Entries Tagged 'finance' ↓

In a decision by the high court yesterday, the decision to cap bank charges was upheld by the High Court. Seven Banks and one building society had taken the Office of Fair Trading to Court; they argued the OFT did not have the right to impose caps on bank charges. However, the High court found in favour of the OFT and this presents a big boon to consumers, who are will see lower bank charges. It also opens the gate for consumers to demand refunds for previous bank charges.

However, the big banks such as HSBOS may challenge the court ruling, they have until May 22nd to launch an appeal. Given the state of the financial markets, banks are likely to take any lifeline to defer the decision. However, the most likely occurence is that bank charges will become lower, Which magazine have called on banks to admit defeat and start paying back the estimated £1 billion. To benefit from this ruling, it is essential to contact your bank and ask for a refund for any bank charges.

How To Get A Refund for A Bank Charge.

If you have been charged excessively for things such as going overdrawn. Make a list of all the bank charges by looking at your statement.

In the first instance you should write to the bank, stating what you were charged. Then ask for a refund of the excessive amount. Continue reading →

Effective financial planning can enable you to get on top of your finances and avoid stressful experiences of debt. To make the most effective use of any financial plan it is important to consider what steps will actually make a significant difference. These are some common sense ideas which will help to create a workable solution to even the most difficult of problems.

1. Be Realistic

If you plan to reduce your debt by £10,000 in a short space of time, you will only be setting an unrealistic target. It is better to plan to achieve manageable reductions in debt and target a gradual improvement in finances. Unfortunately, there is no magic wand we can wave to solve our financial problems. However, if we our conscious of our financial goals then gradually our situation will improve.

2. Be Aware of Current Situation.

Often the key to improving our finances is simply understanding our current situation and why we are going overdrawn. Sometimes we prefer to ignore our financial difficulties but this only compounds the situation. To have effective planning, we need to know where we spend our money. This alone can be a bit of an eyeopener. If we realise how much we spend on takeaways or magazine subscriptions, we would think much carefully about whether we want to keep spending money on them.

3. Prioritise

When planning your financial future, it is important to prioritise your most important goals. What do you want to aim for? If your aim is to reduce your debt, set aside a certain lump sum from your monthly income to pay off the most expensive debt.  Don’t spend your time and energies in worrying about very small bills or moving money for very small amounts of interest savings. Value your time and prioritise in dealing with the most significant problems first; this will give the biggest return. As many suggest often 80% of our improvements can be made by focusing on 20% of our tasks. Look at your biggest bills and out-goings first; if you can make savings here, then you will have a good chance to make a real difference.

4. Make it Simple

The key to good financial planning is to make it simple and workable. If you have very complicated plans which require careful calculations and frequent balance transfers, you will be spending too long in managing your affairs. The simpler the planning is the more likely you are to stick to it and make it work.

5. Set Targets

A good plan should have a clear goal to aim for. This could be reducing debt by £2,000; increasing income by £2,000 or just saving up a certain amount. If the targets are achievable they will give  a sense of satisfaction when attained. This will encourage to set more optimistic targets the next time. A sense of continual progress is important for developing a positive attitude to money.

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Complaining to your bank can be a daunting experience, but, when you have a lot of money at stake it is important that you complain in the right circumstances and in the right way to make sure the banks doesn’t take advantage of consumers.

Situations where it is helpful to complain.

Misselling of financial products.

If you think that you have been sold products without the full information being made clear at the beginning. For example, recently UK banks were heavily criticised for misselling insurance of loans. PPI. In many instances, the true cost wasn’t spelt out;  the insurance was often very difficult to claim; and many consumers were given the impression that the insurance was a necessary part of the loan.
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The Financial Ombudsman Service is currently receiving a large number of complaints regarding mortgage endowment policies which have offered a poor return for investors. A mortgage endowment policy is supposed to have a separate investment policy which enables the mortgage capital  to be paid off at the end of the term. However, many of these endowment policies sold in the 1980s have given very bad value.

The Complaints Procedure

The Financial Ombudsman Service has 500 specialist staff for dealing with complaints. They seek to resolve issues fairly and quickly, without recourse to a court of law. Their decisions are based on written information given by each party. Often they will seek to act as mediators - getting both sides to agree on a compromise decision, without the necessity of a lengthy detailed investigation.

Before bringing a complaint to the Financial Ombudsman Service, it is important to try and resolve it directly with the company. Complaints to the FOS should be only after other avenues have failed.

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These are products which can seriously damage your financial wealth. In some cases, the products can be OK if used carefully. But, often the principle seems to be merely taking advantage of the unwary consumer. Some of these products are blatantly bad value; but, others have their charges cleverly hidden. Make sure you don’t get caught up in products such as these.

10 Financial Products to Avoid

1. Credit Cards if paying interest

If you pay your balance off every month, credit cards can be beneficial and helpful. However, if you start accumulating debt, the interest payments can become a real burden making it difficult to ever pay off the original debt. Typical interest rates can be 15-16%. Which means on a balance of $1,000 dollars you will be paying over $160 interest. The interest burden is magnified because you will start paying interest on the interest charges. Many credit cards make it easy to only pay a small monthly payment. But, in paying only a minimum the debt burden can easily escalate. The other feature of a credit card is that it is easy to buy impulsively, without thinking about your budget. If you are frequently tempted to splash out on plastic and worry about it later, consider tearing them up and just spending the cash in your pocket.

2. Pay Day Loans

Who would want to take a loan with an annual interest payment of 2,317%? Pay Day Loans work by making short term loans of a few days, at a certain fixed cost. However, this often disguises the fact that it is basically a loan with an excessively high interest rate. If you make a habit of paying interest rates of over %2,000 it only increases the likelyhood that you will need more loans in the future. Because people spend a high % of their income on getting a short term loan, there budget is stretched making it more likely that you will need to keep borrowing. A pay day loan may be better than defaulting on another loan repayment, or borrowing from a loan shark. But, they should be seen as a last resort with the cost fully appreciated by the potential borrower.

3. Loan payment Insurance

In the UK and US, investigations found that banks have been guilty of misselling insurance for loans (PPI). Basically, you pay a monthly premium to protect your loan repayments in case of illness. Often this kind of insurance works out very expensive; the insurance can cost up to 50% of the loan. (It makes the interest rate on the loan look extortionate) Furthermore it was revealed that banks kept upto 80% of the money paid in. In practise the banks are very reluctant to pay out and they find many reasons why you are not actually eligible. Many people who took out the extra insurance were also not aware that the loan does not require insurance to be taken out; many borrowers were under the impression that the insurance was essential for the loan. There are some things we do need to insure, but there are also times when we need to avoid taking out insurance schemes that are both very expensive and unnecessary.

4. The Balloon Mortgage

Never has one financial product done so much to undermine an economy. A balloon mortgage is a term to describe a mortgage product with an attractive 1 year interest rate, which then shoots up to a much higher interest rate after the first year. Introductory deals are not intrinsically bad, but, the problem with these kind of mortgages was that many homeowners were unaware of the true cost of the mortgage payments after the introductory period ended. One would assume that the subprime crisis would have made these kind of products very rare, but this experience shows the problem of trusting mortgage companies to regulate themselves. Read all the small print and if you have a relative that is not financially illiterate offer to help advise before they commit to products like this.

5. The World’s Worst Credit Card

Every now and then, financial companies seem to bring out products which seem designed for the person who has either money to burn or is completely financially illiterate. Make sure you never get taken in for a product like this Visa ‘Aspire’ card (presumably aspiring to take as much money of the consumer as possible) Some of the many ‘Features’ of this card:

• Annual fees. $150 a year
• Monthly fee - $6.50 monthly (yes, this is in addition to the annual fee!)
• Application fee. $29 just to open the account!
• Minimum APR of 19.50%
• Initial credit limit - $300 (after opening fees annual, fees and monthly fees, you might just be able to buy yourself a calculator so you can calculate how much money will be going to the credit card company)

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Many people mis out on a potential rebate or refund because they are reluctant to write a letter of complaint. For example, in the UK, there has been an investigation into the misselling of loan insurance (payment protection insurance). It has been estimated that the insurance schemes are so profitable that the banks keep upto 80% of customers fees. The FSA has found many instances of misselling and many customers may be entitled to a refund. If that is the case, writing a letter of complaint may enable you to get a refund.

Here are some tips for writing a letter of complaint.

1. Be aware of Potential Refunds.

Banks and financial institutions often make mistakes. Salesman often fail to let you know of all the small print. If you feel you have been paying too much for a product or that bank charges are unfair; investigate whether a refund may be possible. Examples of issues which might involve claiming a refund:

1. Fees increased with knowledge of customers: (Mortgage exit Fees)
2. Products not Properly explained (subprime mortgages with increasing interest rates spring to mind)
3. Pushy Salesman who fail to explain all details (e.g. Loan insurance is not essential to get a loan)

2. There is Nothing to Lose.

Similar to the first point, writing a polite letter to the bank is your right as a customer, don’t worry about the time or whether you are 100% right. I’m not suggesting you write for every minor problem. But, if you have been missold a product or have been charged unfairly, a simple letter of complaint may lead to a significant refund. It is a shame to miss out on this. Continue reading →

Call centres are an unavoidable fact of modern life. They rarely offer much joy. These are some of the problems I have encountered with call centres. I’m sure our readers could add quite a few more.

1. Please choose from the following 6 options.

We could easily invent a competition - which company requires you to make the most choices before getting to speak to a human being? When I rang Virgin Media recently, I believe there were 6 different options I needed to choose before getting through to someone. It wasn’t too bad except I lost the connection and twice had to go through the procedure. Maybe it is a test of endurance - any time wasters will have given up before the right person is reached.

2. Sorry, The Computer Says No!

One of my favourite Catherine Tate characters is the office worker who invariably answers to any question - the computer says no. This is often a problem with call centres, the poor teleoperator can only follow the dictates of the computer and various rules. Alas, there is little room for common sense.

3. You will have to Speak to Someone Else

After spending 6 minutes choosing multifarious options you finally get to speak to someone. At great length you get to speak to someone, you spend several minutes explaining your problem. When it is finally explained the operator can only say - ” O you will need to write a letter to the manager / head office”

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The UK banking system is highly consolidated. In theory, this makes makes less vulnerable to a run on their assets. However, the recent case of Northern Rock (one of the UK’s top 5 mortgage lenders) shows that no bank is invincible. Recently, the governor of the Bank of England suggested that more Banks may be vulnerable from the recent credit crunch.

• Top 10 British Banks 
• Top 10 UK Mortgage Companies 
• Top 10 Building Societies
  
• Why you should be cautious of taking a mortgage with one of the top 6 mortgage lenders
• Getting Best Mortgage Quote deal

1. Spending on Useless Things.

We can work very hard to earn money and then we can easily waste our hard earned efforts by purchasing things on a whim. If you are in the habit of spending on things you rarely use or don’t need. Try to be discriminating. Think how many hours of work you have to spend in order to buy that 22nd pair of shoes.

See: 7 ways to avoid overspending 

2. Becoming Obsessed with Finance.

Money is an essential part of modern life. However, we need to give it its proper place. Money should not be our sole goal. Money is a means to an end, rather than an end in itself. If you devote your whole life to accumulating money, you will be missing out on much life has to offer. At the other end, if you ignore the minimum of financial prudence you will find yourself in debt and therefore you will spend too much time thinking about your debts and how to reduce them. Manage your finances so that they work for you.
3. Paying debt at the highest interest payment.

If you borrow money on a credit card the interest payment may be 17%. On a store card the interest rate can be 25%. If, however, you borrow through having a mortgage the interest rate may be only 5%. A personal loan should average around 7-8%

$5,000 at 17% compound interest will increase to $11,670 after 5 years.
$5,000 at 5% compound interest will increase to $6,416 after 5 years.

This shows the significance of moving debt to the lowest interest payment. Always pay off your credit card debt first. If possible remortgage and switch high interest debt to a lower interest payment.

4. Remaining Ignorant of your financial situation.

When people’s financial situation deteriorates some people have a tendency to try and forget it as much as possible. This just makes the situation worse. All we do is to live in denial about how bad our situation is. As a consequence we take no steps to rectify the situation and therefore a small problem becomes a serious headache in the future. Always try and be clear about how much debt you have, where it is and how much you are spending.

5. Not taking any Financial Advice

At school we don’t get taught about financial matters. This is a shame because it is a life skill we all need. However, we do need to learn about financial issues, whether we like it or not. If you are uncertain about how to clear debt or pay off your mortgage take advice from those who can help. Don’t feel you need to struggle through on your own.

6. Missing Credit Card Payments.

If you miss a credit card payment you will not only have to pay a penalty of upto $50 and interest at 17%, but, you will also damage your credit rating. If credit rating doesn’t mean much to you now, it will in the future. If you wish to take out loans and mortgages a poor credit rating makes it more difficult and expensive to get a loan. Avoid at all costs missing credit card payments.

- Set up a direct debit to pay minimum on your credit card balance.
- If you do miss a payment by mistake. Write to your bank giving an excuse like the cheque got lost in the post - They may let you off.

7. Lending Large Sums to Friends

“The holy passion of friendship is so sweet and steady and loyal and enduring in nature that it will last through a whole lifetime, if not asked to lend money.”

- Mark Twain.

Of course in modern life we do need to borrow money. But, it is best to borrow from financial institutions rather than our friends. It places great strain on both the lender and the borrower. Unless you are very careful, it can cause an unnecessary breakdown in your friendship.

8. Renting never Buying

Why do people say: “renting is dead money” ?

If you rent a house you will have to make regular payments until the day you die. You get nothing in return from your rent payments (apart from the gratitude of your landlord.) Furthermore the cost of renting tends to go up by at least inflation. Therefore, if your rent costs $500 a month, it will continue to increase throughout your life. If you buy a house on a 30 year mortgage, then it means when you retire you will be able to live rent free. Also your mortgage payments will not increase with inflation. (they will vary with interest rates) but in the long run the payment should stay about the same. This means that over time inflation will reduce the real cost of paying a mortgage. If your mortgage is currently $800 it is a big % of income, however, in the future it will be less.

9. Getting Caught in Financial Bubbles.

Don’t get carried away by markets which seem to be constantly rising. If people are saying “This is a one way bet” start to be suspicious. Try to look beyond short term exuberance and consider the long term potential.

10. Lack of Diversification

If you do have savings don’t put them all in the same place. Spread your investments around so that you are not reliant on a small number of shares / investment schemes. If you do invest in the stock market be prepared to lose your money.