Improvised insurance

Insurance policies are an expensive way of giving yourself peace of mind for when a rainy day rolls around. 

It's often the case that you won't need to make a claim. Even if you do need to claim, you may have to pay a large excess charge and your premiums will likely be increased. After all, if insurance companies didn't make more money than they paid out, they wouldn't last for very long!

In this article we will be looking at improvised insurance: a way of giving yourself some peace of mind while cutting out the insurance companies.

The penny jar

After a hard day of shopping your coffers are likely loaded with copper and silver that will wear their way through even the toughest pockets and make you sound prematurely Christmassy as you jingle merrily along.

These coins, once unloaded, have a nasty habit of disappearing down every nook and cranny, so it can be useful to have a jar or other container that you can dump your coins into without really having to worry about them.


What can I use?
Some people use jars, some use empty giant whiskey bottles (no, making a penny jar is not a good excuse for buying one!), some use traditional piggy banks or tin cans. It doesn't really matter what you use as long as it's big enough to hold all the shrapnel that your favourite stores so enjoy landing you with.

Some people like to use containers that they can't open until it's full like a ceramic piggy-bank that must be smashed open or a tin can that requires a tin-opener. This can be a useful way of saving up for something specific, but it also means that your cash could be left sitting at home when it could be in the bank gaining interest - however slight.


What to do when it's full
Finding the penny-jar full can be both exciting and daunting. Chances are there could be upwards of fifty pounds in there, but the prospect of counting and bagging it it all up to find out can hardly seem worth it. There are, however, other methods.

The company Coinstar offer change counting machines that are easy to use and are usually placed in convenient places like supermarkets. However, there is a catch: Coinstar deducts around 8% for the convenience: that's eight pence from every pound; eighty pence from every tenner, and eight pounds for every hundred.

Some branches of the HSBC offer coin-sorting machines to account holders. The machines deposit the funds into the elected account without any deduction. After that is done, there's nothing to stop you from deducting your money straight away. Of course, this is only a convenient option if your local HSBC carries a coin sorting machine.

Alternatively, you could purchase a coin sorting machine of your own. Check out Penny's Shop to see some of the models available. All banks offer coin bags free of charge so, once sorted, the coins can be taken straight to the bank. It should be noted, however, that the most functional of these tend to be fairly expensive in themselves, and the idea of spending pounds to count pennies can seem counterproductive.


Bank it
With today's interest rates for online savings accounts, it's not unreasonable to expect 3%: 3p a year for every pound. It may not sound like much, but it's not unusual for people to find that their penny jars contain hundreds of pounds - hundreds of pounds that could have been making something as opposed to nothing. Put simply: don't let your money sit around in jars and shoe-boxes for too long.


Conclusion
Look after the pennies and the pounds will look after themselves. It's surprising how quickly shrapnel can add up into serious money, so do yourself a favour and keep all of it in one place. Once you've collected a fair amount, consider sorting and banking them. 

What is a bond?

The term 'bond' has multiple meanings in the world of finance so it's important that these meanings are not confused. This article looks at the bonds that are also known as time deposits, as offered by banks and building societies in the UK.


What is a bond?
A bond, or time deposit, is akin to a savings account in which money is locked away for a fixed number of years (typically 1-5 years) and subject to a fixed rate of interest. When this fixed period ends, the bond is said to have 'matured'. 


Pros and Cons
Bonds are characteristically subject to restrictions such as:

• Penalties (usually of 6+ months of interest) for early withdrawals.
• Permitting only a single deposit, or accepting further deposits only until a particular date. 

The interest rates offered by bonds will typically be the best available. Finding the right bond is, therefore, a balancing act between the interest rate you want to gain and the restrictions you're prepared to adhere to. As a general rule, the more onerous the restrictions are, the better rate of interest you're likely to receive.


Considerations
The main question is how much money you can afford to relinquish for years at a time. Even if you are living comfortably and within your means, it's impossible to know what might be around the corner and so it is unwise to commit all of your savings into a bond.

Equally, it is all but impossible to know what will happen to interest rates over the coming years. Though it seems unlikely at the time of writing, an improvement in the economy could drive interest up and leave you with your money bound to a comparatively pitiful rate. 

It should also be borne in mind that the £85,000 government guarantee also applies to bonds. If you are considering investing more than that, be aware that you will be taking a gamble if the bank or building society were to fail.


Conclusion
Before committing your money into a time deposit, make sure that you can afford to do so while making reasonable provisions for dealing with any unforeseen problems that may arise within the term. If you're concerned that you would not be able to leave the money alone for such a term, consider putting your money in an easy access savings account instead. 

What is a cash ISA?

An ISA or 'Individual Savings Account' is a special kind of bank account with unique tax rules.


Tax status
Savings held in a cash ISA account are subject to neither income tax nor capital gains tax. 
Despite being tax free during the lifetime of the holder, a cash ISA is still subject to Inheritance Tax in the normal way if the holder dies. 


Eligibility
You must be at least 16 years of age to open a cash ISA, and 18 years of age to hold a stocks and shares ISA (the latter is beyond the ambit of this article).


It is typically free to open a cash ISA, but individual providers may vary so be sure to ask appropriate questions. 


Making deposits
There is a limit to how much you are allowed to deposit in your cash ISA each tax year. The tax year runs from the 6th of April to the 5th of April. The deposit threshold changes from year to year but is currently at £5,640 for a cash ISA for 2012/2013. 

There is no restriction on when or how much you may withdraw, but the maximum deposit allowance is not replenished by withdrawals: if you were to deposit £5.640 one day, and withdraw £5,000 the next, you would not be permitted to make a further deposit during that tax year in spite of the fact that the ISA would be holding only £640.

You may only make deposits while you are residing in the UK. If you were to move abroad, you could still hold your ISA and existing savings would still gain interest, but you would not be permitted to make further deposits. 


Transfers
The maximum deposit allowance is personal to you, not to the account. ISAs can also usually be transferred from bank to bank without affecting your deposit allowance; however, as you are allowed to hold only one cash ISA at any given time, a transfer would mean transferring ALL of the funds and closing the existing cash ISA. Some providers may charge a fee for carrying out this transfer, so be mindful and ask questions if you're unsure. 


Other considerations
When considering whether to make a deposit into an cash ISA, be mindful of interest rates. Some ISAs pay such pitiful rates that it can sometimes be more lucrative to hold the money in a taxable account.


Conclusion
It is typically a good idea to make the most of your deposit allowance on a cash ISA, but be aware of interest rates and think about whether your money could work better for you elsewhere. 

Savings interest 101

This article takes a basic and introductory look at savings interest. We’ll be looking at interest on loans and credit cards a little later.

What is Interest?
Interest is a sum of money that is earned on amounts held in banks and other financial institutions. It is expressed as a percentage of the overall savings figure. For example: if your account’s ‘interest rate’ is 3%, then you would receive 3 pounds for every 100 pounds you have in that account. That may not sound like a lot, but the more you save the more you earn. Getting the best rate of savings interest is about making your money to work for you.

There are two general types of interest: simple interest and compound interest.

• Simple interest is applied only to the original figure. 
• Compound interest is applied both to the original figure AND the interest that has accrued - in other words, interest on top of interest.
  

Interest is paid because banks and other financial institutions invest and lend the money that you hold with them. The ‘interest’ they pay to you for letting them do this is only a fraction of the profit they make. It is, however, virtually free of risk (for amounts below 85,000 at least).

Interest is subject to income tax unless you are tax exempt. Even if you are tax exempt, forms will need to be obtained from your bank for your account to reflect this.


Getting the Best Deal
Most current accounts pay very little interest. Online savings accounts and ISAs generally pay a little more. However, the highest rates of interest are only available from bonds.

The general rule is that the higher the rate of interest, the more numerous or onerous the catches. For example: high interest current accounts require a deposit of at least 1000 pounds per month, online savers provide limited access to your cash when you’re out and about, and most bonds require you to lock your money away for years and charge hefty fines if you withdraw before the end of the agreed period (before it ‘matures’). Finding the right interest rate is, therefore, something of a balancing act: you want the highest rate of interest possible with the fewest restrictions. 

The most common restrictions are on withdrawals, which can sometimes include interest penalties for early withdrawals. However, some accounts also restrict the number of deposits you can make as well, meaning that to get the best rates of interest you may be led to lock away more of your money than you can reasonably afford to.

Millions of people all over the country are ignorant of the often pitiful interest rates that they are receiving from their current accounts and savings accounts. Many still believe that loyalty pays, but this is no longer the case. If your bank isn’t doing you any favours, it’s time to ditch it in favour of a new account. It is now easier than ever to find the right account for you given the number of comparison websites that are popping up all over the place.


Perks
A lot of accounts feature a bonus interest period for new customers (often for the first 3, 6 or 12 months). If you elect to open such an account, it’s worth making a note on your calendar of the date when the bonus will end.

Some banks and financial institutions reward new customers with one-off cash incentives (some of which can be over 100 pounds) for opening an account and transferring direct debits to it. If such an offer catches your eye, it is very important to make sure that you will be able to satisfy the offer's criteria, and that the interest rate isn't so low/charges aren't so high as to make the cash incentive irrelevant.

Be aware that some accounts are set to pay interest into a separate elected account. This means that interest on these accounts cannot be compounded (see above).

Conclusion

Never sign up for anything without knowing what you're getting yourself into, and you should always be alert around deals that seem too good to be true. It can take time to shop around. For many this can seem like a daunting process, but it is well worth the effort.

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Opening a lot of different bank accounts can be injurious to your credit rating. Once you have left one account, be sure to close it. A long-standing bank account can also support your credit rating, so it is worth keeping at least one old account open, even if it’s left holding only a small amount.