For all the resilience the UK economy has shown, there is no doubt that this year's ISA season is set against a backdrop of uncertainty. Whatever the pros and cons, Brexit, and a lack of clarity on what our future economic relationship with the EU will look like, has left us at a crossroads.
Why switching savings accounts is vital to your portfolio
Anyone who keeps an eye on best buy tables may have noticed some encouraging shifts within the savings section. Dare we say it, the race to the top is hotting up in a clear signal that banks and building societies are finally beginning to compete for consumer money – hopefully even more so now that the Bank of England has decided to hike base rates.
In the easy access space over the past month, we've seen Post Office come in with an account offering a headline AER of 1.33 per cent - soon followed by the 1.35 per cent offered by Birmingham Midshires. And, in the past week or so, Coventry Building Society has come to the fore with a new account offering 1.40 per cent (albeit with a limited number of withdrawals per year).
Given that inflation continues to hover at around 2.4 per cent, none of the above will be getting people leaping off their chairs. But it is a marked improvement on the dismal returns the high street has offered on savings accounts in recent times.
Or is it?
The devil is in the detail
All of the aforementioned table-toppers, along with many others in their slipstream, offer this headline rate for the first 12 months only. In fact, this rate includes a built-in temporary 'bonus', and, once a year has passed, the account reverts to paying out derisory returns in the more familiar region of 0.2 to 0.4 per cent.
Therefore, it would appear that it is less about being fair to customers; more about enticing them with an introductory offer, before relying on the individual's subsequent inertia to boost margins. Little wonder then that some websites have decided to exclude these types of accounts from their best buy tables entirely.
Is a minimum savings rate the answer?
A paper recently published by the Financial Conduct Authority (FCA) has proposed the idea of a 'basic savings rate' - something which would be imposed upon any bank or building society that offers an easy access savings account or cash ISA. The proposal follows an FCA study from 2013 which found that over 30 per cent of savers had kept the bulk of their money in the same account for five years or more, and were being penalised as a result of the diminishing returns providers tend to offer on static accounts. Indeed, some accounts pay an astonishingly-poor rate of just 0.01 per cent.
Given that 80 per cent of money in the savings market currently sits in the easy access space (according to Savings Champion), it is clear that the loyalty shown by many customers is costing them significantly, rather than being rewarded. While banks and building societies would be free to set their own basic savings rate, the FCA estimates that such an initiative would see net interest payments to customers rise by circa £300 million each year within the easy access space.
Switching is where the gains are
While a basic savings rate would undoubtedly be a force for good, the downside, as acknowledged by the FCA, is that introductory offers would likely become less competitive, as providers inevitably seek to make gains elsewhere. This would have the unfortunate consequence of hurting those who diligently switch savings accounts and play the market to their advantage.
As such, it is our view that customers may be better served by the authorities focusing on the process of switching savings account itself. At present, the difficulties of moving an easy access account are very much dependent on the account provider. Some make it quick and easy, but many others put obstacles and red tape in the way - for obvious reasons.
The Current Account Switch Service has been a notable success story within consumer finance, and we believe that implementing a similarly automated, standardised procedure for easy access savings accounts - where the switch is guaranteed, and the onus on the provider to facilitate it - would pave the way for better competition, and a more consumer-friendly market that yields better returns as a result.
Whether such a measure and/or a basic savings rate come to fruition remains to be seen. But, in the meantime, it is strongly advisable to consistently reassess the money you allocate to a savings account, and that you be prepared to make the switch if returns are not up to scratch. That may be to another savings account, or, if you are willing to move up the risk spectrum, you could look to peer-to-peer lending as an alternative.
Bottom line: money that sits idly in easy access accounts loses out over time, and you could also be in danger of missing out on gains over the coming weeks as a result of the base rate increase. So, if yours has been squirrelled away in the same place for a while, and you haven't recently assessed any alternatives, then now might be the perfect time to make the switch.
The 2019 ISA season is now in full swing, and it's as good a time as any to focus on financial planning - and, within that, looking ahead to your retirement years to ensure financial security.
The Lifetime ISA (LISA), announced in 2016, would prove to be one of George Osborne’s last flagship gestures to UK savers and investors as Chancellor, eventually launching against a backdrop of anti-climax a year later in April 2017.
As the tax year end approaches, the financial services industry readies itself for a flurry of activity. That's in large part because, with just a couple of months to go, the so-called 'ISA season' is upon us.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
As 2018 draws to a close, with our bellies full of Christmas turkey, it's only natural to look back on the past 12 months and reflect. No doubt, it's been a turbulent one economically and politically, and not everyone has had it all their own way.