Savings rates are rising – is it time to lock in a deal?
Savings rates have been in the doldrums for some time but are beginning to move upwards across the board for the first time in years.
Unfortunately, though, rates are still historically low, despite the reversal in fortune.
Why do savings rates matter?
The interest rate you get on your cash savings matters principally because of inflation. Inflation is of special concern at the moment as it is rising quickly. This means that any money you have saved that isn’t growing in value at the same as the rate of inflation will essentially be losing its purchasing power.
The Bank of England has an excellent historic inflation calculator to demonstrate this. For instance, £100 in 2010 would have to have grown to £131.13 to match the equivalent purchasing power in 2020.
All this is to say that if your wealth isn’t beating the long-term inflation average (in the case of the example above, 2.7% over 10 years) then your money is ultimately losing value.
What are the current top deals?
The top cash savings deals, while growing in value, are still very low. Data from the Bank Of England shows that rates are only really rising on long-fixed term accounts too.
The average rate on a three-year fixed savings bond, for example, has risen from 0.57% in March to 0.71% in July. But these are just averages and do not represent the best possible deals.
The current top rate easy access savings account is from Tandem Bank and will earn you 0.65% on your savings.*
When it comes to easy access Cash ISAs, the best rate on the market is even worse at 0.6% from Cynergy Bank.
At the other end of the market, if you lock your money away for five years, Atom Bank will pay you 1.84% interest on your cash. The best Cash ISA over five years is with Furness Building Society, returning just 1.25%.
What should I do with my money instead?
The reality is that cash savings rates are still extremely poor. For your day-to-day money you can get an interest-bearing account with providers such as Nationwide, who will pay 2% on deposits up to £1,500 per month. That rate drops to just 0.25% after 12 months unfortunately.
A rainy-day fund should be in an easy-access savings account. Although this won’t keep up with inflation, it should only be a limited pot of cash anyway. The general rule of thumb is to keep 3-6 months’ worth of expenses in cash.
Over and above this, any money you have set aside could be working harder elsewhere. Think investing in the stock market, either through a stocks and shares ISA or a pension.
If you would like to discuss your options, don’t hesitate to get in touch with your adviser.
*Please note all rates quoted in the article were correct at the time of writing but are subject to change.
Wages are rising: here’s how to get yourself a pay rise without leaving your job
Wages are rising at a rapid pace across the economy, latest figures from the Office for National Statistics suggest.
As per the most recent wage growth data, workers are due to get a bumper 8.8% increase in their pay packets. This number has been called into question however, amongst concerns that base effects of falls in wages in 2020 have skewed the comparative data.
That being said, there is no doubt that salaries are increasing across the UK. Worker shortages are biting businesses that are looking to expand after the various lockdowns, while changes to employment visas post Brexit have left many firms with less access to pools of talent from abroad.
But unless your boss offers you a pay rise, or you quit your job for a better paying one – it can be hard to get in on these bumper rises.
The best way to get a pay rise then is to sit down with your manager and explain to them why you are worth it.
There are a few ways to broach the topic though. Here are some ideas.
- Do your research
It can be difficult to find average rates for the type of work you do but do try doing some research. That way you’ll know whether you’re being remunerated fairly or not.
- Don’t use personal issues to bargain
When appealing to your manager for a pay rise, don’t use personal circumstances as a reason to request an increase. As true as it may be, it is not reflecting to them why you are worth more money each month than you currently get.
- Don’t make ultimatums
Threatening to leave your job if you don’t get a pay rise only works if you are prepared to carry it out. Avoid making such ultimatums unless you have a plan to make it happen.
- Don’t use colleagues’ pay rises as an excuse
Although you may have a colleague doing the same job as you, unfortunately the nature of salaries is such that often people earn different amounts for the same work. But if you find this out, using it as a reason to ask for a raise will not necessarily convince your boss you are worth it too.
- Make a positive case
If you feel you deserve a raise for the work you do, be ready to prove it. List the tasks you do and responsibilities you have that you feel go above and beyond your basic job description. Make the case for the value you add to the company and what makes you worth more money to them.
- Make yourself indispensable
If you feel like you could take on more that would lead to your pay packet increasing, dive in. An employer will take no signal better than a sign you’re going above and beyond to deliver for them.
What different types of pensions are there?
The information below shows a breakdown of your pension options.
Source: www.finder.com/UK-pension-statistics
Source: https://www.gov.uk/workplace-pensions
Source: https://www.yourpension.gov.uk/
Source: https://www.ipse.co.uk/ipse-news/ipse-blog/how-much-should-i-pay-into-my-pension.html
Source: https://www.raconteur.net/finance/pensions/young-people-pensions/
The World In A Week - The Long and Unwinding Road
Equity markets delivered positive returns last week, with the MSCI All Country World Index delivering +1.1% in sterling terms, while the FTSE All Share Index pretty much delivered the same return. The best performing region and country was MSCI Emerging Markets and MSCI China, which generated +3.3% and +3.8% respectively. Returns over the last few weeks have been volatile for these markets, following the recent announcements and policy adjustments put out by China’s State Council and the Communist Party’s Central Committee. So far, the Chinese equity market has remained under water throughout 2021.
All eyes last week were on Fed Chair Powell’s remarks at Jackson Hole, as he guided on future bond purchases. Equity markets took his comments about tapering bond purchases later this year within their stride. Implications for potential future higher yields generally saw bond indices pull back over the week. Powell reinforced the view that the US economy had made enough “substantial progress” to warrant the shift in policy, though the Central Bank would also be assessing the data from the raging delta variant of the coronavirus. Powell also stressed that the Fed would not be in a hurry to begin raising interest rates after the wind-down. The Chairman continues to do his best tightrope walking act carefully, and so far, successfully, threading the needle of indicating progress towards the Committee’s goals, whilst leaving the optionality to deal with the ongoing pandemic.
Powell also continues to argue that the inflationary impact from the crisis is largely transitory. However, we continue to see problems within the global supply chains, affecting everything from McDonald’s milkshakes to golf balls. One of the world’s busiest ports in China had to shut down a container terminal because a worker was diagnosed with COVID-19, and it is reported that it will take a week for the port to get back to normal. It appears that the Fed’s task of guiding the markets is going to be incredibly tough and very much data-dependent, but for now markets are prepared to play along.
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 31st August 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - Delta’s Dampening Effects
The rapid return of geopolitical risk did little to move the spotlight away from the evolving COVID-19 pandemic. While it is likely that Afghanistan will see significant instability in the coming months, the biggest risk to investors remains the virus.
The key to economic recovery will be the reopening of economies and there is a persistency about the Delta variant that sees global cases climbing, particularly in places where vaccination rates are low. This will hamper attempts to keep economies open and recent data has seen a slowdown in consumer spending. Sentiment is likely to worsen over the coming weeks as we see children return to schools and employees returning to work.
While this may read as a gloomy outlook, a market correction has been overdue with indices hitting record highs over the past weeks. There remains sufficient liquidity in markets to soften any potential impact, as fear continues to dominate market sentiment. That is why central banks are being particularly cautious in their commentary about reducing monetary measures, as the echoes of the overly aggressive policy tightening in 2013 and 2018 are fresh in the mind of investors.
This made the minutes from the Federal Reserve’s Open Market Committee (FOMC) even more timely, as they corroborated what the Chairman Jerome Powell had already confirmed in his press conference three weeks ago. Tapering of asset purchases had been discussed in detail and quantitative easing is ready to be deployed when the time is judged to be correct.
This timing is critical, and it was fully expected that at the annual Economic Symposium at Jackson Hole this week, there would be a signal of when tapering would commence. This would then be followed by a formal decision from the FOMC in the fourth quarter, with potential easing being implemented in early 2022.
However, the meeting on Friday has now been changed to a virtual event as the risk of COVD-19 has been escalated to ‘high’. The Chairman of the Federal Reserve has always reiterated that the path of the US economy, and ultimately the unwinding of the emergency monetary measures, would depend on the course of the virus. The change from the Jackson Hole meeting from real to virtual is a reminder of the biggest risk factor to our investment decisions remains COVID-19.
It also justifies our tactical asset allocation decision in remaining neutral to equities since we moved from underweight at the bottom of the markets in April 2020. We always expected increased volatility through this phase, as policymakers navigated away from emergency conditions and interpreted conflicting data. We remain confident that 2021 will be a year where we post positive returns and look towards 2022 where change will actually be implemented.
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 23rd August 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - Political Shift
Last week the MSCI All Country World Index (ACWI) returned +0.8% in GBP terms, underpinned by a strong week from Europe equities, Japanese equities and the FTSE All Share Index.
Political tensions have increased significantly in Afghanistan as the US-backed President Ashraf Ghani fled the country as the Taliban seized control of the capital. In what is the longest war in America’s history, the focus is now on allowing Afghans and embassy staff to evacuate the country before the civil unrest escalates. It was expected that Taliban forces would take up to 90 days to seize control of the capital Kabul, however they managed to do so in a much shorter time frame. The Pentagon declared a further 1000 troops would be deployed in addition to the 5000 troops that President Biden announced in a bid to facilitate the evacuation of key personnel back to the US.
Elsewhere, the political backdrop has shifted in China where the government is set to operate with greater regulation over its national security and technology. China's State Council and the Communist Party's Central Committee issued a 10-point plan which outlines its plans to reduce monopoly power, with the likes of Alibaba and Tencent having taken dominant market positions. Most recently, Alibaba accepted a record £2 billion fine for abusing its market position. China forms 34.6% of the MSCI Emerging Markets Index with MSCI China returning -11.9% in GBP terms year to date following the clampdown from government forces. This has been one of the major reasons for emerging markets underperformance relative to the wider global equity universe where MSCI All Country World Index (ACWI) has returned +16.3% in GBP terms.
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 16th August 2021.
© 2021 YOU Asset Management. All rights reserved.
Could the State Pension be in line for a bumper increase?
The State Pension looks set to rise by a record amount, but Chancellor Rishi Sunak may have other plans for it.
The State Pension could be in line for a bumper hike this year thanks to distortions in the way its increases are calculated through the so-called ‘triple lock’. The triple lock was conceived during the Coalition Government’s early days as a protection to ensure the State Pension always rises – either by matching the rate of wage growth, inflation or 2.5% - whichever is higher.
However, the triple lock has come under criticism in recent times for its perceived lack of fairness. In times such as 2020 when wage growth was plummeting thanks to the COVID-19 crisis, pensioners enjoyed a healthy 2.5% rise as this was higher than both wage growth and inflation at the time.
Now the situation has become even more distorted as wage growth is sky high – around 7.3% at the most recent set of figures from the Office for National Statistics (ONS). The ONS itself concedes that this may not be truly reflective of the average growth in wages as the low levels of last year, plus the effects of the furlough scheme, have put the data way out of whack.
But thanks to the way the triple lock is set out this may not matter, leaving pensioners with a bumper pay rise.
However, sources in the Government are now intimating that Chancellor Rishi Sunak could be set to thwart the triple lock in the interest of preventing an expensive hike in the Treasury’s bills.
It would make for a fairly extraordinary intervention to break the triple lock. The suggestion is that the Chancellor will likely make it a temporary fix thanks to the unforeseen circumstances, but calls for a double lock to be made permanent have been heard for some time now.
Does the State Pension matter?
The State Pension, while a relatively modest sum on the face of it, is an incredibly important consideration for all but the wealthiest retirees. In later life it can account for a significant sum.
Currently paid at a rate of £179.60 a week from age 67, it forms a core part of many retiree’s later life income. With an uplift on the cards of, conservatively, 7.3% - pensioners could see an extra £629 per year. Some estimates suggest the month when the news uplift is calculated could lead to an 8.5% rise – which would mean an extra £729 next year.
Former pensions minister Steve Webb, who put the triple lock into law and is now a partner at Lane Clark & Peacock, says: "The Chancellor will no doubt be considering a wide range of options to avoid a hike in the state pension. Dropping any earnings link would be quite controversial as ‘restoring the earnings link’ has always been a rallying cry for the pensioner movement.
"It would also be an explicit breach of the Conservative manifesto. I suspect that a modified earnings figure will remain the most attractive option to a Chancellor who will want to avoid opening up battles on too many fronts at the same time."
If you’d like to discuss the issues raised in this article more, don’t hesitate to get in touch with your adviser.
Why your household bills could be about to soar – and what to do about it
Household bills could soar by up to £400 a year as the Government tries to find ways of funding its ‘net zero’ pledge by 2050, a new report has claimed.
The National Infrastructure Commission (NIC) says the Government needs to invest heavily in greenhouse gas removal technologies if it is to meet that target. It estimates that investment will cost the taxpayer up to £400m over the next decade, but argued that the most polluting industries, such as shipping, aviation and agriculture should pay £2bn a year from 2030.
However, the NIC acknowledged that this cost would likely be handed down to consumers in the form of higher food, transport, goods and energy bills. It estimates that the lowest earners are likely to see their bills rise £80 a year by 2030, with the highest earners having to fork out up to £400 more a year.
However, you can offset those costs by making some small money-saving changes elsewhere.
Here are just some of the ways you can trim your outgoings.
- Cut your utility bills: the average dual fuel energy bill costs £1,131 a year, or £94.35 a month, according to Ofgem. However, you can cut hundreds a year off your bill by only using the heating when necessary, turning off lights when you leave a room, using energy efficient lightbulbs and making sure your boiler is serviced regularly. You could also save a lot of money by shopping around for the best energy deal by using a comparison site.
- Check you’re not overpaying on council tax: More than 400,000 homes are currently in the wrong council tax band and are therefore overpaying, according to TV money expert Martin Lewis. It is thought that some homes have been in the wrong band since the current system was introduced in 1991. However, if you have overpaid, you might be able to claim a discount on future payments. Click here to find out how.
- Use the car less: Petrol prices hit an eight-year high in June after eight consecutive monthly increases, according to motoring organisation RAC. With the average annual fuel bill standing north of £1,000, you could save a small fortune by opting to walk or cycle to work instead.
- Reduce your debt interest payments: According to The Money Charity, the average UK resident has nearly £2,000 in credit card debt. If you’re paying high rates of interest on your loans and credit cards, look to see if you can shift them onto a card charging 0% interest. That way, your monthly repayments are paying down just the debt, rather than the interest.
- Cancel unused memberships and subscriptions: Have a gym membership that you never use? Or perhaps paying for Netflix when you rarely watch television? Then you might want to consider cancelling them. But make sure you check you’re not locked in and liable for any early cancellation fees first.
If you’d like to discuss additional ways to make your money work harder, don’t hesitate to get in touch with your adviser.
What the proposed 1% hike to National Insurance would mean for your money
The Government is reportedly planning to hike National Insurance by 1% to pay for social care, in a move that could leave workers hundreds of pounds a year worse off.
The increase would result in workers having to pay more in tax, meaning they would have less disposable income to spend each month. It has been reported that the plan could raise more than £10bn in additional tax revenue to help the Government pay for the rising care costs of the UK’s ageing population.
While the policy is likely to be unpopular, experts say it would result in fewer people having to sell their homes to pay for care in old age. However, critics argue a hike to National Insurance is the least fair way of solving the problem, as it would hit lower earners hardest.
Also, as retirees do not pay NI, it would also mean the burden of funding social care would fall entirely on workers, which again would likely be very unpopular.
Here we explain what the proposal would mean for your finances.
How does National Insurance work at present?
NI raises around £150bn a year for the Treasury’s coffers, making it the second biggest earner after income tax.
It is used mainly to pay for state benefits, such as the state pension, statutory sick pay, maternity leave and unemployment and disability benefits.
Workers do not pay NI until they earn £9,568. You then pay 12% of your earnings between £9,568 and £50,270, and 2% for anything you earn over this amount. The self-employed pay lower amounts of NI.
However, if the Government presses ahead with its plans, those rates would rise from 12% to 13% and from 2% to 3% respectively.
How would it affect me?
How much you pay in NI is linked to how much you earn, meaning the higher your salary the bigger your contribution. Figures calculated by accountants Blick Rothenberg for The Sun reveal that someone earning £15,000 a year would see their NI contributions rise by £54 a year to £706.
Someone on £25,000 – slightly under the median national salary of £29,900 – would see their NI bill rise £154 to £2,006.
If you earn £50,000 a year, your NI bill would rise by a whopping £404 to £5,256, while someone earning £75,000 a year would see theirs jump by £654 to £6,033.
How likely is it that the hike will happen?
While the Conservatives ruled out increases to income tax and NI in their 2019 election manifesto, these are exceptional times.
Chancellor Rishi Sunak has publicly stated the need to balance the books and to find a way to pay off the enormous amount of debt that the Government has taken on since the start of the current crisis.
So, while the move might be unpopular, the Government could argue it is necessary to get the public finances back on an even keel.
Having that said, there’s a possibility the Chancellor may well tweak his plan to introduce a blanket NI increase, especially if there is a backlash among Conservative MPs and workers.
If you’d like to discuss the topics mentioned in this article further, don’t hesitate to get in touch with your adviser.
The World In A Week - Japan fails to get its Suga rush
After hosting a successful Olympic and Paralympic games, it is now all change for Japan. After just a year as the country’s prime minister, Yoshihide Suga will be stepping down amid continuing criticism of his handling of the COVID-19 pandemic.
Ahead of the general election, to be held by the end of November, Suga announced that he would not seek re-election in this month’s leadership contest for the Liberal Democratic party. The news led to the Topix Index hitting a 30-year high, as a new leadership raised expectations of increased stimulus measures to combat the pandemic.
There is no mistaking that sentiment is currently being driven by the virus. Whereas Japan looks attractive in the short term because of the expectation of new economic stimulus measures, the US is potentially less attractive as previous measures and protections for the economic fallout from COVID-19 are expiring.
It is a double whammy for many Americans today. Last week saw the end of the eviction moratorium, which prevented landlords from evicting tenants that were receiving rental assistance from the Government or met certain income thresholds. It is estimated by the Federal Reserve Bank of Philadelphia that the amount of back rent owed has reached $15 billion, while Goldman Sachs predicts some 750,000 evictions by the end of the year. For context, there were 1 million evictions in 2010, as the tail end of the Global Financial Crisis bit hard.
Today sees the end of increased unemployment benefits for an estimated 7.5 million American workers. This comes on the heels of a disappointing jobs report from the US, which showed a sharp drop from July’s 1.1 million jobs. August’s expectation of 733,000 jobs was slashed by two-thirds, with only 235,000 new jobs created and could be an indication of the effect that COVID-19’s Delta variant is having on companies’ hiring plans.
It is hoped by US policymakers that the expiring of generous unemployment benefits will lure the unemployed back into jobs. There are an additional 5.3 million Americans who are unemployed now, compared to before the pandemic. These people now face a reduction in personal income or a return to the workforce. However, it is not that simple a decision. Health rather than wages has become the most important factor regarding employment, which has been borne out by the individual states that removed unemployment benefits early, not seeing the hoped-for increase in jobs growth.
Why is this important? One of the dual mandates of the Federal Reserve is maintaining full employment and this has already been reiterated as a key metric for the rising of interest rates. So, while Jerome Powell hinted at tapering their monetary stimulus measures before the end of the year, he also confirmed that further strides needed to be made in the labour market before that could begin.
The weakening picture of America’s labour market could stall plans to remove the stimulus measures already in place. Data and the Delta variant are the key measures for when policy actions can commence.
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 6th September 2021.
© 2021 YOU Asset Management. All rights reserved.
by Jess Wooler