that monthly payments will generally be higher than for PCP. HP loans are also impacted by the rising bank rate, which means these deals are getting more expensive too.
Leasing
Leasing a car is different from PCP or HP because you never actually have the opportunity to own the vehicle. In effect, you are paying a monthly rental fee for a fixed period, after which you give back the car and walk away.
The benefit of leasing deals is that there is no credit calculation made on the car, so these kinds of deals aren’t directly affected by rising interest rates, according to Leasing.com.
That being said, the car market has experienced very unusual circumstances in the past 18 months thanks to supply chain shortages. This means new and used car prices have gone up, which in turn has made leasing more expensive.
Unsecured personal loan
An unsecured personal loan can be a good option when looking to buy a car, especially for those of us who don’t trust dealers to offer the best deal. Getting an unsecured personal loan will require you to shop around for the best deal available and make an application.
Once you’ve been successful and the loan has been given to you, you’re free to use that cash to buy a car. But like the other forms of credit, this market has also seen interest rates go up in the past few months.
There’s another caveat here that your credit rating needs to be in good shape in order to secure a good deal. MoneySavingExpert has a great loan calculator that can help you see which deals you might be eligible for.
It’s also important to remember with these kinds of deals that the APR you see for the loan after a soft check might not be the one you actually get after making an official application. This is because loan companies only need to offer that rate to 51% of their customers in order to be able to advertise it.
If you do go down this route and find the APR you’re offered wasn’t what you expected, you’re under no obligation to accept it – just make sure you tell the provider you’re not interested in moving forward with the application. However, the hard search made on your credit report will appear, so making more applications could harm your credit score.
Buy outright/buy cheaper
Buying outright is perhaps the best way to go if you have the cash funds available, as it eliminates a lot of the variables mentioned above.
That being said, buying a new car is one of the worst ways to use your money in investment terms. According to The AA, new cars lose around 60% of their value (assuming an average mileage of around 10,000 miles a year) in the first three years out of the showroom, meaning the cash you’ve put into that vehicle is essentially gone forever.
There are however variables to this including condition, make and model, fuel type and other factors that will affect the price over time, with some holding up better than others.
With that in mind, lowering your expectations and going for a used car could be the soundest financial decision of all. Older cars that have some mileage on them tend to depreciate in value much more slowly, and in many cases these days you’ll find 4–5-year-old vehicles will have many of the bells and whistles you might expect in a brand new one.
It is also important to remember with cars that the cost isn’t just in the price of the vehicle. Running costs of fuel, insurance, maintenance and repairs all factor in to the ownership of a vehicle, so finding the right one that doesn’t keep you reaching for your wallet is key.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 13th December 2022.
Christmas budgeting: 12 tips to save money during the holidays
Christmas is just days away, but there are still ways to save ahead of the holidays. It’s also a great time to think about next year too.
There’s no doubt that Christmas is an expensive time of year. From turkeys to crackers – gifts and travel, we spend a lot to be with our families and friends at this time of year and that puts pressure on everyone’s budgets.
With inflation rampant and energy bills getting higher as the weather gets colder, it pays to keep saving money at the front of our minds as we go through the holidays.
But it’s not just this year you should be preparing for – the best time to think about how to make Christmas 2023 more affordable is now!
Here are some ideas to help your money go a bit further.
Christmas 2022
- Set expectations
There is understandably a lot of pressure at Christmas to buy lots of gifts, get your loved ones the latest gadgets and generally to spend a lot of money. It has become a highly commercialised holiday.
But this year, more than ever, it’s important to set the right expectations. If you feel like buying lots of gifts for all your friends and loved ones is going to stretch you too far, it’s important to talk to them so they understand why you might want to go more low-key.
Good alternative solutions include Secret Santas, setting price limits for gifts and opting for ‘free’ gifts such as giving each other time together instead.
- Use cashback and vouchers
Cashback is an easily forgotten trick to save money when making purchases. Using websites such as Quidco and Topcashback can save you valuable pounds when buying big ticket items at a variety of high street retailers. It can also save money on the Christmas food shop.
There are no catches either, as the retailers are paying the cashback firms to bring them your business.
- Don’t overspend your salary
It’s quite common for salaried employees to get their pay early before Christmas. Employers do this as a perceived act of kindness to help people through the holidays.
But this act of kindness can come with a sting in the tail because it accidently lengthens the time in which you have to stretch one month’s pay to the end of January (depending on when you normally get paid).
If you do get your salary early this month, make sure you’re planning for those days in January long after Christmas is over.
- Make sure you’re getting a good deal
It’s easy to get sucked into the hype when retailers push big ‘sales’ to shift products. This becomes all the more true the closer Christmas comes and the more products they have unsold.
But these discounts aren’t always as they seem. Make sure you shop around for the best price on the product and use services such as Camelcamelcamel – which can tell you if products on major sites such as Amazon really are a good price.
- Look for second hand
With the cost-of-living crisis, the second-hand market for all sorts of products is looking pretty rosy. People are looking to raise a bit of extra cash for their stuff, and there are many great services to match sellers and buyers.
Services such as eBay and Facebook Marketplace are the go-to, but other upstart apps such as Depop and Vinted are soaring in popularity. Be prepared to haggle though, and don’t send any money without being 100% certain you’ll get the item. This is especially true on Facebook Marketplace, where there’s little buyer protection in place.
- Don’t overbuy
It’s easy to think you need reams and reams of food, drink, and other consumables over the holidays. Afterall, what is Christmas for but a bit of indulgence? It’s also easy to think that shops will be closed, so you need to stock up as much as possible.
But the truth is that most retailers are open again by Boxing Day, so not overbuying could save you some money overall. A quick trip to the supermarket to top up on the food and drink after Christmas could also yield some big discounts, as shops look to shift unsold items too.
- Buy at the right time
Similar to the above – buying in advance can be a counterproductive strategy. As we get closer to the holiday days, shops will put more items on discount as they look to clear shelves.
Just be careful though as this can be risky if things go out of stock completely. This is especially true this year with a turkey shortage on the cards. But, if you have a good selection of supermarkets in your local area, trawling through them can really do the trick.
- Do online comparisons
Another supermarket trick people often forget is to do a comparison on the prices of essential Christmas goods. As above, you can trawl around local shops looking for the best prices, but it’s possible to do all that from the comfort of your own living room.
Sites such as Mysupermarketcompare do a great job of showing what items are most keenly priced and where, so do your research and save!
- Have a potluck
Christmas dinner can be an onerous task if you’re the host. It costs time and money and burning the pigs in blankets will not help anyone’s stress levels!
Potlucks are a potential alternative idea for Christmas dinner. Popular in the US, especially around Thanksgiving, it involves all the guests at your big dinner doing one dish themselves. This relieves some of the cost (and stress!) of hosting.
Christmas 2023
- Christmas in January
Christmas in January?! It’s the best time to start preparing. With the holiday season, crackers that cost £30 could cost £3 as supermarkets offload everything that didn’t shift.
The same goes for things like decorations, toys, electronics and pretty much anything else. Save your money by buying in advance and you’ll be set for the next one before you know it.
- Fund your gifts with clutter
It’s a little late to be paying for gifts with things you sell this year, but this is a great strategy to cover costs for 2023. Having a clear-out of items you don’t use or want any more is a great way to raise some extra cash in any event, but that money can be put towards the next Christmas pot to alleviate the costs.
- Save a year in advance
One of the best long-term strategies for paying for the costs associated with Christmas is to start early. With interest rates at more than decade highs, savings rates haven’t looked so good in a while.
There are a number of ways to go about saving money for next year. If you have a lump sum, a 12-month savings account can generate a return of around 4.35% at the moment. If you want to save small amounts regularly, an interest-paying current account could be a great option too.
Christmas savings clubs are an option too but come with some risk attached to them – sometimes providers go bust, leaving families without money as these schemes are generally not protected in the same way as normal savings. They can also put limits on where you spend the money, making it quite inflexible.
Generally, then, it is better to go DIY and put the money into a saver that will give you a nice little return for something extra next year.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 13th December 2022.
Cost-of-living crisis scams: what to watch out for
Cost-of-living crisis themed scams are on the rise and the public are being warned to watch out for fraudsters looking to take advantage.
Banking industry trade body UK Finance has warned the public that the cost-of-living crisis has made people more receptive to unprompted and potentially fraudulent approaches offering too-good-to-be-true investments in particular.
One in six (16%) of Brits say the rising cost of living has made them more receptive to such approaches according to the trade body, while more than half (56%) of adults are likely to look for income-boosting opportunities as inflation and interest rates bite.
Young people in particular are more at risk as their financial situation tends to be more precarious. One in three (34%) 18- to 34-year-olds said they were more likely to respond to an unsolicited approach about an investment or loan opportunity.
Three in five (60%) people are worried about falling victim to a scam, highlighting an awareness of the prevalence of financial scams among the public after years of rising losses suffered by individuals.
In the first half of 2022 some £610 million was lost to financial fraud according to UK Finance figures.
Katy Worobec, managing director of economic crime at UK Finance, comments: “The rise in the cost of living can be worrying and stressful and for many keeping on top of finances might be a struggle. It’s important for everyone to be conscious of criminals taking advantage of people’s anxieties around finances by staying alert for fraud.
“We encourage everyone to follow the advice of the Take Five campaign – always be cautious of any messages or calls you receive and stop and think before sharing your personal or financial information. Avoid clicking on links in unsolicited emails or text messages”.
What scams should you watch out for?
UK Finance lists some typical scams that everyone should be aware of and has three key messages to help people protect themselves.
Those scams are:
1. Purchase scams. This is where someone looking for a cheap deal online finds a product for a too-good-to-be-true price. Often through search engines, fraudulent websites offer items such as expensive electronics at unbelievable prices. But if the website looks odd, has few reviews or the payment method is through an unusual format such as bank transfer, it is likely a scam.
2. Impersonation fraud. This is where criminals convince victims to pay for something while pretending to be from a trusted organisation. There are rising reports of fraudsters hacking service provider accounts – such as the emails of a solicitor, broker or other high-value professional service. The scammer then convinces the client to make a money transfer payment out of the blue using the hacked account. Anyone asked out of the blue in such a way should make efforts to speak to the known party either face-to-face or over the phone to confirm if the request is legitimate.
3. Payment in advance fraud. This is where a scammer offers a product, loan or other offering which seems too good to be true, with the fraudster requesting a payment in advance of receiving the product or service. The product paid for then never materialises or the fraudster vanishes and becomes impossible to contact.
4. Investment fraud. With the cost-of-living crisis worsening, UK Finance found 14% of people are more likely to search out new ways to earn money through investments. But this leaves many at risk from investment frauds – where unrealistically high interest rates, yields or other returns are promised in exchange for large cash investments. Like other scams this then typically either vanishes, becomes impossible to remove the cash from the scheme or a company will go ‘bust’ with the scammer absconding with the investor cash.
The three key messages from UK Finance’s Take Five to Stop Fraud campaign to keep people’s money safe are:
- STOP: Taking a moment to stop and think before parting with your money or information could keep you safe.
- CHALLENGE: Could it be fake? It’s ok to reject, refuse or ignore any requests. Only criminals will try to rush or panic you.
- PROTECT: Contact your bank immediately if you think you’ve fallen for a scam and report it to Action Fraud.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2022.
Energy shortages: can you get paid to use less electricity this winter?
The energy crisis has put extraordinary pressure on household budgets as the price of gas has soared this year on the back of the war in Ukraine.
As a result, the Government has been moved to take steps to soften this blow for families who might otherwise face difficult spending choices.
Among help already in place is the Energy Price Guarantee which is designed to keep average household bills around £2,500 per year this winter, with a cap on the unit costs of the energy each home uses.
Plus, families will also be receiving a £400 rebate through their direct debits, paid monthly. There is also more targeted help for pensioners and those on benefits.
But another scheme is being launched that could pay households to use less energy still.
National Grid Electricity System Operator (ESO) is launching a scheme which would pay households with a smart meter to use less energy, by for example shutting off appliances such as tumble dryers and washing machines, at peak hours.
The National Grid ESO is one of the operators of the energy network infrastructure in the UK. It works with suppliers such as British Gas, which administer the process of providing energy into homes.
Why is this happening?
The issue the UK is facing is worse than just high prices at the moment. Worst-case scenario planning has the UK potentially facing blackouts in January and February because the energy network simply doesn’t have enough fuel to power everyone’s homes and businesses.
Plans are in place to implement a system of rolling timed blackouts, affecting different homes around the country at certain times.
But much of the jeopardy comes because people tend to use energy in their homes at similar times, particularly in winter. Think – coming home from work in January, putting on the heating and washing your clothes. We all tend to do similar activities at the same time.
Energy payment scheme explained
The National Grid ESO trialled the scheme with customers of energy firm Octopus who had a smart meter earlier this year. This trial is now being rolled out nationally between November and March.
The scheme operates through whoever your energy provider is at home, but not all suppliers will necessarily sign up. If yours does, and you have a smart meter, they will contact you with the details. You’ll get notice 24 hours ahead that if you reduce usage between peak hours, you’ll get a rebate on your energy bills.
The plan would be for any household with a smart meter that avoids using energy-intensive appliances at peak times (between around 4pm and 9pm) will get paid around £3 for every kilowatt hour (kWh) they don’t use compared to an average.
Reports estimate that some households could earn as much as £10 a day for avoiding peak times. There are currently just 12 test days planned between now and March for the scheme, which means participating households could get up to £120 back.
Customers of some providers already get discounts on bills if they use electricity late at night instead of peak times, such as Octopus’s Economy 7 tariff.
Other providers such as Ovo already have a trial scheme in place to ask customers to cut their consumption. Those that manage to lower their usage to the firm’s threshold will get up to £100 for their efforts.
National Grid has launched a campaign to raise awareness of the scheme but it’s up to energy suppliers to administer, so keep an eye out for further details from yours.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2022.
NS&I hikes rates again – are they a good deal?
National Savings & Investments (NS&I) has upped the rates on its savings products again in the wake of the Bank of England hiking the bank rate on consecutive occasions.
NS&I now offer a Direct Saver with a return of 1.8%, up from 1.2% and 1.75% on its Direct ISA. Income bonds now also offer 1.8% returns – the highest level since 2012. Earlier in October it also increased the prize fund rate from 1.4% to 2.2% in premium bonds.
This is not a guaranteed level, but the average rate it says savers can now get based on prize wins in its premium bonds. That means you could win the top £1 million prize – or nothing at all. In practice the 2.2% rate is the average of what most savers will see as a return on their cash each year.
So, with these rates now at a decade-long high, is it time to put our cash back in the national savings bank?
Better rates elsewhere
NS&I holds a special place in the public’s imagination. Premium Bonds in particular are popular because of the prize-draw element of the savings product.
But in reality, the firm’s rates are inferior to other savings providers by some margin.
For example, at the time of writing, the best easy access account rate comes from Marcus By Goldman Sachs, with a 2.5% rate of interest on its savings account and its cash ISA, and no notice necessary to withdraw your money.
If you save for one year, you can get 4.6% from RCI Bank. For a five-year fix this rises to 4.95% from the same firm. If you want to shelter cash in an ISA, you can get a one-year bond from Aldermore for 3.65% or a five-year cash ISA from Leeds Building Society paying 4.31%.
It goes without saying then that NS&I is definitely not the most competitive. But it is also true that it will pay you a better rate than most high street banks, where you might hold your current account.
The interest rate outlook
The issue with these rates is while they look much better than in recent years, they still sit way behind inflation, which currently stands at around 10%. If you plump for the top-rate one-year bond, you’re still seeing your savings devalue by around 5.5% in a year.
On 3 November, the Bank of England staged the largest single rate hike since September 1989, hiking 0.75% and taking the base rate to 3%. This will no doubt push savings rates up even further.
But if we look into the detail of what its Monetary Policy Committee (MPC) said about the trajectory of interest rates, it believes financial markets are now overpricing its interest rate path, thanks to softening economic data.
What does this mean in practice?
Despite the big fresh hike, many firms that price their products on interest rate expectations, such as savings and mortgage providers, may now be overestimating how high the ‘terminal’ bank rate will go.
This terminal rate is essentially the high-water mark for the actual bank rate. If the economy is now largely overestimating this high-water mark, interest rates, counterintuitively, could now fall -or at least moderate – somewhat.
In short, this means that interest rates on financial products could already be near their high point and will at least remain well-short of inflation until price rises come back to normal levels, something the MPC only sees happening in 2024.
In the short term, having some cash set aside can be a good tool for anyone building wealth. See our article here on that. But in practice, investing still offers the best route for anyone thinking about long-term wealth growth.
Although investment performance is not guaranteed, it has generally been a better tool for wealth growth over a long-time frame.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2022.
How to protect your wealth in tough economic times
We’re not yet at the end of 2022 and it’s clear it has been a tough year for investors.
A toxic cocktail of inflation, rate hikes, quantitative tightening and Government instability leading to tax hikes has combined to create one of the toughest climates in decades for anyone looking to build their wealth.
But while it has been a difficult climate for many to deal with, there are some key measures anyone can take to protect and improve their wealth in such times.
The key to this is effective and active financial management and getting the right advice at the right time. Here are some ideas.
Hold some cash
This is a very basic idea, but it needs to be reaffirmed. Have a cash buffer. If you’re younger, have a family with dependents to look after, bills and a mortgage to pay it is essential to have a rainy-day fund to protect you in the event of a job loss or other problem that could leave you without an income or needing to pay a big bill.
If you’re in work, a rule of thumb is to look at your overall monthly outgoings and consider saving in cash up to a level of three to six months cover. You might want more or less, but consider how quickly you think you’d be able to get a new job and have that regular income coming back in.
If you’re in work, it’s also essential to have income protection plans in place and life insurance were the worst to happen. The younger and healthier you are, the cheaper the policy will be for you.
If you’re retired or not reliant on a wage for your living costs, then a cash buffer is really important in volatile markets. This is because if you’re using your wealth to pay for your cost of living, having to sell out of an asset when valuations are down will bake in losses permanently. Having cash to draw on is important for this in the short term.
Of course, holding cash is always at risk of devaluation thanks to inflation. This is an acceptable risk though with short-term framing for the use of this cash. To mitigate it, spread the money into savings accounts that pay decent rates. Put some in an instant access account and others in longer-time releases to benefit from better rates.
Savings rates in cash accounts are still well behind inflation but are better than they were even just a few months ago.
Beyond that if you’ve already got that cash buffer in place, top it up to an equivalent level to match your rising costs each year – or by the level of inflation if that’s easier to figure out.
Pay off debts
Debt in the current environment can be particularly toxic, but it falls into a couple of different camps.
In the past decade the economy has been largely fuelled by cheap debt. We’re used to seeing lurid stories of companies like Deliveroo taking payment by credit instalments for a pizza.
In short, it has been really easy to take on new debt. This era is coming to an end with rising interest rates. Rising rates – by design – make debt more expensive to manage. But there’s a couple of different kinds of debt to worry about here.
The most painful and urgent to fix is credit card and other unsecured debts which see rates move freely. If you have these kinds of debts paying them off should be prioritised over saving because the cost is simply going to get harder to manage.
Rising rates don’t just affect credit card APRs – they also reduce the availability and quality of deals such as balance transfer cards. In short, it’s time to kick the debt habit.
Fixed debt such as mortgages and loans function slightly differently though. Loans will often have a fixed rate which makes it more manageable to pay while mortgages come with fixed terms too and should be manageable as long as you’ve got time left on your deal.
Regular contributions
Once your cash position and debt levels are in a good place – think about the state of the market. While performance is never guaranteed, as global economic growth has progressed in the last century, so have investments in the markets that represent it.
If your investment values are down, this is ok. Generally, as markets recover so do investments.
But making continued regular contributions or even increasing your contributions can be a good strategy in this environment as it takes advantage of cheaper valuations and smooths out volatility in your portfolio through pound-cost averaging.
With that logic in mind, when asset prices are depressed, it can present a considerable buying opportunity with a well-thought-out strategy in mind.
Tax sheltering
We’re in very specific economic circumstances at the moment. With high Government debt levels and little in the way of leeway for it to borrow on international markets to fund its agenda, tax rises are coming.
That makes careful tax planning extremely important. Using up allowances for ISAs, pensions and other useful schemes are a great way to soften the blow any taxes rises might bring. But the rules are potentially changing quickly as a result of Government instability, making considered planning tricky.
Tax planning can be a complex process, so unless you’re well-versed in tax laws and financial planning, it’s probably best to get advice to ensure your wealth is working as hard as it can be within the rules.
If you would like to discuss this or any of the other themes expressed in this article, don’t hesitate to get in touch.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2022.
Energy rescue package: how does it work?
The Government has announced a wide-ranging and costly energy bills rescue package, called the Energy Price Guarantee, to protect households from the worst of price rises this winter.
Energy bills were set to rise by about 80% in October, having already soared in previous updates to the price cap by energy regulator Ofgem.
Instead, the Government has moved to limit that increase.
How will my bills change?
Energy bills will still likely rise for households, but the worst effects have been dampened by the rescue package.
For a typical household, the annual bill for energy will come in at around £2,500 from 1st October. This is however not a hard limit on energy costs.
The way the cap works is as a limit on the price you pay per kilowatt hour (kWh) of gas and electricity. If you continue to use a lot of kWh to heat and power your home, your bills can still come in higher than the £2,500 ‘cap.’
With the way the cap is structured, there is still an incentive for households to conserve the amount of energy they use as this will still reflect in their monthly bills.
If you’re keen on cutting your usage and therefore bills, it’s really important to submit regular meter readings to your provider and speak to them if you believe your direct debits or other payments are set too high.
The guaranteed level was initially set to last for two years. But thanks to market disruption caused by Government spending plans, the new Chancellor Jeremy Hunt rolled the scheme back to just six months. Hunt has committed to review and update the scheme from April 2023, but it is unclear how the scheme will change at that point.
In terms of how much it will cost the Government, little concrete information is known as it is completely reliant on the market price of energy in the next six months.
Estimates range from £60 billion to around £120 billion, depending on what happens to the price of natural gas. Once the Energy Price Guarantee expires, bills are expected to rise again to around £4,347 per year.
Other help
There is still other help being made available to households through measures previously announced by former Chancellor Rishi Sunak.
This comes in the form of an energy bill discount which will be paid to households from October. This is worth £400 and will be paid monthly over winter automatically to bill payers. There is no need to apply as it will be directly applied and is a universal payment.
The Government is also providing cost-of-living payments to households on means tested benefits, which includes Universal Credit, Pension Credit and Tax Credits. Those households will receive a £650 payment this year, made in two instalments.
Those on disability benefits will also receive a payment of £150, but if you’re eligible for this, it likely already arrived in September.
Older people can also claim the Winter Fuel Payment – which will pay between £250 and £600 depending on your circumstances. Those who receive State Pension or other social security benefits (not including Adult Disability Payment from the Scottish Government, Housing Benefit, Council Tax Reduction, Child Benefit or Universal Credit) will receive the help automatically.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th October 2022.
The World In A Week - Record breakers
Written by Chris Ayton.
As expected, the Bank of England (BoE) hiked interest rates by 0.25% to 4.5% last week, in the process warning that inflation will not fall as fast as expected over the next 12 months. This was a record twelfth rate rise in a row. The BoE also noted that it appreciated that only around a third of the impact from the previous rises had been felt by the UK economy, with 1.4 million people due to come off fixed rate mortgages this year, nearly 60% of which were fixed at interest rates below 2%. While this may bring hope to some that this was signalling a pause in further increases, the BoE warned that it continued to monitor indicators of persistent inflationary pressures and commented “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”
More positively, the Bank significantly upgraded its forecast for UK GDP Growth, expecting 0.25% growth this year followed by 0.75% in 2024 and 2025. This was the largest upwards revision to growth expectations on record and contrasts sharply with predictions late last year that the UK was heading for the longest recession in 50 years. This was followed by confirmation from the Office of National Statistics on Friday that the UK economy had grown 0.1% in the first quarter, the same as observed in the previous quarter.
News in the US was dominated by internal fighting over the extension of the debt ceiling. Having reached the maximum it is legally allowed to borrow, the U.S. government require an extension to that limit in very short order to be able to pay its upcoming debt obligations, to avoid a destabilising default, and prevent the financial chaos that would undoubtedly ensue. Previously, these challenges have been resolved at the twenty third hour but, in the meantime, this is likely to impact market sentiment.
Less well reported was the positive news that the top U.S. national security adviser, Jake Sullivan, met with China’s top diplomat, Wang Yi, in Vienna in an attempt to calm relations between the two superpowers. Talks were said to be ’substantive and constructive’. The souring of relations, exacerbated by the Chinese spy balloon drama in February, has undoubtedly been a drag on China’s equity market performance in 2023.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 15th May 2023.
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