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.
Savings rates: Is the tide turning?
A lot has been made of rising consumer debt recently, coupled with record-low levels of household savings. A squeeze on real wages has garnered some of the blame, but the big culprit is surely derisory interest rates, and the Bank of England stood firm on base rates of 0.25 per cent (a 300-year low) once again this week on ‘Super Thursday’.
While access to cheap credit provides a good stimulus for the economy, it coincides with poor rates of return for savers. As such, it effectively dis-incentivises saving, which goes some way to explaining the lack of inclination among British consumers to put money away for a rainy day.
Since 2009, the trend in terms of savings and Cash ISA rates has been a depressingly, inexorably downward one, with precious few rays of light along the way. The nadir was arguably Santander’s decision to cut the rate of its popular 123 account from 3 per cent to 1.5 per cent at the end of last year. It felt like the final kick in the teeth for savers, and the statistics speak for themselves, with the number of people opening a Santander 123 account having dropped from 276,000 in H1 2016 to just 43,000 in the corresponding first two quarters of 2017.
A shift in momentum
Yet against this grisly backdrop, there are numerous signs that, after years of misery, beleaguered savers have come out the other side. There have, of course, been some long-standing inflation beaters, such as the 5 per cent offered by Nationwide’s FlexDirect account, or the 3 per cent on TSB’s Classic Plus account. But these rates only apply on balances up to £2,500 and £1,500 respectively, and fees do apply.
The more encouraging action is taking place away from the high-street, with challenger banks beginning to alter the landscape. RCI Bank offer an easy-access rate of 1.2 per cent with their new Freedom Savings Account, while Bank of Cyprus and Ford Money savers earn returns of 1.15 and 1.08 per cent respectively.
In terms of fixed-rate savings, Al Rayan offers an impressive 2.02 per cent on a one-year term, while a five-year deposit with Ikano fetches 2.3 per cent. Axis and United Trust three-year accounts have headline rates of 2.1 per cent, with the latter paying out 2.41 per cent to those willing to commit to a five-year term.
And in the cash ISA domain, Charter Savings Bank is starting to make a name for itself, with a 1.3 per cent rate on a 1-year, fixed-rate cash ISA; 1.41 per cent on two years, and 2.15 per cent on five years. Paragon’s 1.41 per cent over three years is also competitive, while Virgin Money’s 1.01 per cent on its easy-access cash ISA represents decent value too.
Jockeying for position
While none of the above rates will have anyone jumping for joy – they are all below current headline inflation, which was 2.6 per cent for the month of June – the important thing to note is the shift in the overall pattern, with rates unequivocally beginning to increase. This is down to one simple economic principle: competition. As the quest to shift up the best-buy tables intensifies, it is the more agile, technologically-savvy challenger banks which are raising the bar, and big banks will continue to haemorrhage customers if they fail to respond.
The threat also comes from further afield too, with peer-to-peer lending applying significant pressure on high-street behemoths. It is important to note that savings accounts/cash ISAs and peer-to-peer lending are not direct equivalents, as there is no FSCS cover afforded to those who make use of the latter. That said, it is playing an important role in shifting the tectonic plates – not least as a result of the new Innovative Finance ISA - as shrewd savers and investors broaden their horizons from formerly mainstream options.
After years of price taking, and feeling powerless to fight bank against the might of the established financial powerhouses in a low-interest environment, consumers are finally seeing the cycle being broken. Challenger banks, fintech companies and peer-to-peer platforms are pioneering a new path, and it is individuals who can reap the benefits by simply riding in their slipstream. As Roger Waters once sang… “oh, oh, oh, the tide is turning”.
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.
There is barely a week to go until the conclusion of the 2017/18 financial year, which means that, as ISA season begins to hot up, time is running out to take advantage of your ISA allowance.
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.