Archive August 2018

Getting to Know Savings Accounts

Getting to Know Savings Accounts

A bank is a financial institution with which you can deposit and withdraw your funds as and when required. Banks in the UK offer various types of accounts to their citizens. Opening bank accounts are as easy as understanding how they work. Both just need a bit of patience and effort. UK citizens’ bank accounts can be classified into three types: current accounts, savings accounts and basic bank accounts. Here we answer a few most asked questions so you can make the most of your savings account.

 

What are Savings Accounts?

Savings accounts were made with the objective of inculcating the saving habit among the Brits. Banks made ‘saving money’ valuable in their eyes by paying interest at a certain rate on the amount a person saved. That means the more you save, the more they’ll grow. It works such that you save a part of your earnings every month. When it adds up to a sizeable amount, you can use it for purchasing the best and expensive home appliances or pay it as a deposit for your buying your own home or car.

 

Is Saving a Good Practice?

You can never save enough. And UK citizens know that. Savings are very handy if you suddenly fall sick or lose your job. If you’re planning to buy a house or car in the near future, it would do you good to start saving from now on. Home and car loans require to pay up at least a 20% deposit. You can then take the remaining 80% as a loan against your home or car respectively. You should be in touch with the rates and terms and conditions offered by banks and building societies. It’s the best way to make your savings accounts work hard for you. A high interest rate means your savings grow faster and fatter.

 

How Do I Reach My Savings Target?

Many people budget and cut down on their expenses to reach their savings target on time. These targets refer to the amount and duration of savings. If you want to save systematically, you should use a savings calculator. You just need to feed in how much you want to save each month and what the interest rate on your savings account is. It’ll give you an idea of how long it may take to reach your target. If you don’t have saving goals, you can still make more money by putting it in savings accounts offering competitive rates. The higher the rates, the quicker your savings grow so don’t forget to shop around.

 

savings accounts

Which is the Best Savings Account for me?

The term ‘best’ is subjective. A particular bank or building society may advertise a high interest rate but their terms and conditions may not suit you. There’s such a wide range of savings accounts, deciding on one may be very tough. But, if you know the basics, you can save at the right place and in the right type of savings account.

  • Cash Isas:
    On non-Isa savings accounts, you have to pay tax on income earned from savings interest at the standard rate of 20% or 40%. However, if you save in cash Isas (individual savings accounts) give you the benefit of tax-free interest. This means that you won’t have to pay tax on the interest you earn. These accounts count with a maximum limit beyond which you can’t save in this account. It’s currently been set at £20,000 for the fiscal year 2018-19. Your savings may consist of cash, stocks and shares, or their combination.

 

  • Easy-access:
    Easy access savings accounts are meant for “easy access”. You can withdraw your money quickly without any hassles. To facilitate this, you might get a plastic ATM card. You might also be able to transfer money online to another person. If you wish to keep some money to use at the time of emergency, it makes sense to invest in an easy-access account as you can get it out easily.

 

One of the pitfalls is that there’s a limit on the number of withdrawals you can make each year without losing interest. You might get the bonus interest rate for an introductory period of 12 months, after which your interest rate may fall drastically.

 

  • Notice:
    A notice savings account is exactly the opposite of an easy-access account. Here, you don’t have the freedom to take out your money as and when you want. You’ll have to give a 30-day, 60-day or 90-day notice to your bank before withdrawing your money. Failing to do so is likely to end in loss of interest. So it’s wise not to keep emergency money in this account. Notice savings accounts usually don’t offer the highest interest rates, so you should look for another deal if you want instant access and a high interest income.

 

  • Regular:
    If you open a regular savings account, you’ll have to save some money every month without fail. So there might be problems if you blew all your salary and couldn’t save a certain amount of money to put into your account. This account actually leads to disciplined savings. How many times you can withdraw in a year is fixed. So if you’ve already exceeded your limit, your money may get blocked even if you need it urgently. There are also restrictions if you want to save extra cash. The interest rates may be fixed or variable.

 

  • Fixed-rate:
    In case you came into a large amount of money as an inheritance or sale proceeds, you can choose to save it in fixed-rate bonds. Fixed-rate bonds are savings accounts that allow you to save your money for a fixed duration (from two to five years or more) at a fixed and higher interest rate than easy-access, notice and regular savings accounts. The longer the duration, the higher the interest rate you’ll get. However, if you want to take it out before the end of your term, you might have to pay a heavy penalty. If you’re a beginner to the saving world, you might not have so much money to save in fixed-rate accounts.

 

Do I have to pay tax on savings?

If you save in cash Isas, you don’t have to pay any tax on interest. But, with a non-Isas, you can take advantage of a “personal savings allowance”. For a taxpayer in the 20% tax bracket, interest upto £1,000 is tax-free, whereas, for 40% tax bracket, interest upto £500 is tax-free.

 

When is Interest on Savings Accounts Credited?

You can choose to receive interest either in a lump sum at the end of the year or in part every month. If you are not dependent on interest income for a living, it’s best to go for annual interest payment.

 

Read more:
Credit Cards- How Do They Work & What Are Its Types

Credit Cards- How Do They Work & What Are Its Types

Credit Cards- How Do They Work & What Are Its Types

What are Credit Cards?

A credit card is a small plastic card that you can use to purchase goods or services on credit. It’s just like a debit card, but the money isn’t debited from your current account. Instead, it’s like a loan that you borrow from the card provider. A card provider can be a bank or building society. Credit cards are a lifeline when you have no ready cash. You can use these cards for shopping, earning cash back and rewards on your purchases, and reducing the cost of expensive debt by getting a low interest rate.

 

How Do Credit Cards Work?

If you want a credit card, you should apply with a card issuer like a bank or building society. Your credit score plays an important role here, just like in the case of loans. Before approving your application for a credit card, the issuer will generally look at your credit history. If you didn’t manage credit responsibly or never took credit in the past, you’re likely to have a low credit score. Due to any of these reasons, a lender may turn down your application. Or the lender might consider you and offer a less attractive deal.

If you have a good score, the issuer will give you a credit limit. This is the maximum amount you can spend with that card. For example, if your credit limit per month is £10,000, you can pay with your credit card till your payments total £10,000. The card company will also send you regular updates like your Credit Card Statement that has details of every transaction done using the card. It also contains the minimum amount you need to pay (2% to 5% of the amount you owe) and the due date for such payment.

 

Can I get Credit Cards with a Poor Credit History?

Generally speaking, any lender will carry out a credit check to see whether you’ll be able to pay back the credit. If you have a less-than-perfect credit score, it can make things difficult and you may not get the most competitive rates. Now, it so happens that not every successful applicant gets the advertised rates. The interest rate the card company advertises is the ‘Representative Annual Percentage Rate’ (APR). This rate is offered to just 51% of all successful applicants. So, if your application is in the remaining 49% and to top it off you have a bad credit score, you may not get a desirable rate.

However, banks and card providers don’t want to lose customers with a bad credit score. So they offer so-called credit builder cards to give them an opportunity to build a good credit rating. Be aware that these cards may come at a high rate of interest.

credit-cards

What types of Credit Cards are available?

There are a lot many credit cards available to people. But every card may not be best for every individual. Choose the right type based on why you want the card, your spending habits and credit history.

  • Cash back and Rewards Cards:

With a cash back credit card, the more you spend using your credit card the more you earn. Sounds unbelievable? Yet it’s true. The standard rate typically lies between 0.25% and 2%, though some card issuers may also offer an introductory rate of upto 5%. The amount of cash back is often capped during this period.

Reward credit cards, in place of cash back, give points that you can redeem for your purchases or convert into reward vouchers with retailers. If you are confident you’ll be able to pay off your balance in full each month, this card is the right choice as they offer air miles, store credit and a lot more.

 

  • Interest-free Cards:

These credit cards are ‘interest-free’, that is they charge no interest on purchases for a limited time, often upto 27 months. If you’re planning to buy something costly like home appliances or make many small purchases, this card is most useful. However, with interest-free cards, you have to exercise self-discipline and put aside the borrowed amount to pay at the end of the 0% period. If you fail to pay in full, you may have to pay the reasonably high headline interest rate.

 

  • Cards for Bad Credit:

It’s okay if you don’t have a very good credit score. You can still get a credit card designed for people who are trying to rebuild or build (having never taken credit) their credit history. They start off with a very low credit limit (£150-£200) but the limit increases if you pay it back on time and show good credit behaviour. These credit cards often have a very high APR- from 25% up to 60%.

 

  • 0% Balance Transfer Card:

A 0% balance transfer card allows you to transfer a debt from an existing to your new credit card. You can then pay it off interest-free. You may be charged a fee on your balance transfer deal- typically 3% but some card providers charge 5%. The moment your 0% deal comes to an end, you’ll be charged interest at the card’s standard rate. So you should either repay the balance before this conversion or switch to another balance transfer deal.

 

  • Overseas Spending Cards:

These cards are the right choice for people who travel a lot overseas, either for work or just to enjoy a holiday. Often, other types of credit cards are charged high fees if used abroad. But, with a card specially designed for use in foreign countries, you pay no or low fees.

 

How useful are Credit Cards for Long-term Borrowing?

Sometimes we may have to swipe our cards for large sums of money. And we may not always have that much money in our current account. A credit card helps by allowing cardholders to use its credit facility to either pay for goods like furniture or services like a beauty salon bill. If you clear your debt in full each month, you don’t pay any interest. If you’re unable to, you can spread your payments over the coming months but at an 18% APR with most card providers. Therefore, you should pay off your credit card loan as early as possible. It’s great as a short-term fix but is costly if used for long-term borrowing.

 

Are there any Penalty Charges?

If you take out a loan and don’t pay on time, you’re liable to pay extra charges to your lender. Credit card providers follow the same principle. If you are forgetful of your payments and miss your payment deadline, you will have to pay penalty charges. This usually makes a bad impression on your credit file. You also have to pay penalty if you exceed your monthly credit limit so be mindful of how much you’re spending through your credit card.

 

Read more:
Mortgage- Types and FAQs

Mortgage- Types and FAQs

Mortgage- Types and FAQs

Mortgage- Types and FAQs

If you’re reading this, it’s likely that you’re a first-time home buyer. The decision of buying a house is not a simple one. A house is a long-term investment and bought only after minutely considering your financial circumstances. As you may be a beginner in the process of buying your own home in the UK, it’s likely that the time and effort involved will overwhelm you. Many people in the UK find that they need to take out a mortgage to finance their new home. This is a common thing. Before signing a deal, however, it is advisable to use a mortgage calculator to check how much you can afford to buy.

 

Mortgage- What does this mean?

A mortgage is a loan that you take out from a lender like a bank or finance company for your new home. It’s given for a particular number of years, typically ranging from 25 to 30 years. Shorter loan periods are also available if you don’t wish to stretch repayments over a long number of years. Remember that you can use funds from a home loan only for the purchase of a property.

Another thing to remember is that lenders only give out mortgage loans against the property you want to buy. It’s a secured loan that means the lender takes a low level of risk when they approve your mortgage application. If you fail to manage the monthly repayments, you might have to sell off your house to repay the loan. Thus, you should be very clear about whether you’ll be able to afford the repayments during the entire term of the loan as mortgage can prove risky.

 

Types of Mortgages

Mortgages don’t have a standard rate or capital amount. As different people have different circumstances, the money they want to borrow and the interest rate they can afford vary. Lenders understand this and offer customized deals to every applicant. That means, another home loan applicant you know may have a better deal as compared to you.

  • Interest-only:

In interest-only home loans, you pay just the interest every month. You don’t repay the capital during the term but at the end of the term. Those who want to reduce their monthly expenses can go for this. Yet, you need to have confidence that by the end of 30 years, you’ll have saved enough to repay the capital in lump sum. It may also be the case that you’re sure of a huge inheritance that will help pay off the loan. Lenders usually insist on knowing how you plan to repay the loan.

  • Fixed-rate:

In fixed-rate home loans, the interest rate you and the lender agreed to at the outset remains the same. That is, no matter whether mortgage interest rates go up or down, it has no effect on your deal. You’ll pay the same interest rate for a fixed number of years. The first-time home buyers who want to stick to their monthly budget and want to be sure of their monthly repayments should go for this type of mortgage. Suppose you chose a 4% interest rate, you’ll pay 4% even if the rate goes up to 6% or comes down to 2%.

  • 95% :

How much you want to borrow depends on how much deposit you pay from your own pocket. The less money you’re willing to put up as deposit, the more you’ll have to borrow from a lender. A 95% mortgage deal is for buyers who have a miniscule amount of deposit, that is just 5% of the total value of the property. Suppose a property’s value at £400,000 and you have only £20,000 as savings, this means that you’ll have to look for a lender offering a 95% deal. Such deals are hard to find as you must have at least have a deposit of 20%.

mortgage

  • Flexible:

A flexible deal gives buyers the much sought after flexibility in repayments. When you have more money in your bank account, you can repay a higher amount than what you owe. In the same way, when you’re short on money, you can take a repayment holiday for a few months. Like a thing too good to be true, this deal also comes at a higher interest rate than others.

  • Buy to let:

Assume the house you’re now living in is already yours. You have some extra money and you want to invest in real estate. But this amount does not cover the entire price of the house. The second house you’ll lease out to tenants and earn rental income from it every month. In such a case, the best deal for you is a buy to let mortgage. It’s seen as a business transaction as you’re buying property for earning income thereon. Hence, you should prepare yourself for higher rates and fees than a residential mortgage. The LTV (Loan to Value) which determines how much percentage of the value of the property you can borrow is also high, typically 85%. This means you need to have a deposit of 15%.

  • Tracker:

A tracker deal is in sync with the Bank of England rates. As the Bank’s base rate goes up, your lender will also raise your interest rate after adding a few percent to it. Likewise, if the Bank’s base rate fall, your lender will also cut down on your interest rate. Usually, the rate you pay will be one or two percent above or below the base rate. Lenders also set a minimum rate below which their rate will never fall. So there can never be a situation in which you pay 0% interest.

  • Discount rate:

Whenever you sign a home loan deal, you’ll probably have a fixed interest rate for the first 5 years. Then once this period is over, you’ll shift to the lender’s SVR (Standard Variable Rate) where rates change all the time. With a discounted rate mortgage, you’ll get a discount over and above the SVR and this lasts for 2 to 5 years.

  • Capped rate:

With a capped rate mortgage, there will be a cap on how far the interest rates can rise. This is like a precaution in times when the interest rates go on rising. Borrowers get peace of mind as they know that their payments won’t exceed a certain limit.

  • Cashback:

You get a lump sum when your mortgage begins. This lump sum may be a fixed amount offered by the lender or a percentage of your loan. It’s a marketing incentive and is seen infrequently nowadays. It’s helpful to home buyers who want to renovate their bedroom or kitchen.

  • Offset:

An offset mortgage is also called current account mortgage. It uses the money you have in your savings account to help you pay less monthly mortgage payments. Suppose, you took out a home loan for £ 150,000 and your savings account has a total of £50,000, then your interest will be calculated on the net balance which is the difference between the two. The great thing about this is that you have instant access to savings, at the same time saving on your monthly mortgage payments. Essentially, savings ‘offset’ your mortgage. This type is beneficial anytime, not just when interest rates are low.

 

Mortgage FAQs

  1. I’m 28, have my own business and not yet married. Can I get a mortgage?
    It’s commonly believed that you need to be working in an office in order to successfully get a home loan approval. This is false. Even a self-employed person can get a mortgage provided you show your three years’ financial statements. If you have just two years’ statements, your chances are still 80-90%. The criteria a lender looks for is your ability to repay. If your net profit allows you to afford a home loan, that’s great. The deposit remains the same for a bachelor or family person.
  2. My friend and I are interested in the same property. Can we pool our funds together and buy it?
    Yes, if you both have good credit scores and enough deposit and income, there should be no problem. However, complications may arise as to how much ownership each person has in the property and if either of you can’t afford to pay for the property. In a joint tenancy, your share passes to your friend when you die. You should seek professional advice from an independent solicitor.
  3. HELP! I earn around £25,000 a year. Will I be eligible for a mortgage?
    Yes. Your expenses and affordability are taken into consideration during approval. You should get in touch with a mortgage broker who will work out your finances and suggest the best deal.
  4. I’m currently unemployed due to a health condition. My only income is from my health insurance. Can I get a mortgage?
    Unfortunately, no. Permanent Health Insurance (PHI) is not considered as a source of income in a mortgage application.

 

Read more:
What Is a Remortgage?

What Is a Remortgage

What Is a Remortgage

Remortgage- What It Is & Why You Should Go for It

At the time of looking for property on sale, most people also look for mortgage deals. The Web can be really useful in providing all information about the various lenders, their principal amount and interest rates at the click of a button. They look at what lenders are offering and compare deals suitable for them with a mortgage calculator. Then they buy the house and start making monthly mortgage payments. However, after sometime, borrowers may feel the need for a remortgaging.

 

What Is the Meaning of Remortgage?

After a few years of making fixed mortgage payments, many people think of asking their lender for a new deal in place of the existing one. They may even think of changing to a lender charging a lower interest rate. A mortgage runs for many years and it is not necessary that you should stick to paying a higher interest for years. It makes sense to change either your existing deal or your provider for a new one. Many people don’t know that remortgaging is actually done by clever people in order to save money.

remortgage

What is Remortgaging?

Remortgaging is basically changing your original mortgage deal or your lender. People always want to take advantage of new offers. A remortgage is an excellent way to do that. It actually increases your savings in the long run. You don’t move house when you are remortgaging. You simply take a new mortgage on the same house you’re living in. There are a number of reasons why homeowners would shift:

 

  • To pay lesser interest from their pocket
  • To protect themselves from a future increase in rates
  • Make repayments that don’t change
  • Raise funds and renovate their home
  • To convert equity in their property to a cash lump sum
  • To consolidate debts

 

Equity is the difference between the market value of your home and outstanding loan payments thereon. Loan to Value (LTV) is the amount of home loan you’ve taken, calculated as a percentage. The greater the equity you have and lower the Loan to Value (LTV), the cheaper interest rates you can get.

 

Is it Smart to Remortgage?

Remortgage is a smart way to save thousands of pounds and put it to better use like taking your family on an overseas trip. It’s very common these days to change your existing package for a better one, instead of sticking to the same loan. Gone are the days of people sticking to one lender as if they were loyal to them. Now, you just remortgage. You shop around for the best deals and probably also take advice from a qualified financial expert. This way, you know what you’re getting into and won’t regret your decision later. Some common money-saving reasons  are:

Interest rates matter!

Usually, when you take out a new mortgage, lenders will attract you with introductory deals. These deals offer a low and fixed interest rate or low tracker interest rate for the first two to five years. A tracker rate moves along with the rise and fall in the Bank of England base rate. When your introductory deal is over, you’ll be moved to the lender’s SRV (Standard Variable Rate) which will usually be higher than most other mortgage deals. Then what you do is look at the market to see whether there’s any deal that can save your money. However, you should bear in mind that if only a small mortgage amount is outstanding, it’s better to pay it off than making a switch.

Being flexible

There’s nothing like flexibility. Remortgage is an excellent option if you want to overpay. For example, you find that your salary has increased and you can afford to pay off the mortgage quicker. Or maybe you wish to switch to a current account offset mortgage because you want to use your savings to reduce the amount of interest. A flexible deal allows you to achieve this.

Consolidating debt

You can also use a remortgage to consolidate debt. Consolidation means borrowing a new loan and using to pay off all the old loans. This is a good option especially if you have many loans that you can’t keep track of. You might end up paying more overall even though mortgage interest rates are lower than those of personal loans or credit cards. It would do good to make a list of your loans in order of priority and start paying them off.

 

Read more:
What Are Small Business Loans?

Small Business Loans

Small Business Loans

Personal Loans to take care of your Business related needs.

Are you a business owner? Are you trying to get your start-up business off the ground? If your answer is a “Yes”, you must spend a minute reading the following.

You could get a business loan for as little as £500 to as high as £150,000 or more. It could be from the government or private loan providers. The choice is yours!

 

What is a Business Loan? 

It is a loan for business purposes. The type of business loan you take out will depend on your circumstances.

It could be a start-up loan, a short-term loan or a long-term one.

Many businesses often feel the necessity of a cash boost. Your business could need some extra cash to run the existing operations better. The company could also need some money to fund your expansion plans. Or to cover your working capital due to unexpected bills.

Also, if you have a business start-up that you are trying to get off the ground, you might need some extra funds. It could be for short-term or long-term basis.

Trying to get small business loans from traditional or high street banks could be a tricky task. Their strict lending criteria may not be too helpful. That’s why many customers look for alternative sources to get unsecured loans.

While looking for small loans, one faces an obvious question. Secured or an unsecured loan, which one is better for me?

Small Business Loans

Let’s try and answer this question!

Secured loans are often large-amount loans. They get secured against any machinery, property, etc.

Unsecured small business loans are not secured against any valuable. But, a guarantor could be necessary. In most cases, the lenders ask for a director’s guarantee.

Your decision to go for a secured or an unsecured loan will depend on the amount you are trying to borrow.

 

What are the essential aspects that you should keep in mind? 

1. Interest rates. It could be a fixed or a variable interest rate. Most small business loans come with fixed interest rates.

2. Duration. The choice between going for a short-term or a long-term loan could depend on two factors. The reason you want the credit for and how fast you can pay it off.

3. Loan Providers. You could have three choices. A government-backed loan, high-street-traditional banks or private loan providers.

 

Most loan providers will have some basic criteria. You should be at least 18 years old, a UK resident and not a part of any debt management plan.

Government-backed start-up loans could offer as little as £500 and up to £25,000. The repayment period could be up to 5 years. You get a fixed interest rate of approximately 6% per year.

One gets more flexibility from private loan providers. It could mean quick, online applications with fewer formalities. They could offer loans for a period of up to 10 years or more. They could also provide for a short duration of 6 months. The amount could vary depending on your need.

Want to find out which one out of various small business loans will suit your business? Talk to your financial adviser now.

 

Also Know:
What is an IVA?

IVA

IVA

IVA – Individual Voluntary Arrangement.

A Debt Solution to help you pay all or a part of your debts over a pre-decided period.

Are you struggling to pay off all your debts? Well, you can explore the option of going for an IVA.

 

What is an IVA?

An individual voluntary arrangement, a legally binding one. It’s a formal agreement between you and your creditors. This arrangement enables you to pay off all or a part of your debts in an affordable manner.

In simple terms, through this procedure, you make an offer to your creditors based on how much you can afford.

One can only get an IVA with the help of an insolvency practitioner. It gets started if at least a 75% of your creditors agree to it, even if the remaining ones do not.

 

You get two options:

1. An opportunity to pay your debt in a lump sum, also called a lump sum IVA.

2. Or a choice to make regular payments to your insolvency practitioner. The practitioner can then divide the money between your creditors. The repayment period could be for 60 or 72 months.

 

IVA

 

How can I get an IVA?

As a first step, you contact an insolvency practitioner and share the details. These details should include your total debts, your creditors, your income, expenses, etc.

He will then contact your creditors to get an IVA started. By doing so, the practitioner stops your creditors from taking any action against you.

 

Things to keep in mind while going for an IVA:

  • This arrangement is only available in England, Wales and Northern Ireland. It is not available in Scotland.
  • It gives you more control over your assets as compared to what you get in case of filing a Bankruptcy.
  • One must find out if an IVA is right for their situation and how much it would cost. Not everyone qualifies for it.
  • Your IVA can be cancelled if you don’t keep up with all the repayments.
  • An IVA gets added to the Individual Insolvency Register. It gets removed three months after your IVA ends.
  • Customer’s credit ratings get affected for six years.
  • During an IVA, you are not allowed to take out any new debts above £500.

It’s a form of insolvency and can impact your financial situation. Before going for an IVA, you must take the impartial and professional advice to find out how it could affect you.

 

Thinking about an IVA? Contact your financial adviser, now. 

 

Also Know:
What is a County Court Judgement (CCJ)?