What next for B&B savers and borrowers?

September 30, 2008 | posted by Pam Atherton in Banking, Mortgages, Pensions, Savings | comments (0)

It is business as usual for depositors and other customers of Bradford & Bingley (B&B), who need have no concerns about the safety of their money.

That was the message from the Financial Services Compensation Scheme (FSCS) yesterday as it stepped in to help the 2.5m B&B customers  after the bank failed to meet its regulatory requirements and the FSA declared the bank in default. 

The FSCS is contributing some £14bn to enable retail deposits held in B&B, and which are covered by the compensation scheme, to be transferred to their new owner, Abbey, which in turn is owned by the Spanish bank, Banco Santander.

FSCS chief executive, Loretta Minghella, said: “This initiative means that some 2.5m people can rest assured that their money is safe and they will not lose it because of the problems at Bradford & Bingley. They can access their accounts in the normal way and it is business as usual for them.”

This effectively means that B&B depositors will have 100 per cent of their savings protected, because the FSA and FSCS have arranged for a smooth transfer of their accounts to Abbey.

Normally, when a UK authorised bank fails,  only the first £35,000 is covered by the FSCS.

So you should make sure you spread your money across different savings institutions (that are not all part of the same group) so that your money is protected.

For instance, if Banco Santander were now to fail and you had accounts with B&B, as well as with Abbey and Cahoot (all owned and authorised under the Banco Santander name), you would  only be covered for the first £35,000 of total savings held with these three brand names, not £35,000 for each.

For borrowers, although existing B&B mortgages will continue to run as they are for the time being, once a mortgage deal comes to an end, it is likely that you will be required to move elsewhere or pay the bank’s prevailing standard variable rate which will almost certainly be higher.

Those with buy-to-let mortgages may have difficulty re-mortgaging elsewhere as a large number of lenders have withdrawn from the market. For example, three lenders previously funded by the now defunct Lehmann Brothers have ceased lending.

For shareholders, the outlook is even worse. There is little prospect of them receiving anything and B&B staff with holdings  in the bank’s SAYE scheme and pension plan will be particularly hard hit.

All of which serves to prove the old maxim that you shouldn’t put all your eggs in one basket.

For more on the FSCS visit:
www.fscs.org.uk

For the top instant access savings accounts visit:
http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx
Top cash ISAs:
http://www.defaqto.com/consumer/savings-accounts/cash-isas.aspx
Top term accounts
http://www.defaqto.com/consumer/savings-accounts/term-accounts.aspx
TOp notice accounts
http://www.defaqto.com/consumer/savings-accounts/notice-savings-accounts.aspx
TOp children’s savings accounts:
http://www.defaqto.com/consumer/savings-accounts/childrens-accounts.aspx

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My cash machine nightmare

September 29, 2008 | posted by Pam Atherton in Banking, Savings | comments (0)

You think it will never happen to you, and then it does.

While withdrawing money from a cash machine a few weeks ago, a man approached me saying that it had just swallowed his card.

I told him to go away, thinking that he was going to grab the cash when it came out, but lo and behold, no cash was forthcoming and the machine refused to return my card.

Having waited a few minutes to see if machine might change its mind, I walked away thinking nothing of it.
 
On reporting the incident to my bank the next day, I was told that the card wasn’t in the machine and must have been stolen - probably by the man who had approached me and who had got my PIN by shoulder surfing when he spoke to me.

To my horror, he had swiped a cool £1,000 from my account in the space of a few hours - £600 in cash and £400 in shop purchases.

APACS, the UK payment association says that £35m was lost through cash machine fraud in 200.

Sandra Quinn of  APACS, says: “The three principal methods criminals use to steal cards and card details at cash machines are card-trapping devices, whereby the fraudster inserts a card catcher device into the card slot; skimming from the magnetic stripe at cash machines and shoulder-surfing, whereby the fraudster observes the cardholder inputting their PIN and then uses distraction techniques to steal the card.”
 
By UK fraud standards, my experience was small beer. I know people who have had their entire identity stolen and had mortgages, personal loans and credit cards taken out in their name for months before they have even become aware of it.

Trying to unravel that sort of  fraud is a nightmare and can take months, if not years, to sort out.

In my own case, I had to make numerous calls to the bank’s call centre, just to report the loss of the card. I then had to visit my branch, complete two forms (one of which I had to wait to come in the post). Having done all that, I am still awaiting a refund.

The upshot is that I won’t be withdrawing any money from street-side ATMs anymore. I’ll stick to the cash machines inside branches during banking hours.

For more on card protection and identity fraud:

http://www.defaqto.com/consumer/credit-cards/card-protection.aspx
http://www.defaqto.com/consumer/credit-cards/guide-identity-theft-insurance.aspx

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Are our savings safe?

September 19, 2008 | posted by Pam Atherton in Banking, Savings | comments (0)

The shotgun takeover of HBOS by Lloyds TSB has sent shock waves throughout the nation as everyone worries about the fate of their savings and deposits.

 With 30m customers between them, there can’t be many adults in the UK who don’t have a financial relationship with one, or both, of these institutions.

While most people have welcomed the stability (albeit probably temporary) that this decisive move has provided, the question on everyone’s lips is: “Are my savings safe?”

The Government’s role in encouraging the takeover is a positive signal that it will stand behind the new merged institution, come what may.

After all, what Government wants to see millions of customers besieging Halifax branches for the return of £260bn in retail deposits? It doesn’t bear thinking about.

That said, cash deposits are only protected up to £35,000 under the Financial Services Compensation Scheme and then only  “per authorised institution,” not “per account.”

This situation was already unsatisfactory, even before the takeover of HBOS by Lloyds TSB because it already owns a whole slew of brands which all come under  one FSA authorisation. 

These include Halifax, Birmingham Midshires, Saga, Intelligent Finance, Saga and the AA.

This means that if you have savings with any of these institutions, the maximum you could claim in the event of their demise would be £35,000 in total, not £35,000 per brand.

Elsewhere, Lloyds TSB and Cheltenham are jointly authorised, as are First Direct and HSBC, Yorkshire and Clydesdale banks, Abbey and Cahoot, Bank of Ireland and the Post Office, the Co-op and Smile.

The exceptions are Royal Bank of Scotland which is separately authorised from Nat West, and Abbey which is independent of Cater Allen, its private bank.

So not much comfort if you have large deposits with most of these banks.

Defaqto banking consultant, David Black, recommends that savers limit their deposits to around £33,000 per authorised institution 
because the FSCS will pay interest up to the date of closure.

If you want to check out the authorisation status of a financial insitution, visit:

http://www.fsa.gov.uk/register/home.do

Check out the best instant access accounts:
http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx
Best regular savings rates:
http://www.defaqto.com/consumer/savings-accounts/regular-savings-accounts.aspx

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Does your travel policy pass muster?

September 18, 2008 | posted by Pam Atherton in Insurance | comments (0)

In the wake of the XL airline debacle last week, Post Office Travel Services is trumpeting the fact that it is one of the few travel insurance providers to include Scheduled Airline Failure (SAF) as a standard feature.

SAF cover enables customers to claim irrecoverable travel and accommodation costs paid in advance if a scheduled airline goes bust. 

The Post Office policy carries SAF cover as a standard feature, providing up to £1,500 in total for each insured person named on the policy and airline ticket. Swiftcover also offers this feature as an optional extra.

But if you paid for airlines tickets or a holiday accommodation with a credit card or a VISA debit card, the card issuer should refund your losses anyway.

It is only if you paid for your airline tickets or a package holiday via  a non VISA debit card that you will be left high and dry. 

Another risk which not all travel policies will cover is that of terorism. Defaqto has analysed the annual and single travel insurance market and discovered that while most providers would probably pay medical claims resulting from terrorism, travellers could lose out in the case of baggage and personal accident claims.
 
Mike Powell, Defaqto consultant on general insurance, says: “Our research shows that of the 976 annual and single trips analysed, only 63 per cent of policies available offer some form of protection following a terrorist incident, which leaves a significant proportion of people at risk of purchasing inadequate cover.”
 
Powell continues: “Terrorism is not always a consideration that you would even think about when purchasing your travel insurance cover, but you should check with your insurer to confirm the cover, particularly if you are travelling to countries at risk of terrorism.”

Some of the big names that include this protection  are British Airways, American Express, Cosmos, Easyjet and Endsleigh.

Visit Defaqto’s unique travel insurance comparison tool:
http://www.defaqto.com/consumer/insurance/travel/compare-single-trip.aspx

For more information on the policies mentioned above, visit:
www.postoffice.co.uk/travel
http://www.britishairways.com/travel/insurance/public/en_gb
www. americanexpress.com
https://www.easyjet4insurance.com/mawl/inside/ezy/gb?restart=
 

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Protecting your income has rarely been more important

September 17, 2008 | posted by Pam Atherton in Insurance, Loans, Mortgages, Store Cards | comments (0)

As the credit crunch takes hold, 40,000 workers in the financial services industry alone are expected to lose their jobs over the next year.

Some of the 4,000 Lehman Brothers employees, who are set to lose their jobs by the end of this week,  may rue the day they failed to take out income payment protection insurance in happier times.

Not to be confused with payment protection insurance (PPI) which only protects your credit card, loan or mortgage payments for one or two years in the event of accident, sickness or unemployment, most income payment protection insurance policies(IP) will pay out around half to two thirds of your monthly income until you are able to resume work, or until retirement if you can never work agan.

This means that IP is far more expensive than PPI - not only does it pay out for longer, but some occupations are clearly more expensive to insure than others. 

Builders, scaffolders and others in physically dangerous jobs are obvious examples, but in recent months, the employees of investment banks, estate agents and housebuilders have found it hard or impossible to get cover because of the widespread expectation of imminent redundancies in these sectors. Such workers may have no choice now but to go to a specialist broker to obtain cover.

This is why it is always best to buy IP when you least need it. When the economy is heading into recession, underwriters are clearly going to be extremely wary as to whom they are willing to insure.

But you can limit the cost of IP by accepting a long deferment period - the amount of time that must elapse before you can receive a payout. If your employer’s sickness benefits will cover you for the first 3 or 6 months of long term sickness, your IP policy does not need to kick in until then.

You will have to complete a medical questionnaire and for large amounts of cover, you may have to have to undergo a medical as well. It is also essential to be absolutely honest in your responses as insurers will not honour a claim if you have witheld ‘materially relevant information’ - even where the non-disclosure does not relate to your claim.

Regrettably, some insurers  exclude back pain and stress-related illnesses, even though these are the most common causes of long term absence from work.  It is therefore essential that you take independent financial advice so that you select a policy which meets your needs.

LV= recently launched a combined mortgage and lifestyle protection policy, while LifeSearch offers a product called ‘Real Life Cover’ which combines life, critical illness and income protection.

For more on IP, read the Defaqto guide:
http://www.defaqto.com/consumer/insurance/life/income-protection.aspx
www.LV.com

www.lifesearch.co.uk

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As stocks plunge, spread betting soars

September 16, 2008 | posted by Pam Atherton in Investments | comments (0)

As stockmarkets plunged yesterday in the wake of the momentous events on Wall Street, it’s small wonder that ordinary investors are turning to spread betting in a bid to make money.

Spread betting volumes  more than doubled in the first half of 2008, compared with a year earlier, according to a survey of wealth managers by ComPeer, the industry analyst, while Cass Business School predicts that over one million Brits will have a spread betting account by 2011.

Spread betting offers investors the opportunity to make money in falling markets, particularly via ’shorting,’ whereby you buy shares in a falling market and sell them on in the hope of buying them back later at a lower price.

In brief, spread betting is a form of investment gambling on price fluctuations in a wide range of markets, including indices, individual stocks and shares, commodities and currencies.

Any profits  are tax free (just like any other form of gambling), there’s no stamp duty and no commission or brokerage fees, which may explain its extraordinary attraction to so many people.

But it’s worth setting a few rules before trading if you are new to this form of gambling. Never bet more than you can afford to lose and be prepared to take your losses on the chin.

If you want to spend more than pin money, read up on it and study the share price charts which could turn your hobby into a skill. Most spread betting companies will let you try your hand at spread betting by trading 1p a point for the first few weeks.

Experts recommend specialising in a small area of the market, such as the value of the dollar or oil, rather than trading randomly across the market.

Set yourself a limit as to how much you are prepared to put at risk in any single trade. Experts recommend never placing more than 2 per cent of your account at risk, so if you have a bank of £2,000, be prepared to lose up to £40.

You should set your stop loss accordingly so that if you’re buying the FTSE 100 at 50p, your trade is closed automatically if the index drops 80 points.

Don’t be greedy. Be prepared to cut your losses fast and take your profits early. After all, no one ever  went broke taking a profit. 

Directory of spread betting firms:
http://www.find.co.uk/investments/spread_betting&cfds/spread_betting

http://www.igindex.co.uk/?QPID=116&QPPID=2

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Mis-selling of PPI continues apace

September 15, 2008 | posted by Pam Atherton in Insurance, Loans, Mortgages, Store Cards | comments (0)

It’s a shocking fact, but payment protection insurance (PPI) continues to be mis-sold despite acres of bad publicity about this product in recent years.

PPI is a voluntary insurance which pays off credit cards, personal loans and mortgages if you are unable to work because of accident, sickness or unemployment. But it typically only covers you for one or two years and is normally only suitable for people who are employed.

The self employed, unemployed and contract workers are not usually eligible to make a claim but thousands of people have bought these policies without realising this.

In addition, a Which? survey recently found that 1.3m people had bought PPI in the mistaken belief that it was compulsory if they wanted to take out a personal loan, credit card or mortgage.

Which? estimates that £970m is being spent on PPI each year, much of it bought by default because some providers automatically include the cover in quotations.

In June this year, the Competition Commission calculated that customers were being overcharged because they are unable to shop around at the point of sale. It also found that PPI is so profitable (generating £1.5bn in excess profit) that it has been subsidising cheap personal loans.

Numerous retailers and banks, such as Land of Leather and HFC have been fined for mis-selling PPI, yet the bad publicity has not prevented people from continuing to buy inappropriate cover.

But Defaqto head of Insight, Brian Brown, warns policyholders not to cancel existing cover if you have appropriate cover in place. “Providing you definitely want the cover and have the right policy for your needs and circumstances, at a time of rising unemployment, now is just the time when you might have need of it.”

If you want long term insurance to protect your income if you are unable to work because of illness, you may wish to consider income payment protection insurance, which is more expensive but can provide cover up till retirement.

For more on income payment protection insurance read our guide

http://www.defaqto.com/consumer/insurance/life/income-protection.aspx

For more on payment protection insurance (PPI):

http://www.defaqto.com/consumer/insurance/life/income-protection.aspx

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Ethical funds hold their own in tough investment conditions

September 12, 2008 | posted by Pam Atherton in Investments | comments (2)

Investors who invest in ethical funds have seen negative performance over the last year, but 10 of them  managed to outperform the average mainstream unit trust performance.

The last 12 months have been difficult for all fund managers, but particularly so for those running  ethical money, due to the constraints as to where they can invest. Clearly, funds which are mandated to avoid oil and commodity-related companies have suffered particularly badly due to the boom in these sectors. Even the top performing ethical fund registered a negative return.

But ethical funds nowadays span various asset classes, including the bond, global equities and UK All Company sectors, so they can be benchmarked both against other ethical funds and against the sector in which they invest.

For instance, the top performing ethical fund over the 12 months to July 2008 was the Royal London Ethical bond fund, which returned -4.4 per cent, outperforming other ethical funds, but not the average performance for the UK bond sector which returned -2.8 per cent.
Elsewhere, the Aberdeen Ethical World fund returned -9.9 per cent over the last year - not a great return you might think - but it was actually better than the average global growth fund which made only -14.2 per cent. 

And the F&C Ethical 2 Income Fund also beat the average UK All company sector average of - 19.6 per cent, with a return of -17.5 per cent.

In fact, over the last 12 months, 10 ethical funds have beaten the average mainstream unit trust performance of -13.6 per cent. 

But pity the poor ethical fund manager. With the downturn in the world economy, ethical funds managers will continue to face challening investment conditions as ‘booze, bombs and ‘baccy’ stocks, which traditionally perform well during recessions, will be off limits.

Source for all data: Money Management magazine, August 2008 issue.
Returns are for one year to 23rd July 2008, bid to bid basis, income reinvested.

For more on ethical investment visit: www.eiris.org.uk

For more on unit trusts, vist the Defaqto Best Buy tables (click on  the sector links on the left hand side):
http://www.defaqto.com/consumer/investments/unit-trust-sectors.aspx
Read our guide to ethical investment:

http://www.defaqto.com/consumer/investments/ethical-investments.aspx

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Structured products not all they’re cracked up to be

September 11, 2008 | posted by Pam Atherton in Investments, Savings | comments (0)

Structured products have been heavily promoted in recent years as a way of protecting your capital against heavy stockmarket falls.

Often referred to as ‘guaranteed equity bonds’ or GEBs, structured products  claim to provide a return related to growth in the stockmarket and a guarantee against losing your original investment.

But research by the Investment Management Association shows that many of these claims should be taken with a pinch of salt because GEB providers are not required to report on stockmarket performance, making it hard to assess the accuracy of the claims they make about their products.

National Savings & Investments (NS&I), one of the few providers which does disclose such information,  has launched five GEBs  over the last two years.

The IMA compared the performance of NS&I’s five GEBs with that of a FTSE 100  index tracker,  against which the GEBs are benchmarked.

It found that if you had bought the index tracker, your return would have been around 3.5 per cent higher than the average return from NS&I’s GEBs, net of charges.

IMA chief executive, Richard Saunders, says: “While GEBs offer a guarantee against the index falling over a five year period, that is a relatively unusual event.

“The index has seen significant falls since 2000, but it is currently around 30 per cent higher than its level in 2003.  Before 2002, the last time it was down over five years was in 1978. Investors may not realise just how much return they are giving up in order to be protected against what is a rare event.”

The last few years have seen considerable volatility in the stockmarket and the FTSE 100 is currently below its level in 1998. But risk can be managed and the key to achieving this is through diversification, both over asset classes and over time.

A portfolio invested across all 30 IMA fund sectors would have produced an average return of 5.2 per cent over the last 10 years, beating inflation and the risk free return (from Government index linked bonds).

Diversification over time can be achieved by investing on a regular monthly basis which enables you to benefit from the effect of ‘pound cost averaging.’ 

The latter is the mechanisim whereby if you invest on a monthly basis, you will buy more units on the dips and fewer shares on the highs, smoothing out investment risk over the long term.

Defaqto wealth management principal, David Abbis, says:”No investor wants to receive less back than the amount invested, but few wish to pay for a guarantee. Careful planning for a medium to long term investment with regular monitoring of funds can produce a reasonable return at minimal additional cost.”

Visit the Defaqto Best Buy tables (click on any of the unit trust sectors on left hand side):
http://www.defaqto.com/consumer/investments/unit-trust-sectors.aspx

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UK based foreign currency accounts all the rage

September 10, 2008 | posted by Pam Atherton in Banking | comments (0)

With an estimated 211,000 British households owning a holiday home overseas, according to research group Mintel, it is small wonder that demand for UK-based foreign currency accounts is soaring.

The vast majority of Brits own holiday homes in France, Spain and the US, so having a euro or dollar account to pay local bills can be a godsend.

While it is perfectly possible to set up a bank account in the country where you own a holiday home, language problems and exorbitant charges forbasic banking services in some European countries can make a UK-based foreing currency account much more attractive.

Cater Allen Private Bank’s multi currency account has a minimum opening balance of £5,000 (or €10,000 or $10,000) but there is no requirement to hold other assets at the bank.

A ‘deferred debit’ Visa card  enables you to withdraw cash from overseas cashpoints at no cost.The card can also be used for overseas spending, with funds only debited from your account at the end of the month.

You can also switch between euros, dollars and sterling at no explicit cost, although the exchange rate will typically be 1 per cent less than what a wholesale foreign exchange  provider would give you.

Interest payable on balances is up to 3 per cent on balances of €500,000, but no interest is paid on balances below £10,000, €10,000 and 10,000.

While this may not look generous, it compares well with most European bank accounts which pay little, or no interest, on current account credit balances.

The account levies £5 or more for handling foreign cheques and fees start at £15 for electronic foreign currency payments (again far cheaper than in continental Europe).

Citibank offers foreign currency accounts in most major currencies, although interest is typically less than 1 per cent. Its US Dollar Savings Account pays a paltry 0.5 per cent interest on balances up to $49,999. 

FairFX and CaxtonFX offer pre-paid cards, which allow you to lock into euro or dollar exchange rates and spend the funds loaded onto the card later, although no interest is payable on these balances.

For foreign purchases on credit cards, the best are Nationwide’s Gold Visa and Abbey’s Zero credit cards which charge no foreign exchange loading. For cash withdrawals from foreign ATMS, use a Nationwide Flex account Visa card.
For more information:
www.caterallen.co.uk
www.caxtonfx.com
www.fairfx.com
http://www.nationwide.co.uk/creditcard/default.htm
http://www.abbey.com/csgs/Satellite?pagename=Abbey/GSDistribuidora/GS_Home

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