Yes there are loads of comparison websites that promise ridiculous savings or rates that never actually materialise, we all know that. However having recently used Usave, they are a little different.
I can’t comment on their broadband and utilities, but the loan comparison was very good. I’d considered HSBC and also looked at money.co.uk, but their rates varied too much.
The advertised rates started at 2.9% and went up to 15%, but once you got into the application stage it all started to sneak up.
I found Usave a bit harder work to get the rates, as in I had to fill in some details, but at least you’re getting the true rates and don’t feel mislead. Have a closer look here –
https://usave.co.uk/money/loans/personal-loans/
If anyone has a chance to look at the broadband rates I mentioned then try this link – https://usave.co.uk/utilities/broadband/
From 1st July 2014, ISAs are changing; cash ISAs and stocks & shares ISAs will remain as separate accounts, but they will fall under an over-arcing single named account called “NISA” or New ISA.
If you have already subscribed to a cash ISA or stocks & shares ISA since 6 April 2014, you need to check with your provider to see if you can top-up. Some providers may not allow you to do so, in which case it can be worth considering changing providers to one that will allow you to take advantage of the additional allowance of a NISA.
Benefits Of The NISA
- A NISA blurs the lines between the two separate accounts, enabling you to have greater choice and freedom to control your money between the two.
- The current allowance for tax-free savings within your NISA is £15,000 per annum; an increase of £3,120 from the previous cap for 2014/2015 of £5,940 for cash ISAs and £5,940 for stocks & shares ISAs.
- You can either make regular payments up to your total £15,000 allowance throughout the tax year, or make a one-off lump sum payment.
- You can now choose how to split your total NISA allowance. The rule of only being able to save a maximum of half your ISA limit in a cash ISA has been lifted.
- Under the new regulations, you will be able to transfer your stocks & shares ISAs to a cash ISA – even from previous years. So, if you decide that you don’t like how the stock market is performing for you, but your money has previously been tied up in stocks & shares, you will now be able to transform some or all of your existing stocks & shares ISAs into a cash ISA.
- You will be able to transfer your money between your cash ISA and stocks & shares ISA are many times as you like (although it may be worth checking with your provider if there is a financial penalty for doing so).
- Any interest on cash held in a stocks & shares ISA is now tax-free.
What Isn’t Changing?
- You will still only be allowed to subscribe to one cash ISA and one stocks & shares ISA in a tax year.
- You can still transfer your cash ISA to a stocks & shares ISA.
- You can still open ISAs with different providers.
- You are still allowed to hold additional, historical ISAs that you are no longer paying into.
What About Junior ISAs?
The overall structure and subscription process for a junior ISA will remain the same, but the amount you can save will increase to £4,000 in 2014/2015.
What About Withdrawals?
Of course, you can withdraw from your cash or stocks & shares ISAs as before. However, if you then decide to replace any withdrawn funds, this will count as a new payment towards your total NISA allowance so it is important to think carefully before making any withdrawals.
For example: you put £15,000 into an ISA during a tax year, but later in that same tax year you decide that you need to withdraw £4,000 to perform emergency home improvements. You cannot then put another £4,000 into your ISA until the tax year is over and a new one begins. Similarly, if you deposit £8,000 into an ISA but then decide to withdraw £2,000, you can only put another £7,000 into the ISA throughout the rest of the tax year. In other words, the £15,000 limit is based on total deposits and not the amount you have in an ISA at the end of a tax year.
Important note: HMRC have advised that you do NOT withdraw funds from your existing stocks & shares ISA in order to top up your cash ISA as these funds will be treated as a ‘fresh payment’ and may take you over your total NISA allowance. You should arrange a transfer through your stocks & shares ISA provider.
When Is A Cash ISA Best For Me?
It goes without saying that a cash ISA provides you with tax-free interest earned on your savings, whereas a normal savings account opens you up to taxable interest. However, it can be extremely useful to compare the exact rates of interest involved in order to determine whether or not you’re getting the best deal.
For example: if a non-NISA savings account is offering you an interest rate of say 3.0%, but a cash ISA offers 2.0%, you may think that the standard saving account offers the better rate. However, you have to factor in tax deductions for non-NISA accounts.
This means that at the basic tax rate, your interest attracts 20% tax, or 3.0% – 20% = 2.4%. In this instance, the savings account proves to be the better product.
At the higher tax rate, your interest attracts 40% tax, or 3.0% – 40% = 1.8%. In this instance, the cash ISA account works out best.
It can be worth shopping around to find the best interest rates and you may find that current accounts with linked savings accounts offer some of the most competitive incentive rates to sign up. You shouldn’t become complacent though, as most of these rates are variable or only introductory so you should be prepared to move your money if the interest rate stops being such a good deal.
With the government making greater inroads into helping savers make the most of their money, as well as providing more freedom to decide how to save, there has never been a better time to look at NISAs.
Use Your New ISA Allowance Regardless Of Low Rates
The sad state of affairs that our economy has been in over the last few years means that the Bank of England is having to keep the base rate of interest at a record low and despite recent signs of growth, this is unlikely to change a great deal over the next few years (a gradual increase in rates has been suggested as the most likely scenario by governor Mark Carney).
While low interest rates may be good for homeowners and businesses, for those of us who rely on our savings to provide an income, it is a disaster which has forced many to tighten their belts. It’s not good news for those who want to build up a nest egg either as interest on accounts accrues far slower than it used to.
While this may be the case, there is still a very good argument for taking full advantage of your yearly NISA allowance.
Save Now, Transfer Later
While cash ISA rates may not be very high now, the beauty of the system means that you can build up savings year by year and transfer them around to get the highest interest rate.
Therefore it makes sense for you to save as much as you can in your NISA each and every year. Because the interest on cash ISAs is free of tax, if you manage to save a significant amount now, then when rates improve in the future (which they almost certainly will in the long term) you will be in the best position possible to benefit from these higher rates.
But I Can Get Better Rates Now!
While it is true that some traditional savings accounts currently offer higher rates of interest than cash ISAs, if you choose to put your money into a regular account instead of an NISA and the financial tax year ends, you cannot then utilise your NISA allowance for that tax year – it is gone forever.
One thing that you can do in this circumstance is to leave your money in the savings account until the very last moment and then withdraw it and fill up your ISA as much as possible in the few days before the tax year ends on April 5th. This way you get the benefit of the higher interest rates for the majority of the year AND the ongoing tax free income that an ISA can provide.
So you don’t have to lose out in the short term to get the best in the long term.
Clearing Up The Jargon
You’ll see that this article sometimes uses NISA while talking about ISAs at other times. Here is an explanation as to why:
NISA is the term we use here to describe the umbrella name under which cash and stocks & shares ISAs sit. It is a term that has been made up by the government but since it is an abbreviation of “new individual savings account”, we don’t think it makes sense to talk about a ‘cash NISA’.
The consumer is used to, and comfortable using, the term ISA and we write for the consumer so while this continues to be the case, we will continue to use ISA to talk about actual accounts while using NISA when talking about total limits.
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]]>Though it’s reasonable enough on the face of it, this leaves you twice as far out of pocket than you planned to be and could put you in an awkward position financially. Indeed, it could make it even harder for you to repay the debt in question, given that running out of cash can give rise to a whole load of extra expenses. For instance, it may mean you need extra time to cobble together money to pay a bill and then end up having to meet late fees too. In short, the unannounced decision to suddenly take back monies owed could wreak havoc with your carefully planned budget.
‘Setting Off’ is essentially the same thing as described above, but on a larger scale and with your bank in the role of the wallet-less friend. If you have money deposited with a bank, but also have a separate debt with the same bank (for example, you are behind on your credit card repayments but have cash in your savings account) they do, in some cases, have the right to go and simply take the money they are owed from you – even if you hadn’t had any intention of the money to be used in this way.
Whilst we all want to pay off our debts, we always have to prioritise. You’ll always put paying for your daily essentials, such as food and utilities, ahead of paying a debt. That’s a matter of simple necessity. Even if you do have enough capital available to start wiping out your dues, it makes sense to put paying for an expensive or essential debt (a high interest short term loan or a mortgage, for instance) ahead of paying for a relatively small, affordable unsecured debt like an outstanding credit card balance.
If a lender suddenly decides it’s taking what it’s owed without consulting you, your sensible plan for managing your money could be thrown out of the window. So, how do you avoid having the banks make a mess of things without your permission?
Keep it Separate
Obviously, if you have a bit of debt in one place and your savings safely stashed away somewhere else, one organisation is not going to go and hand your money over to the other without your express consent. Therefore, the simplest way to avoid any issues with setting off is to avoid taking out credit at the same institution you save with. If you’re already borrowing and saving with the same people, you will generally find it’s easiest to move your savings as opposed to your debts (though stoozing provides a helpful exception).
Of course, in this day and age it’s hard to tell whether banks are truly separate, or in fact part of the same larger conglomerate. For the purposes of setting off, it comes down to the banks legal identity, which in turn is determined by the way that the company is registered at Companies House. Generally, these are just the separate brand identities that you’ll be familiar with, but it is simple enough to check if you are unsure.
Know the Rules
The rules around setting off are contained within the Lending Code. The code is a set of rules that is adopted voluntarily by banks. However, though it’s not obligatory to sign up to the code, if an institution agree to use the rules then they need to adhere to them.
With regards to setting off, the code states that banks do not need to give a specific advanced warning before they move your money (if they did, you would just withdraw it or transfer it away from the account before they had a chance to get their hands on it!). However, they do need to make it known to you that there are a set of circumstances in which they may attempt to recover debts by moving your money at some point before they actually attempt to do so.
The code also states that banks need to make an effort not to leave you in a difficult situation. They should, in theory, never take an amount that will leave you struggling to pay for your day to day essentials and top priority debts (mortgages being the best example.) They are also warned to take extra care in dealing with people who are depending on benefits in order to make ends meet and those who are having to put money towards a special, important purpose, such as healthcare costs.
Finally, they are supposed to make you aware that money has been taken from your account to help you avoid unwittingly spending money that you no longer have. Disappointingly, there is no fixed time frame in which they are supposed to make this known to you.
If banks are setting off money from your savings or current account in response to the fact that you are falling behind with a debt, then they are supposed to make reasonable efforts to get in touch with you and discuss the matter first. It is only if you fail to respond to mail and calls that they are entitled to go ahead and move the money. This is just one of the many good reasons that you should be proactive in seeking an agreement with your bank if you find you are running into trouble with a debt.
If you get in touch with a non-profit debt counselling service such as Step Change then you may be able to get an extra 30 days breathing space. If you are struggling with debt and mental health problems then you may be able to get further dispensation. Click the link to read our guide to the subject.
If you are unsure of your bank’s policies it can bear fruit to simply approach them for clarification. Checking their terms and conditions is not always helpful as, in some cases, a bank will have an automatic right to carry out setting off. In such instances they do not need to explain the situation in their terms and conditions.
What Should I Do If the Rules Have Been Broken?
As stated above, in many situations a bank will be, legally speaking, perfectly entitled to move your money to recover what you owe. This means that, if it hasn’t put you into tangible difficulties, then there’s not a lot you can do about it, aside from moving your money elsewhere to prevent it from happening again.
If, on the other hand, the money has been whisked away from your account in a manner that contravenes the guidelines laid out above, then the bank should refund you. This should, hopefully, be a fairly straightforward process. As long as you can demonstrate that it is going to have a negative knock on effect that could lead you into hardship, they should have little choice but to refund you having had the situation explained to them in writing.
If they fail to do this then you need to look beyond your bank and refer to the financial ombudsman. They should help settle the dispute and can deem that you have been unfairly dealt with, irrespective of the fact that the bank has a legal right to use setting off. They are impartial and independent so you can be sure of an unbiased hearing. Better yet they are free, so you have nothing to lose by appealing to them.
The ombudsman can be reached online, or by calling 0800 0234 567 (or 0300 123 9123 from a mobile). Unfortunately, you cannot go straight to the ombudsman for help. You first need to try and come to an understanding with the bank (the ombudsman is really supposed to be a last resort). They will only be able to look at your case if you have already attempted dialogue with your bank, even if this only ever went as far as you complaining and the bank refusing to do anything about it.
You also need to bear in mind the timeframe that will apply when going down the ombudsman route, as they will only take on your case eight weeks after your initial complaint. If you really are left struggling as a result of your bank’s actions, two months is an awfully long time to be left in the lurch.
With all this in mind, as we frequently say on this site, prevention is better than cure. If you are at all worried about keeping on top of all the repayments you are supposed to be making, even if it’s not a major concern, split your savings and current account from your debts to avoid any possibility of setting off putting you in a tough position. If you are running into trouble, its best to contact your bank and confront the issue head on. Though it should be easy enough to get back money that is taken unfairly, your life will be simpler if it isn’t taken in the first place.
]]>Two might not be able to live as cheaply as one, but a cohabiting couple can certainly live for less than two on their own. A recent study has in fact shown that those who are married or living together are £102 better off each month than their single counterparts.
With extra income on their hands, here are some top tips on how cohabiting couples can make the most of their financial products.
Bank accounts
The arrangement of your personal finances is, of course, a very personal choice. Some couples like to keep their own incomes strictly separate while others prefer to pool everything. Disposable income is one thing but even if you keep your spending money separate it can certainly be useful to have a joint account to cover essential household outgoings such as rent or mortgage and bills.
Setting up direct debits for all your regular outgoings helps ensure you never miss a payment (potentially triggering fines and late payment fees). If you have a central joint account fed from individual bank accounts however, you should ensure that there’s enough in there to cover your expenses.
Savings accounts
If you have a savings account, it’s usually the case that the more you put in, the more you get out. Try to make regular deposits and go for the highest interest rates you can find.
Setting joint savings goals that you are both keen to work towards, such as a holiday abroad, could also provided the encouragement you both need to build up a savings pot.
However, it is important to note that as limits for cash ISAs and stocks and shares ISAs are set for individuals, a total of £11,520 for the 2013/14 tax year, it may be preferable to take out an ISA separately.
Credit cards
Joint credit cards can also be handy, especially if you have cash back or cards with a points-based reward scheme. Double the spend means double the reward but you do have to make sure you make at least the minimum payment each month. Setting a direct debit can again be handy for this but the best way to use any credit card is to pay the balance in full each month. This allows you to make use of the card’s interest free period and avoid credit card charges. Each person should be aware of any large purchases made on the card as spending can overlap and leave you with an unexpectedly large balance.
Mortgages
Taking out a joint mortgage will mean that you are able to borrow a larger sum, up to three times the value of your joint salary, as opposed to three times the value of a single salary.
As a couple you may also be able to put down a larger deposit for your first home, securing a mortgage at a low loan-to-value ratio (e.g. 60% mortgage, 40% deposit), which often come with lower interest rates.
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]]>With people looking for new ways to access credit and invest their spare capital, peer to peer lending has taken off in recent years. Here we review the services of the industry’s biggest name, Zopa, with a run down of what’s on offer for lenders and borrowers alike.
Lenders = Savers
With interest rates so incredibly low many savers are looking to move away from the traditional, risk-free investments such as savings accounts and are instead looking at novel ways of getting a better return on their money.
Peer-to-peer lending has proven to be a highly popular way of doing just that. Zopa is the biggest lender operating in the sector and to date has lent out more than £300,000,000 – money invested by savers lured by the prospect attractive returns.
Whereas 2% APR is considered competitive on the highstreet, Zopa can offer up 8.1%. So how do you go about using the service and gaining access to these extremely favourable rates?
The first choice you have to make is which of Zopa’s markets of borrowers you’d like to lend to as this will determine the rate you receive.
Selecting a Market
When borrowers want to obtain a loan through Zopa they are subjected to identity checks, credit checks and a vigorous risk assessment. Based on this, borrowers are given a rating of either B, A or A* (A* being the best).
Zopa the use these ratings, along with the length of time they need the money for, to group borrowers into six different ‘markets’ each of which come with a different typical rate of interest. Here’s a look at the typical rates currently being offered and accepted across the different markets.
| Market | Typical Interest Rate |
|---|---|
| A* Long Term | 5.12% |
| A* Short Term | 6.25% |
| A Long Term | 5.93% |
| A Long Term | 6.42% |
| B Short Term | 7.32% |
| B Long Term | 8.14% |
(Short term applies to any loan with a term of less than 3 years. Those between 4-5 years are counted as long term.)
You do not have to loan you money in one market exclusively, but can make it available in a variety of markets, effectively diversifying your investment and thus spreading your risks.
Finding a Borrower
To lend you simply offer up the money you want to make available at whatever rate that you deem fair. Needless to say, the lower your rate is compared with the average, the easier you’ll find it to get your money lent out, the higher you go, the harder it’ll be.
This is because Zopa always offers borrowers money available to them at the best rates first in order to ensure their loans are more affordable than those available elsewhere. Remember that you only start to earn a return once Zopa have found borrowers for your money.
Once you’ve chosen the terms you’re happy to lend on, you simply set up and transfer money into a Zopa account. Zopa will then set about distributing your money among borrowers who match your criteria.
It’s important to understand that your money is not lent simply to an individual, but is dispersed across a wide range of people looking to borrow on the same terms. This is arranged so that (except for when you’re lending larger amounts) no single person will ever be lent more than £10 of your money, helping to reduce the risks of bad debt.
What Are The Restrictions?
Lacking a huge pile of spare cash to invest won’t exclude you from being able to make a return from a Zopa. The minimum you need to set up an account is £10 and there is no cap on what you can lend so long as you are a UK resident of at least 18.
How long your money is tied up for depends on whether you lend to a shorter or longer term market as explained above. It’s worth carefully considering the term of the loan when planning your investment strategy, as it’s not advisable to put money in if you’re likely to need it back again imminently.
That said, unlike products such as high interest bonds, you do not have to wait until the end of the term to get your profits. As your loan is repaid in regular instalments, you’ll see part of your money coming back to you each month. You can either withdraw this to keep, or you can ‘recycle’ it using Zopa’s Auto Top Up feature, which will automatically offer the money you’ve earned back to the markets on terms pre-set by you. This effectively allows you to earn interest on the interest you’ve already earned (which is paid monthly) giving it further edge other forms of investments.
If you do find you need your money back quickly you may be able to release your cash by selling the loan off to another lender…
Can I Get My Money Back Sooner?
If you want to get your money back before it’s due, Zopa can find another lender to take over the loan (assuming there are others out there willing to lend on the same terms you’d previously arranged.) You’ll be charged a 1% fee for this, so you’ll be losing out on more than just the future interest payments.
You will not be able to sell on the loan if the borrower has ever missed a repayment, which adds to the risk of having to deal with any potential bad debts. It’s also not possible to transfer a loan whilst a repayment is pending.
How Much Are The Fees?
Aside from the admin fee you’d need to pay to use the Rapid Release feature there also regular charges for using the site. You’ll be charged an equivalent of 1% per annum on the money you lend out, which is taken from your account on a monthly basis. This fee is the same not matter what rate you yourself are charging, so bear that in mind when planning your returns.
You only pay this fee on money that’s being lent, and it won’t apply to any portion of a loan that is defaulted on or repaid early. This ensures it comes out of your profits not your capital.
What Are The Risks Of Lending?
Zopa take a wide number of precautions to safeguard your investment. Firstly as mentioned above, they are rigorous in screening those applying for a loan and reject the vast majority of candidates, leaving only those you they are confident of being able to make repayments in their markets.
As a result of these precautions, at 0.5% Zopa’s A* market actually has a far lower default rate than most high street banks. Zopa can provide you with the current default rates in all of their markets before you invest. You can take this into account when planning your return.
Furthermore, as mentioned above, your money is lent out to multiple borrowers to spread risks. If you’re lending less than £2,000, Zopa will arrange it so that no one individual has more than £10 of your money. If you’re lending more than this it may be necessary to lend individuals more than £10 each to get the money out there, however, Zopa will still ensure it’s split at least 200 ways.
If a borrower does default further procedures are in place to ensure your money can be recovered and you will not to make any of your own efforts in this regard. Zopa will chase a timely repay on your behalf and, if it turns out their will be difficulties in continuing with the loan agreement, the loan will be purchased from you, including all interest due, by Zopa’s partner debt collection agency, P2PS.
In addition, until the moment your money is lent out form your Zopa account it is kept in a ring fenced RBS account separate from the company’s own funds. This means the fortunes of Zopa will have no bearing on whether you can reclaim the money from your Zopa account. (You do not need to worry about the fate of RBS either as, being a bank, the money in their care is protected by the FSCS guarantee.)
Though not regulated by the FCA, Zopa is licensed by the OFT.
How Do I Borrow Money From Zopa?
As well as offering higher rates to savers, Zopa are also able to offer lower rates to borrowers than are available elsewhere. Loans can be obtained any amount between £1,000 and £15,000 for a term of 1 to 5 years.
To borrow using Zopa you will need;
- To be at least 20 years old
- A good credit history
- 3 years of address history in the UK
- To have been on the electoral role for all of your addresses during this period
- Enough income to ensure the loan repayments will be affordable
- To not have recently increased your borrowing
If you have a lot of unsecured debts, of if you’re using a high ratio of all the credit already available to you, you will likely be rejected. Likewise, if you have issues with your credit file such as CCJS, defaults or a discharge from bankruptcy or an IVA you will also fail to pass the screening process.
Applying for a Loan
Before applying it’s a good idea to look at Zopa’s market places and see what sorts of rates are available for loans of a similar size and length to the one you’re hoping to get. As rates are decided by the lenders offering the money they are constantly changing, but Zopa will always match you to the lenders offering the lowest rates. This encourages lenders to be as competitive as possible. (You can check what rates are available using Zopa’s loan calculator.)
When you start the application process Zopa will conduct what is known as a ‘quotation search’. This does not leave a ‘footprint’ on your credit file and is only visible to Zopa and the credit bureau who conduct it. On the basis of this quotation search Zopa will place you into one their three markets.
Those with the best scores will go into the A* market. Below that there’s the A market and finally the B market. (Bear in mind that borrowers in the B market still have a considerably better credit score than the majority of the general public.)
The rate you get will depend on which market you’re placed in (assuming you are able to borrow), with A* rates generally being closer to the 5% mark and B generally closer to 7% or 8%.
Once you’ve been told which market you would be placed in you can decide whether or not you want to make a full application. It is only at this point the you will be put through a full credit search.
Once you’ve applied, the Zopa team will take 24 hours to look over your credentials. Keep your phone on you and check your emails as they may need to contact you to ask for more information.
Once a decision has been reached, you’ll be informed by post. If the loan is approved, it’ll be transferred to you within 3 days, however, you can opt to have it fast tracked on the same day of next morning for a fee of £57.50.
If you do secure a loan you will be charged a borrowing fee but this in included in the APR quoted to you, and so is covered in your repayments.
If you change your mind you can cancel the loan before it is paid out. Once it has been sent out, if you wish to cancel the loan, you have 14 days to cancel the loan, give back the money, plus the interest that has accrued (this is calculated daily). You do not have to pay the borrowers fee. If you do cancel but fail to pay back the loan during these 14 days, the loan agreement stands.
How Flexible Are Zopa Loans?
Who can choose your own monthly repayment date so as to suit your financial situation and, unlike many other loan providers, Zopa do not prohibit you from finishing your repayments before the term. This means, if you are borrowing an amount you can easily afford, you can save even more by cutting the loan short and avoiding months or even years worth of interest charges. There’s no fee for doing this and you can make a one off lump sum payment whenever you like, just so long as you don’t have another payment still in processing.
Though the biggest loan you can acquire is £15,000, you are able to take out multiple loans on different terms, provided that you don’t exceed a total of £15,000.
What I Default On A Loan?
If you do find yourself struggling to make repayments on time you should contact Zopa straightaway to discuss your options. If you default, your debts will be handed over to a separate collections agency.
This agency will charge you a fee of 22.5% of the overdue amounts it has had to collect. This goes up to 40% when the agency has to use a field agent. You will also have to pay interest on the overdue sum.
]]>Though all lenders have their own rules, regulations and procedures, the basic concept is always essentially the same: to act as an intermediary between individuals who want to borrow and those happy to lend their money in exchange for a return.
How Is Peer to Peer Lending Different to Traditional Banking?
Of course, the above description of peer to peer lending could also be used to describe the function of a traditional bank, whereby savers place their money in the coffers of the institution who then invest it and share out the returns amongst their customers in the form of interest.
The key difference between peer to peer lending and regular banking is that, with a peer to lender, the money being raised and lent out is not the responsibility of the company arranging the loan. They take a fee for making the arrangement, but do not actually take charge of the money in the same way that a bank does.
This means that they do not have to guarantee deposits for investors and savers and, by the same token, they do not need to worry about the possibility that those receiving the funds might default on their repayments. As they are in a less risky position and have lower operating costs than a bank, they are generally able to offer considerably better returns. For example, Zopa currently offer savers 5.1% or higher whilst most high street banks deem 2% or lower to be competitive.
These higher returns do not come at the expense of borrowers however. Indeed, they also benefit from cheaper rates than are easily available elsewhere. Though the difference is not quite so marked, a loan from a peer to peer lender will generally be cheaper to repay than an equivalent from a bank.
What Are The Risks?
As stated above, the main reason peer to peer lenders are able to offer such good rates to borrowers and savers alike is that they do not offer the same assurances as banks. Such companies are not backed by the Financial Services Compensation Scheme which can help those who lose money to banks that fail.
That said, peer to peer lending is far from an unregulated free for all. Indeed, peer to peer lending services have such stringent controls over how savers’ money is lent out that the biggest names in the field actually have a lower default rate (around 0.5%) than the major banks, with between 75-90% of loan applications turned down on the basis of credit checks and affordability tests.
Moreover, lenders have various other ways of minimising the risk posed to borrowers. For example, they may ensure that your money is split between a high number of lenders (for Zopa it’s at least 50, and no one borrower ever has more than £10 of any single lender’s money) as a provision against any one of them failing to pay back the loan.
In addition, unlike with a bank where savers have no say on how their money is invested, with many peer to peer lenders you are able to choose exactly what sort of borrowers you are happy to give money to according the category of risk they present according to the lender’s assessment. This gives you the option to diversify your investment by spreading your money across different ‘markets’ or risk categories, just as you might with a portfolio of stocks and shares.
Others, such as RateSetter, don’t offer such control but instead allow lenders to make a small contribution to their ‘provision fund’ which is kept in reserve to compensate savers should their money be lost. Though this isn’t legally guaranteed, it has ensured that to date all savers have got back the money have lent, and the interest owed them, in full.
It is worth noting that when your money is waiting to find a lender it will usually be held in a ring-fenced account with a bank and will therefore have protection from FSCS for that time, should the company go under. Furthermore, the big names of the industry have formed the peer-to-peer finance association, which sets out a code of conduct lenders should follow with regards to recovering saver’s money should something go wrong.
Whilst the measures the big peer to peer lenders use to manage risk appear to be highly effective, it’s important to remember that lending still entails some level of risk. As such it would be foolhardy place all you eggs in one basket, and you’d be well advised to use peer to peer lending in conjunction with other methods of saving where returns are absolutely guaranteed.
Accessibility
Whilst the rates on offer are better than those to be had from the average savings account, in some ways the comparison is a little unfair. Whilst the majority of savings accounts allow you to take your money out without any sort of notice period, getting your money out an account with a peer to peer lender can be slightly more convoluted.
In most cases you will choose how long you want your money (or a particular portion) to be locked away for by deciding how long term a loan you’re willing to back. As with a product such as a high interest bond, the longer you’re willing to leave your money in the hands of others the better the rate you’ll be offered.
If you want to access your cash before it’s due to be repaid you can, depending on the service, sell off the debt to somebody else happy to lend on the same terms as you had been. However, there’s usually a charge in the region of around 1% of the sale for this and there may be other restrictions.
That said, Funding Circle (who allocate saver’s money to small businesses) claim that on average a buyer is found for an up for sale loan within half an hour and that funds from sale are usually released within two days.
]]>According to the Guardian, it takes 37 months on average to save a 10% deposit on the average UK property. If that sounds like a frighteningly long time already, remember that the best deals you might find when comparing mortgages are currently only available to those with 30% or even 40% to put down.
And also keep in mind that you have to keep some money behind to cover the cost to move house which is something that many people often overlook until it is too late.
The good news is there are plenty of things you can do to avoid living with your parents beyond the time you’re ready to move on. There’s lots of research you’ll need to do which you save, but whether you decide to go for a fixed rate mortgage, or a tracker, here are our tips for getting your deposit ready as quickly as possible.
Team up
Even if you’re single, buying your first property with a sibling or trusted friend could help you onto the ladder much more quickly. For joint buyers, the average age for buying their first property is 31, whereas for those going it alone it’s 40. Not got anyone to go in with? You could buy a house with help from the Housing Association. This lets you buy a proportion of a house, with a lower deposit and more affordable monthly repayments. To find out more, visit the Direct Gov website.
Save little and often
Start by setting up a standing order into a high-interest savings account. Even if you can only commit to a tiny amount each month, every little helps. Then find ways to squirrel extra bits of money away. Ditching the morning coffee can save over £300 per year if you were spending £1.50 a day. Making your own packed lunch can save £5 per day – the better part of a thousand pounds a year. And that’s just the beginning. Try seeing how much you can save by walking or cycling to work, or watch DVDs at home instead of going to the cinema. Saving might take a little effort, but it will be well worth it.
Boost your income
If you’re saving every penny and it’s still not enough, think about ways you could boost your income. If overtime at work is not an option, what about a second job for weekends or evenings? Remember, short term pain will equal long term gain. There are things you could do that aren’t even that taxing – for example, there’s a wealth of direct selling opportunities available to do from home.
Make the most of your nest egg
Finally, when you’ve built up a reasonable pot of money, finding the best place to keep it is key. Putting your nest egg in an ISA can be a great idea – they’re tax free, low risk and offer the best interest rates. Alternatively, there are even savings accounts aimed at first time buyers which offer a cash-back reward if you get your mortgage from the same provider – though they may not offer the best interest rates.
Your home may be repossessed if you do not keep up repayments on your mortgage
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]]>Here’s a look at a few ways you can go about getting rid of your unused stuff;
Make Use of the Internet
So, you many not find the idea of spending your weekend attempting to flog your unwanted wares to uninterested passersby at a car boot sale too appealing, but thanks to the rise of free-ads sites such as Preloved, Gumtree et al, it’s easy enough to find a buyer for almost anything without having to venture from the comfort of your home.
Likewise, online auction sites such as e-Bay offer a great way of tapping into a global market. Given the huge number of people bidding on such sites, you have a great chance of finding somebody in dire need of the items you simply don’t have a use for. Just don’t forget to calculate the cost of posting the items to your buyer when weighing up your price.
Hit the Highstreet
If you’re a technophobe, or if you simply prefer to do business face to face, you can take your used items to the highstreet. Specialist second hand retailers are always looking for new stock, from electricals to books and CDs, and will be happy to take them off your hands.
However, it’s not just dedicated second hand stores that you can sell to. Many big highstreet names will also buy used goods. For example, if you’re in possession of a stack of video games you’re not playing anymore, you may be able to trade them for either store credit or cash with your nearest dealer.
(Bear in mind that institutions that also act as pawnbrokers often offer relatively low prices when offering to buy second hand goods and, assuming that you want cash rather than credit, you’ll often be better off finding an alternate buyer.)
Recycle Your Phone
Flogging your unwanted phone can be a great way of getting you hands on some cash. As well as selling the gadget on, you can also benefit from passing it to a company who specialise in recycling mobile phones. Modern handsets are full of valuable components that can be reused. Companies such as Top Dollar Mobile have a freepost system in place, so you don’t even need to factor in the cost of sending it off.
As well as lining your pockets, you’ll also be doing the planet a favour as you’ll be saving precious resources from landfills- a win win situation.
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Child Trust Funds
If you had a child born between 1st September 2002 and 2 January 2011 then you benefitted from the government funded Child Trust Fund which gave every child a £250 voucher to start them off. These funds were unfortunately stopped by the Coalition Government in 2011 although those with existing trust funds can still pay into them. Children’s ISAs were launched in the same year and although the government do not contribute anything towards them, they were set up with the same principle as the CTF, to encourage families to save for their children’s financial future.
A Junior ISA (JISA) works in much the same way as an adults; you can save a certain amount each year tax free, which means that the interest you accumulate on your savings will be yours to keep, none of it will go to the taxman.
When the Children’s ISA was first rolled out in 2011 the maximum amount you could put in for them, tax-free, was £3,600 and this ISA allowance will most likely rise each year in line with inflation. What this means is that you can top up their ISAs each year by the maximum amount. You don’t have to provide a lump sum to do this, you or anyone else such as a family member or friend, can make regular or one-off payments throughout the year.
What Happens to Child Trust Funds?
No new funds can be opened but existing CTFs can still receive tax-free savings. The amount you can put into a CTF is the same as an ISA but unfortunately interest rates for funds are generally lower and at this moment in time it is not possible to transfer a CTF into a JISA or open a separate ISA for the same child, although the government will consider the possibility of tying CTFs more closely in with JISAs.
Junior Stocks and Shares ISA
This is where your investment is tied into the stock market with the level of risk dictated by you. Many Junior ISA Providers offer varying levels of risk although you need to remember that even the lowest risk accounts can go down and the child may end up getting less back than was originally saved.
The good thing however is that you can mix and match between investment and savings, putting less in one and more in another depending on how well they are doing. So long as you don’t go over the yearly amount, this could be a good way of getting the money to work harder, especially in the long-run where traditionally investments tend to perform better than savings.
What are the Pros and Cons of a JISA?
When you compare junior isa accounts you will realise that as with any savings accounts there are always strengths and weaknesses so it’s only fair that we list the main ones:
Cons
- No flexibility. There can be no early withdrawals (apart from death or critical illness) so that money stays where it is until your child is 18. If you think your child might need it earlier then you could be better off with a more flexible savings account
- A JISA belongs to that child and as soon as they reach 18 the money is accessible and can only be withdrawn by them – not by you
Pros
- Anyone can pay into the account which makes it ideal for grandparents and other relations
- You can make regular payments or one-off deposits as there is no minimum payment, so birthday money and pocket money can all be saved in this way
- There is no minimum start-up, accounts can be opened from as little as £10
- Interest is not taxed so whatever amount has been saved plus interest accumulated will go directly to the child no matter how much it is. So even if you’ve managed to save £80,000 over the years, so long as you kept within the yearly limit that amount will not be subject to income tax or capital gains tax
Whatever you decide to do, saving up for your children’s future is now considered a necessity if you want to give them a financial advantage and those savings do go down better when you know that the taxman can’t touch them!
Resources: For the official Junior ISA regulations please visit the UK’s Direct Gov website here.
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]]>Education is now key
A recent study from a chief financial institution has found younger people to be less money-orientated than the older generation. It also highlighted the fact that they tend to save for university now rather than for a car or home.
Interestingly, the study uncovered that more than a third of people over the age of 45 saved for a car when they were younger, compared with just 15% of young adults today.
And while it might not have made it onto the radar of their parents when they were younger, it seems that the new generation of savers are now looking to their future. Some 29% of younger people today are saving for university compared with just 6% of those over 45 who claim to have put money aside for their education.
But we could argue that these differences are largely down to the fact that people who went to university some 25 years ago would have had access to more government grants. This coupled with the fact that today, it will cost on average, £20,000 for somebody to undertake a three-year degree (that’s before we begin to consider the cost of living) In our opinion, this goes some way to explaining the findings.
But are younger people pre-empting the worst?
Research undertaken by the Institute for Public Research (IPPR) found that just a very small percentage of young people earning less than £21,000 have considered putting money aside in case of redundancy.
Participants of this study were asked whether they felt that their savings would see them through if they were to lose their job. Tellingly, more than a quarter (25%) said that they could live for more than a month, but no longer than three months. Perhaps more worryingly, 17% claimed they would only be able to survive for a matter of weeks, begging the question: should the government now be introducing measures to help younger people build up their assets?
What could be done?
While it would be easy to suggest that the new generation needs to save more, there is an argument to suggest that their options need to be made clearer. There are a number of fantastic products out there that are designed to help younger people save, but they need to be made aware of these.
From instant access savings accounts that offer a healthy rate of return, to ISAs from the likes of Santander and other leading organisations – there are financial products out there suited to this generation. The question is though, should they be switching bank accounts to something that would help them to save?
As a young person, if you’re unsure of your options, we suggest you speak with an experienced financial advisor who will discuss your options with you.
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