Jess Wooler

Is it time you ditched your High Street bank and went digital?

With a slew of digital-only options, is it time to ditch your old bank? We look at how Monzo, Starling and Revolut are challenging the old guard.

Digital-only banks have become more established in the past few years, with a multitude of options. But is it time to ditch your High Street bank for one of them? In the past decade since the financial crisis a multitude of digital-only banks have emerged as banking customers look for new and innovative ways to handle their finances.

Digital-only financial options are now really varied, and consumer choice has never been better, with plenty to pick from via your smartphone. The range of services from digital-only providers now matches those provided by the high street. However, for the purposes of this article we’re going to focus on current accounts. Big banks such as HSBC, Lloyds and NatWest have come under increasing pressure in recent times from so-called challenger banks in the current accounts market. But what do these challengers actually offer to customers?

Here are some top picks, their best features and drawbacks.

Monzo

Perhaps the most famous one on this list, Monzo is well-known now for its flashy ‘hot coral’ (read: pink) debit cards.

Monzo offers lots of features including budgeting, spending analytics and ‘pots’ which you can create to help manage and apportion your money. You can even set up bill-specific pots to keep cash aside to pay your monthly bills from. You can set yourself monthly spending limits and make payments really easily within the app. It will also give you summaries of spending areas each month, categorised in sections such as eating out, personal care or groceries. This can be especially helpful if you’re struggling to identify areas where you might be overspending regularly.

Like High Street stalwarts such as Lloyds or NatWest, Monzo is a fully licenced UK bank. As such you get £85,000 deposit protection from the Financial Services Compensation Scheme (FSCS). The account also provides other optional services such as overdrafts and loans. It also has a premium service called Monzo Premium, which costs £15 and will give you phone insurance, worldwide travel insurance, 1.5% interest on balances up to £2,000 and other perks – it even comes with a shiny metal bank card. Check if you’re not already receiving some of these services such as phone protection on your home insurance though, as it may not be worth it.

Starling

The other major digital-only bank to choose from is Starling, founded by long-time banker Anne Boden. Boden worked for years at major High Street banking institutions before taking what she’d learned from those places and implementing the best bits into Starling.

Starling has lots of spending analytics, makes payments really easy and has a user-friendly interface for customers who might not be the most tech-savvy. It also has segregated spending pots called ‘spaces’ which can help you manage small savings goals.

One of the standout features on Starling though is zero-cost spending abroad. Starling charges nothing for you to spend abroad, and only changes your money into foreign currency at the interbank rate, meaning you’ll always get the best deal when using your Starling card abroad. It also has the option to add joint accounts for you and your partner, plus euro accounts if you need to keep, send or receive money in euros.

As with Monzo, it is also a fully licenced UK bank offering all the same protections as peers.

Best of the rest

While digital banking apps have proliferated in recent times, most are not really worth considering for one specific reason – they aren’t licenced UK banks and don’t have the same level of deposit protection as Monzo, Starling, or big High Street banks.

There are, however, two names of note in this category: Revolut and Monese.

Revolut has become something of an alternative option. It has many of the features of Monzo and Starling but doesn’t currently have FSCS protection. Rather, money is secured in so-called e-money accounts. The feature that sets Revolut apart is the greater variety of currencies you can maintain balances in. It is, however, an inferior choice if you’re looking for UK-specific current accounts.

Monese gets a mention because it is extremely easy to set up and use. However, like Revolut it doesn’t currently carry any deposit protection.

Whether you decide to drop your old bank or not, there is certainly plenty to choose from now in digital banking. Although the aforementioned apps have done a lot to innovate when it comes to mobile-only banking, many of the bigger banks have now largely caught up in terms of features.

It’s best to consider what you need the account for, and whether it’s suited to you, before moving all your bills and salary into it. Remember though that there’s no limit to how many current accounts you have, so keeping more than one is perfectly possible. Just try not to open them all at once as this may leave an impression on your credit report.

by Jess Wooler

Tips for building a nest egg for your children or grandchildren

Starting early can make an extraordinary difference to long-term wealth. Here are some options to help your children or grandchildren.

Building a nest egg for a child or grandchild needn’t be a difficult process. But the earlier you start, the better the outcome will be for them. Not starting saving earlier in life is a common problem, but it can be difficult in your 20s and 30s to get your savings going with so many costs of living.  But once you’re older, with kids or even grandkids, you may start to think about whether you can help them get a financial foothold in life to help them when they’re older. Not only does it make sense from an inheritance perspective – the more you give away while you are younger, the less potential there is for tax liabilities – but the earlier you start building them a nest egg then the bigger that egg will be.

If you’re looking to make a start there are some options which can make It simple and tax-efficient.

Junior ISAs

The Junior ISA or ‘JISA’ should be your first port of call when considering saving for a child or grandchild.

JISAs, like normal ISAs, come in a few forms. You can start with a Stocks and Shares JISA or a cash JISA. Cash JISAs, while offering rates that tend to be better than normal savings accounts, still don’t offer much by way of interest at present. At the time of writing the top cash JISA offers 2.5% interest.

A stocks and shares JISA, while not offering a guaranteed rate of return, will have the benefit of access to investment markets. Because the time horizon of a child is so long (if you start saving for your kids when you have them you potentially have an 18-year window to amass a pot for them), it suits investing in equity markets which have shown to deliver superior long-term returns.

The Government has increased the limit on annual JISA contributions to £9,000 a year. This can be split between a cash account and an investment one, if you prefer. The child can then access the money in the JISA and have full control of it at age 18.

Children’s savings accounts

There are a variety of children’s savings accounts on offer, some from big High Street banks and some from new challenger banks. While the top-choice products offer similar rates to cash JISAs, they are mainly inferior to JISAs because of their lack of a tax wrapper. In reality then these kinds of accounts should only be turned to if you’ve maxed out the annual contribution for your child’s JISA, but still have further money you want to give them.

There is one consideration to make for children’s savings accounts however, from the perspective of education. Often a children’s savings account will give more responsibility to them than a JISA which parents manage. Giving a child their own account to manage can provide valuable life lessons to them from an early age.

Pensions

Yes, that’s right, a pension. You can open a pension for your child. While the rules governing pensions prevent them from accessing the money before pension freedom age, it could be a valuable alternative or addition to a JISA.

The annual limit you can contribute to a child’s pension is £2,880 per year. This is given 20% tax relief much the same as regular pensions, meaning you can put away up to £3,600 in total. Like a stocks and shares JISA, a pension has the benefit of access to investment markets, which really could help with long-term wealth creation.

The conundrum of picking between a pension or a JISA is that the former can only be accessed at age 55 (which could increase to 57 in 2028), while the latter gives the child full access to the money at age 18.

Unless you’re confident that the child will have a fully responsible mindset with their money at age 18, it may be worth hedging and having a blend of both accounts.

But likewise helping them to understand the importance of what you’ve given them and learning good financial habits as they grow up may put them in a great position to use that money wisely. And with the long-term landscape so uncertain, it may be better to give them something they can access at 18.

by Jess Wooler

Savings lotteries – what are they, and are they worth it?

Savings lotteries have become more prevalent in recent times as banks look to incentivise saving without offering better rates. But are they any good?

Nationwide Building Society has launched a new lottery for customers, which automatically enrols them in a monthly prize draw where one lucky winner can scoop £100,000. How does it compare to others?

Nationwide had previously launched different lotteries for different kinds of accounts, including for its Cash Isa and Start to Save products. But this is different in that any Nationwide customer with a mortgage, current account or savings account will be automatically entered. There are 8,008 chances to win each month, with a top prize of £100,000, two £25,000 prizes, five £5,000 prizes and 8,000 £100s up for grabs. The competitions will run monthly for 12 months from September and be selected from a pool of roughly 14 million Nationwide customers.

Alternatives

Nationwide isn’t the only firm to offer savings lotteries to customers. Indeed, with the crashing of savings rates in recent years, it has become a more common incentive to entice new customers without offering better rates.

Perhaps the most ubiquitous of the lot are Premium Bonds. The National Savings & Investments (NS&I) Premium Bonds prize draw is incredibly popular. Some 21 million savers have over £107 billion squirreled away in Premium Bonds according to MoneySavingExpert. Rates were slashed recently though, so the odds of winning anything at all have lengthened considerably. Premium Bonds do still offer good prizes, including two £1 million prizes every month. NS&I says the rate at which you’ll win prizes each year roughly equates to a 1% rate of interest on your savings. This is not however guaranteed, and you could hold the bonds your whole life and win nothing.

The other major savings lottery available at the moment comes from Halifax Bank. It is offering three prizes of £100,000 every month, plus more smaller amounts. To qualify you’ll need to open a savings account with the bank and deposit at least £5,000.

Other banks have recently offered new ‘lottery-style’ accounts, including NatWest, Post Office Money and Family Building Society, but those are currently unavailable to new customers as they have proven so popular.

Overall, the aforementioned lottery accounts can be a good idea if you have smaller sums of cash, as rates on best buy accounts are shockingly low anyway. That being said, the bulk of your savings may be better off elsewhere, such as in investment markets, in order to generate a better rate of return.

If you’d like to discuss options for your cash savings further, don’t hesitate to get in touch with your adviser.

by Jess Wooler

Inflation is back – should you be worried?

Inflation has been off the agenda for investors for years, but prices are rising again – and it could have implications for your finances.

Inflation has been low by historical standards for much of the past decade, with price growth falling particularly sharply over the past three years. Never the easiest factor to track when it comes to your finances – a situation not helped by the amount of measures for inflation which exist – inflation has nonetheless been muted for the past few years. Using the Government’s preferred method of calculating inflation – known as CPIH – we can see that inflation has been below its official target of 2% since July 2019.

What is CPIH

CPIH stands for The Consumer Prices Index including Owner Occupiers’ Housing and covers the cost of a list of everyday items consumers buy or use, including housing costs. Between July 2019, when it stood at 2%, CPIH has plunged as low as 0.5% in the depths of the pandemic last August, before recovering as the economy unlocked. It currently stands at 1% as of March, with the reading for April due out later this month. Clearly this is some way off the Bank of England’s own target of 2%, but the important thing to remember with inflation is the trajectory, not the absolute number. This was alluded to at the latest Bank of England meeting when Andrew Bailey, the governor of the Bank and head of the committee which monitors inflation, said inflation could be “a bit bumpy this year.”

Indeed, the central projection from the Bank is that, as the vaccine programme continues and the economy unlocks more, it should mean the CPIH figure jumps above 2% towards the end of this year. There is also the ever-present risk that it goes higher than forecast, with factors such as rising commodity prices and demand for goods and services also having the potential to exceed forecasts and push up the overall inflation number.

Should you worry about rising inflation?

Inflation is bad for some of your investments, in particular cash. The value of cash is eroded over time by inflation, so a pound today buys you substantially less than it did 20 years ago, for example. For investors sitting on large amounts of cash, rising inflation is problematic at this point in time because interest rates – and therefore the interest the bank pays you for leaving your money in cash – are at record lows. The Bank of England was forced to cut rates to 0.1% in the UK last year in response to the pandemic, and it has yet to raise them from this level. With inflation currently at 1%, it means the value of any cash you may have in the bank is being eroded every year, unless it is in a bank account paying more than 1%.

For investments too, rising inflation has implications. Some investments, like commodities such as oil, can protect portfolios from rising inflation, as they often rise in tandem. Investments such as bonds, on the other hand, suffer because they pay holders a fixed amount of interest every year, and if inflation rises it can often leave these bonds paying an income that is below the inflation rate.

What can you do about it?

As with all investments, including cash, investors should regularly review their holdings. If inflation is rising, there are a number of options to counter its damaging effects on your wealth, including investing in equities, commodities, and some inflation-linked investments which track the inflation rate.

However, as always, if you have any concerns or queries the best course of action is to get in touch with your adviser.

by Jess Wooler

A quarter of a million over 55s get caught out by this pension tax trap each year – don’t be one of them

The little-known Money Purchase Annual Allowance is catching out thousands of pension savers each year. Here are a few ways to prevent yourself from falling into the trap.

A little-known pensions rule catches out thousands of savers every year, and has potentially become more prevalent because of the pandemic, according to new data. Some 5,000 over 55s are stung every week by a little-known pensions rule called the Money Purchase Annual Allowance (MPAA), data from retirement firm Just Group has shown. The Money Purchase Annual Allowance (MPAA) is a specific rule which can be accidentally triggered by savers, cutting the amount they can save in to pensions tax-free under their annual allowance. The figures from Just Group suggest some 260,000 people are being caught out by the rule every year.

What is the Money Purchase Annual Allowance?

The Money Purchase Annual Allowance (MPAA) is a rule which defines how much you can deposit into a pension each year and still receive tax relief on those contributions. The normal limit is £40,000 and is defined by the amount you contribute into a Defined Contribution (DC) pension, including employer contributions. With Defined Benefit (DB) pensions – also known as final salary pensions – this is defined as the amount by which it increases in value each year. However, the MPAA - which is triggered by a particular set of circumstances - can cut an individual’s annual allowance from £40,000 to £4,000.

Those triggers include:

• Taking an entire pension pot as a lump sum or starting to take ad-hoc lump sums from a pension pot
• Putting pension pot money into a flexi-access drawdown scheme and taking an income
• Buying an investment-linked or flexible annuity where income could drop
• Having a pre-April 2015 capped drawdown plan and taking payments that exceed the cap

The rule is in place so that no one can benefit from having a pension income while still feeding new cash into a pension pot and taking the benefit of tax relief. While the rule is a feature of the system rather than a failure, the contention is that some over 55s who may not have otherwise triggered the MPAA during normal times, have been inadvertently hit by it during the coronavirus crisis. For instance – someone aged 55 may have been in full-time employment and still contributing to their pension regularly, with no intention of drawing money out of the pension because they still had a salary. Thanks to the economic crisis caused by the pandemic, they may have since needed to access extra cash as an emergency, or even lost their employment, and with it, regular pension contributions.

Even if the MPAA is triggered under these circumstances the person is treated as if they’re now living on their pension income. They are then unable to return to making regular contributions up to £40,000, even if they don’t intend on using their pension for an income and still want to put more in.

What is the best way to avoid MPAA?

The good news is, there are some steps you can take to avoid being penalised inadvertently.

1. Have a rainy day fund. Many people have been forced to trigger the allowance because they’ve needed short-term cash during a crisis. Having a solid rainy-day fund in cash savings would prevent this.
2. Don’t take more than the 25% tax-free lump sum from your pension. You can take up to 25% from your pension tax-free, so if you don’t go over this, it won’t trigger the MPAA
3. Take from smaller pension pots first. Any pension pot you have under £10,000 will be exempt from MPAA if you make a withdrawal. However, you can only do this in a maximum of three non-occupational pots.

Once you retire and begin to rely more on your pension the MPAA may become unavoidable. But if you’re no longer earning a salary or contributing new cash routinely to a pot, this shouldn’t be a huge issue. The trick is to be careful around the time when you are looking to use some pension funds if you are still earning from a salary and trying to save and benefit from tax relief.

If you’re interested in discussing the MPAA more, or want to know anything else about your pension, don’t hesitate to get in touch with your adviser.

by Jess Wooler

Top tips for getting the most out of your money online

There is no question that money is going digital, with the pandemic speeding the switch away from cash. But how can you make your money go further in a digital world? Here are some ideas to help you stay safe and get the most out of your money online.

Internet usage has surged during the pandemic, from online food shopping to banking and much more. Among older age groups in particular, Age UK has found many who may not have used online services before are now doing so, with one in four (24%) pensioners using the internet more in 2020 than the year before. But like all things, there are pros and cons, especially when it comes to handling your finances online. While using the internet can be very easy and efficient, it also opens up risks to things like scammers and making inadvertent mistakes. Luckily, there are some steps we can all take to stay safe online, and to get the most out of the internet for our hard-earned money.

Take advantage of online tools

When it comes to taking out financial products such as loans or credit cards, the internet is your friend. Gone are the days of nervy conversations with credit card companies and accidental marks on your credit file. Instead, there is now a plethora of online tools that perform so-called ‘soft checks’ that will help you understand whether you are eligible for certain products based on your credit history. There are several to choose from, but in particular we like MoneySavingExpert’s as it is a trustworthy financial brand.

Keep an eye on your credit history

Speaking of credit histories, keeping yours in check is also vital. It is no secret that often, the big credit checking firms like Experian and Equifax make mistakes on individual’s’ credit files. It could be that your address is listed slightly wrong, or information such as the electoral register is missing. Unfortunately, this can have a significant impact on your credit history. Therefore, it is important to keep an eye on it – while some services charge for you to see your history on a regular basis, others, such as ClearScore or CreditKarma, give you free monthly access to your report.

Use comparison sites

Price comparison sites sometimes have a mixed reputation but for the most part they are extremely useful ways to hunt down the best deals online. From mobile phone contracts to insurance, you can find the cheapest deals possible on these websites. The trick is to not necessarily buy the very cheapest product on offer though. The cheapest deals will often come with caveats, but if you read the small print and weigh up the benefits of new policies, comparison sites can make shopping around very efficient. We’d recommend looking on the comparison site, then comparing directly with the providers that get listed – sometimes even better deals can emerge, and then you have a comparative price to think about too. Good comparison sites we like include Moneysupermarket, uSwitch and GoCompare.

If in doubt, step away

Financial scams are a big problem with the internet these days. All it takes is for you to click the wrong link or reply to the wrong email and the losses could be devastating. Therefore, the safest way to navigate the internet can be to step away from the offer or deal you’ve just seen and then try the old-fashioned way by calling up a provider if you want to know more. If you’re contacted by someone who seems to be from a reputable company out of the blue, tell them you’d rather discuss what they want to speak about at a different time. If you are the one making contact rather than them, you can make sure you are in control of the conversation. The message more broadly is to always have your guard up. The internet has given us all access to an array of options and choice has never been greater, but unscrupulous people are a fact of life.

by Jess Wooler

Struggling to make ends meet? Here are seven ways you can rein in your outgoings

Around 10.7 million Brits have “low financial resilience”, according to the Financial Conduct Authority (FCA). That means nearly one in five UK adults would struggle financially if their income dropped by £50 a month or they were hit with an unexpected bill. The best way to give yourself some more breathing space is to give your finances a spring clean.

Here are a few ways you can shrink your outgoings and lower your stress levels.

Track your spending

It may sound obvious, but understanding where your money goes every month is a good first step in trying to limit your outgoings. You’ll be surprised how little things add up. If your bank doesn’t offer detailed spending breakdowns, go through recent current account and credit card statements to see what you’re spending your money on. Make a note of these in a spreadsheet and track your spending on a monthly basis to keep on top of finances. Once you’ve done that, it’s a good idea to create a budget and to set spending limits for things like food shopping, leisure, holidays and other items.

 Always go shopping with a list

 Supermarkets are experts at making us spend money on things we hadn’t planned on buying or have no real need for. To avoid being lured into spending money you don’t have, make a shopping list before you go to the supermarket and stick to it.

 Make meals at home

 Everyone likes the odd takeaway treat or going out for meals with family and friends, but it can take its toll on your wallet if you indulge too often. Instead, why not try making your restaurant favourites at home? The internet is awash with free recipe ideas catering for beginner cooks, all the way to seasoned pros.

 Cancel unused subscriptions

Many of us have unused subscriptions or memberships that we don’t really need, whether it be Netflix, Amazon Prime or a monthly recurring pass to the gym. If you don’t use it, why not cancel it? It’s amazing how much money you can save over the course of a year by doing so. You can always restart your subscription further down the line if you want to.

Switch energy/broadband providers

 Nearly one in four of us have never switched energy company, according to Moneysupermarket, meaning millions of Brits are overpaying for gas and electricity. The comparison website claims the average Brit could save £250 off their annual energy bills by switching to a lower cost provider. At the very least, it’s worth a look.

 Consolidate your debts

 If you have lots of loans and credit card payments going out each month, it might be worth consolidating your debts. Personal loan rates are very low at the moment, so there’s a good chance you could save some money by paying them off with a lump sum which you then repay in one payment. By having one repayment, instead of multiple, it’s also easier to keep tabs on your finances.

 Remortgage

 Mortgage rates have tumbled in recent years, meaning there is a very good chance you could save money by remortgaging. However, before you go ahead, check if you’ll have to pay any penalties for breaking your current agreement.

by Jess Wooler