Pensioners Broke the Website
Today is the launch of the NS&I Pensioner Bonds and the demand has been so great for them, that pensioners broke the website for NS&I… or more accurately, the site has had a significant amount of technical problems today coping with the rush to buy pensioner bonds.
As mentioned before the rates are very good by comparison, whether you want to tie up cash in a Bond for these periods is another matter, but if you do and you are seeking very low risk (not no risk) then this can be suitable (note I did not say that it is suitable – as ever context and your circumstances are everything).
The one year bond is 2.8% and the 3 year bond is 4%. Details can be found here at NS&I.
NS&I Pensioner Bonds
Her Majesty’s Treasury announced the new rates for the NS&I Pensioner Bonds last week. These look incredibly competitive for fixed interest rate cash deposits (bonds). These will be offered in the new year at some point in January. There will be a 1 year fixed rate of 2.80% and a 3 year rate of 4.00%. There is a maximum investment of £10,000 into each. You can have both (£20,000 in total). The interest will be added at each anniversary.
The World Is Not Enough… well £20,000 isn’t
When comparing Bond rates for cash against market equivalents, they are incredibly good – but clearly restricted to a maximum holding of £20,000 per person, I expect that there will be a high demand and as a result the offer could be withdrawn fairly quickly. Blink and you may miss it.
If you would like more information about this please consider the NS&I website. Remember that this is for cash balances that you can afford to lock away for 12-36 months. If you expect to have this money longer than that, then please consider proper investment advice as despite the fact that these rates are “good by comparison” they would be an unwise use of your money as a long-term investment plan (5 years or more). Cash is for your emergency safety net and planned expenses in the 0-48 month window.
The “Pensioner Bond” is only available to those aged 65 or over… which if you are interested would enable 4 of the living 6 actors that played James Bond, 007 to apply.
Timothy Dalton (70); George Lazenby (75); Sean Connery (84), Roger Moore (87). The current James Bond Daniel Craig is 46 and his predecessor Pierce Brosnan is currently 61. The other Bond story is that the new 007 film “Spectre” is scheduled for release in November 2015.
Cash for ISA Questions
Let me be very clear – I LIKE CLIENTS TO HAVE CASH… its VITAL. The real question is “what is a sensible amount of cash to hold?” This will be different for everyone. Cash should really be available for planned expenses within the next 0 to 3 or 4 years, that way you know its there ready for your use. Thereafter, cash is vital to run any business and any personal finances. Whilst budget calculators and spreadsheets suggest nice neat twelfths, many costs are not monthly. As thoughts turn to Christmas – this is something we all know happens annually, once the presents have been unwrapped and you start looking forward to the potential of the new year, thoughts turn to summer holidays… and so on. So having cash on deposit is a very good and wise thing and don’t forget that some expenses are unplanned – such as repairs or replacements due to loss or damage.
The short answer is “maybe” – it rather depends on your circumstances and when you need the money. Sadly, despite ISA allowances never being higher, interest rates haven’t been lower in living memory. Many if not most, deposit accounts are paying less interest than the rate of inflation (1.3% according to ONS). So your pound is declining, slowly, in purchasing power. This is an unfortunate reality that we currently live with. I would also take issue with official figures about inflation which bears little resemblance to the spending patterns of various people (think of the price increases in gas, electricity and rail).
Just to be clear… what is a Cash ISA?
A Cash ISA is simply a deposit account where interest is tax-free. Interest is taxable normally and should be reported on your HMRC self-assessment tax return. The amount you can put into a Cash ISA is linked to tax year allowances and the ISA rules (all of which are within our free APP or you can look them up). These changed in July 2014, lets stay brief and current, the new allowance is £15,000 each for the current tax year. You can now hold all of the allowance as cash or as investments, or any combination between the two within an ISA (previously you could only contribute 50% of the ISA allowance towards cash). As a result of the new rules, you can have a more suitable balance between cash and investments within your ISA to suit your requirements.
Should I just pick the best rate?
A word or warning, picking a cash ISA (or any deposit account) based entirely upon the headline rate, may not be wise. Perhaps you will remember the Icelandic banking crisis in 2008, which ought to provide some cautionary tales.
It is worth the effort?
It depends on your current rate of interest within your ISA and what the alternatives are. Remember that an interest rate of 1% will be worth 0.8% to a basic rate taxpayer and 0.6% to a higher rate taxpayer. Within an ISA you get the full untaxed amount. However if the sums are small or modest, say £10,000 then shopping around for an extra 0.5% is only going to provide £50 over a year, which given that if the better new rate is with a different Bank (or Building Society) you have to go through the ususal opening an account procedures – demonstrating your identity and UK residency and so on.
If this cash is just a part of my portfolio, should it now be mixed within my investment ISA?
Maybe. If you have a modern investment ISA on a “platform” which holds lots of funds, shares etc, then the platform may well have cash deposit options too. However be warned that platforms generally charge for their adminstration based on the balance on it, so you may well (probably) get charges for cash holdings too. If its ok at your Bank/Building Society then as long as your adviser knows that you have it and therefore not “too much” in cash, that should be OK. However for long-term wealth I would encourage people to use an ISA as an investment vehicle, rather than a place to dump cash as savings. Context is everything and needs thoughtful assessment with an adviser.
So where can I find current ISA rates?
Try looking here at Moneyfacts. However, I suggest doing a proper search using their search engine or any other that is widely available. Remember fixed rates are lock-in’s. If you think rates will rise, then you may wish to question the wisdom of locking into a low rate that is fixed for ages and if you are really locking away cash for 4 years or more, then perhaps you should be thinking about investment instead.
Anything else I should know?
Well, the age old one about bias. Financial advisers and financial planners like me are in part remunerated based upon the amount of money we look after, so if you invest more, we earn more. Of course the hope and expectation is that this is a very worthwhile exercise for you – getting better returns etc (but more importantly getting your money right for you). However it needs to be clear that its not free. Of course a Cash ISA with a Bank/Building Society can appear free – there are rarely any charges, but that doesn’t make it free. This is part of the problem with the delusion that the retail banking system maintains – that banking is free. It isn’t. The bank invariably pay bonuses to their staff for new accounts opened. They lend the money back out at far higher rates of interest and make profit as a result. However that money is at risk (of not actually being repaid to the Bank) and possible Bank collapse – hence the £85,000 FSCS protection and of course there is the inflation to also consider, you may actually be losing money – as many people are if their rate of interest is less than the rate of inflation (which is the majority of current accounts and many savings accounts).
A final point – this (the above) is not advice. You should naturally always plan with your own goals and context. A Cash ISA can be a very good tool in your financial box, but it may also be a rather blunt instrument – it all rather depends on the job at hand and the degree of skill you have using it. Here is a decent little video from Nationwide which is pretty clear. I’m not promoting Nationwide and depending on when you read this the information may be out of date. However the principles are right… oh yes, Nationwide do not pay me to mention them… so no cash for promotions.
I hope this is helpful.
FSCS Compensation Scheme – TV Advert
The FSCS are about to launch a new TV advert to remind everyone that the first £85,000 of savings are protected. This is per person per Bank – however please be aware that some banks share banking licenses and as a result you are only covered per person per Banking license. There are a few obvious ones that you will know, but there are several that you might not, so do check.
The FSCS £85,000 limit applies to cash, not investments, which are protected under different rules. Anyway, here is Fearne Cotton, talking about her earlier financial life, I imagine that £85,000 of protection is probably rather small beer for her these days. So if you have an account with a large sum in it, say £500,000 you are only protected for the first £85,000. I don’t wish to be alarmist, but this is really little more than a comfort blanket. Whilst FSCS has protected some investors with large payments (I’m thinking of the Icelandic banks) in practice if one of the big four UK banks collapsed, I don’t really think it is going to be much of a guarantee.
If you would like to check banking licenses for Banks, click here. If you wish to check licenses for Building Societies please click here. Don’t forget, unless you are an existing customer, each Bank or Building Society will need to verify your identity and residency. For the record, the FSCS is funded by financial advisers and financial institutions as part of our annual fees and levies. So for those that are minded to lobby for higher levels of protection (than £85,000) be advised that ultimately it is the saver that pays.
When will the penny drop?
I regularly meet people that have bought a variety of financial products from their Bank or Building Society. For some reason, some seem to think that a Bank is particularly trustworthy and I never really understand why this is the case. I wonder if it has something to do with the appearance that other types of savings account are just “better rates” than a current account and its all free of charge. Whether it is appreciated or not; an account with a Bank is a product, which generates revenue for the seller.
The news that Santander has been fined £12.4m by the regulator doesn’t surprise many financial advisers. I have had to explain what it is that people have, invariably not what they thought. What annoys me is that this continues to go on and however much training Banks supposedly do, the problems persist. It takes the regulator considerable time to build a body of evidence to have a clear case and the fines to Banks are inconsequential.
The advantage that Banks have is their huge marketing and PR budgets, let alone high street presence. Paying very likeable celebrities or stars to appear in adverts tends to create a warm, trusting feeling towards the brand itself. The reality is that of course there is little or no real connection between the star and the business and any feelings are frankly misplaced based upon the overwhelming evidence.
Get commercially real, Banking 1-2-3
The biggest delusion is the notion of free banking. Nothing is free; it’s paid for by someone. If all Banks charged for providing proper administration of day to day cash management, and this more honest, transparent approach was continued into other elements of their business, I would be very happy. Banking is a business, an important one, as we all need it. I am not knocking the core business of banking, but why they are allowed to offer financial advice on anything other than lending and deposit taking is beyond me. This is its core business, not arranging investments that are dressed up to look like deposit accounts. If Government and Regulators are serious about addressing the savings gap, it should not use Banks and frankly should ban any advertising that contains anyone vaguely famous. The wrong financial products can do a lot of harm, we warn people about smoking or drinking, but the penny really hasn’t dropped about the risks of Bank products.
Dominic Thomas: Solomons IFA
Co-Op has lost the plot and now follows the one for Animal Farm?
A considerable proportion of investors do not want returns at any cost. This has resulted in a considerable growth in the number and range of ethical investment funds since the first (Stewardship) was offered in 1984 by Friends Provident. The year has today provided an unhelpful Orwellian twist in the tale as I read with jaw-dropping bewilderment at the poor judgement that has been on public display in the once warm and cuddly “Co-Operative”. The news re-reported within my own trade press (FT Money Marketing) cites the story broken by the Observer which makes Animal Farm an even more vibrant metaphor for the suggestion that some are more equal than others.
The report that Euan Sutherland is set to pick up a financial package of £3.66m this year with a basic salary of £1.5m will surely make blood boil as savers and investors are left wondering how on earth a co-operative could possibly end up with such a disparate share of risk and reward. Nothing good can come from the report that suggests that more than £24million will be paid to 8 (eight) Co-Op executives over the next 2 years, despite the Bank almost collapsing in spectacular style (with a £1.5bn black hole) and making thousands of redundancies.
The Co-operative online bank customers at Smile will presumably provide a quick migration to any other bank that at least isn’t attempting to claim being anything other than a Bank. Any informed customer will be rather outraged by what has been going on at the helm of what used to be an “ethical Bank”. It has been saved by private equity and the cultural shift or rather “modus operandi” has surely begun to reveal itself. To even have the nerve to have something called the “Ethical Plan” with the strap line “good things happen when we work together” one can only assume that they mean colluding with each other in the Board room rather than being “the most socially responsible business in the UK” you must be joking right?..
I found reading the Observer’s report “hugely disappointing” that yet again managers, not the owners are taking the lion share of the rewards, and so far being rewarded for failure with severance packages that could have only been dreamed up in the disconnected clubroom of arrogance and remuneration packages drawn up by “you scratch mine & I’ll scratch yours Ltd”. Yes I’m angry. Angry because Banking in Britain could be a lot better than this. Business is tarnished with understandable claims of greed and corruption. It doesn’t have to be this way, business should be leading not scoffing at the trough of self-interest.
If you are fed up with the Co-Operative, have a look at Triodos Bank, based in Bristol. This isn’t advice, merely a suggestion to have look and make up your own mind. To my mind, the grass is certainly greener… (the glass is anyhow).
When is £50 worthless?
How closely do you observe the cash you hold in your wallet or purse? The Bank of England has announced that the £50 banknote carrying the portrait of Sir John Houblon, the first Governor of the Bank of England, will be withdrawn from circulation on 30th April. From that time, only the £50 note featuring Matthew Boulton and James Watt, which was introduced in November 2011, will hold legal tender status.
Don’t confuse your Boulton with your Houblon
If you have any Houblon £50 notes can continue to use them up to and including 30 April, but technically they will not be legal tender. After 30 April, general retailers are unlikely to accept the Houblon notes as payment. However, most banks and building societies will continue to accept them for deposit to customer accounts. Agreeing to exchange the notes after 30 April is at the discretion of individual institutions. Barclays, NatWest, RBS, Ulster Bank and the Post Office have all agreed to exchange Houblon £50 notes for members of the public – up to the value of £200 – until 30 October 2014.
The Bank of England will continue to exchange Houblon £50 notes after 30 April, as it would for any other Bank of England note which no longer has legal tender status.
Dominic Thomas: Solomons IFA