Get Your Finances Into Shape

Yes, we all know about switching utility providers and cutting out your morning Starbucks. But just how far can you go in the pursuit of saving money on the little things? Best look to the big things, then – mortgage, insurance, investments and more. Sam Barrett gets thrifty

When it comes to saving money, there are some very strange things we’re prepared to do. Three-quarters of us will take extreme measures to squeeze the last little blob out of the toothpaste tube according to a survey by Yorkshire Bank, while more than half of the UK’s men will eat out-of-date food rather than go to the supermarket.

Both of these measures will save pennies over the course of the year, with the latter potentially costing a lot more in medicine for the chaps’ upset stomachs. But rather than grub around saving a penny here and there, the following steps can add an extra few grand a year to your bank balance.

Your home

Charity may begin at home, but so do savings. Taking a three-pronged approach: attacking the mortgage, the insurance and making your home more energy-efficient will substantially reduce its running costs.

Taking the mortgage first. This is where you’re likely to make the most significant savings. According to Paul Williams, divisional manager at independent advisers Towry Law Mortgage Services, if you’re on a standard variable rate (SVR) mortgage you could easily cut the rate by two percentage points, saving yourself £2,000 a year on a £100,000 mortgage.

Thanks to the internet, finding the best deals has become much easier, with sites such as www.moneyfacts.co.uk, www.moneysupermarket.com and even this fine magazine’s website (www.pfmagazine. co.uk) full of the latest deals. Alternatively, you could check out best buy tables in our magazine (see page 35) and newspapers or speak to an independent mortgage broker.

Despite people’s belief to the contrary, remortgaging is a fairly straightforward process. “Often you can complete the whole process over the telephone,” says Williams. “And you may be able to get the new lender to pay the fees as part of the deal.” Otherwise you can expect to pay around £1,000 to cover the valuation, legal costs, arrangement fees and fees for your current lender to release the deeds, so weigh these against the savings you’ll make.

Also watch out for another potential pitfall. “Unless you really can’t avoid it, don’t move to a longer term when you remortgage as the extra interest you’ll pay could easily negate the savings,” says Williams.

If you’re looking to consolidate debt, Williams also recommends looking for a mortgage product with variable terms. “Securing unsecured debt on your mortgage isn’t advisable, as your home will be at risk; but, if you’re confident you can repay it then opt for as short a term as you can manage,” he adds.

For example, if you moved £10,000 of credit card debt to a 20-year mortgage at 5.99 per cent you’d pay £7,181.60 in interest payments on the debt over the term. Reduce the term to five years, and this interest payment on the £10,000 of credit card debt falls to £1,596.80.

Your buildings and contents insurance is another area where you can save money. Shopping around when you’re close to renewal will save you cash. For instance, if you still have insurance with your lender it’s likely you’re paying 30 per cent over the odds for the privilege. Additionally, so keen are they to get your business, many insurers will even pick up the switching fee your current insurer might charge if you move.

As well as studying the finances, making your home more energy-efficient can keep fuel bills down and give you a nice warm glow, as you’ll be doing your bit for the environment. The Energy Saving Trust, an independent organisation that promotes energy efficiency, has plenty of tips on its website, www.est.org.uk. Among the simple, and cheap, steps it recommends are cavity-wall insulation, a jacket for your hot water tank, draught-proofing your doors and windows and just simply turning off electrical appliances rather than leaving them on standby.

Another energy-saving avenue you may want to explore is solar power. Even in the UK, the sun can generate approximately half a household’s electricity, which saves around £100 a year on energy bills. You can get a government grant to help you with the cost of installing solar photovoltaic panels, reducing the cost to between £4,000 and £8,000.

Your wallet

There are plenty of ways to make your wallet fatter in 2005. For starters there’s your current account. Despite increased competition, the high street banks still seem to think we’re happy to accept 0.1 per cent credit interest, unauthorised overdraft interest rates close to 30 per cent and accounts that levy a monthly fee.

Five minutes on moneysupermarket.com soon shows how much more you could get. For instance, if you stay in credit and can pay in at least £1,000 a month, Alliance & Leicester’s Premier Plus Account pays 5.5 per cent interest until the end of 2005. You’ll also get more than 3 per cent interest from accounts with Citibank, Lloyds TSB, Smile, Bank of Scotland and the Halifax.

If being in the red is more your thing, then it’s worth being with one of the bank’s that won’t penalise you too heavily. According to Moneyfacts, the cheapest authorised overdrafts come from Alliance & Leicester (zero per cent), Nationwide (6.75 per cent), Abbey (8.7 per cent), Norwich & Peterborough (8.8 per cent) and Halifax (8.9 per cent). Also look out for accounts with interest-free overdraft buffers as these can take a lot of the pain out of spending. For instance, a £250 buffer is available free on accounts from Barclays and Cahoot.

Credit cards can also benefit from an every year makeover. Stuart Glendinning, marketing director at moneysupermarket.com, advises you to find a card that is appropriate to your circumstances. “If you clear your balance religiously, take advantage of cashback or rewards,” he says. The maximum currently on offer is 2 per cent with American Express’s Blue Card although this is only for a limited period after which it falls to 0.5 per cent.

“Most now pay 0.5 per cent, although there are tiered offers around that either pay 1 per cent on the first part of your annual spend or reward you with 1 per cent if you spend over a certain levels. Find one that suits your spending habits,” he adds.

For those with outstanding debt or who don’t regularly clear their balance, if you go into these deals knowing the pitfalls (see below), zero per cent deals are definitely worth considering. “There have been reports that these will end but it’s not very likely,” notes Glendinning. Instead he believes the card companies will start imposing charges on people transferring balances to zero per cent cards. “Barclaycard charges two per cent of the balance subject to a maximum of £35, MBNA says it reserves the right to charge and other credit card companies are certainly planning this move,” adds Glendinning.

If you’re leaping between deals, it’s essential to keep an eye on the offer-period expiry dates. “Credit card companies rely on people forgetting to move again so, when the offer period ends, they will often whack up the interest rate,” says Pete Robbins, managing director of Bridgewater Software, who developed www.cardtracker.co.uk. This site allows you, for a £5 fee, to register your credit cards and be notified in time to take out another deal. It also provides you with details of other suitable deals and reminds you when to make your monthly payments.

A similar – free – offer expiry notification service is on www.moneysaving expert.com.
And give yourself enough time to get the next zero per cent deal lined up too. A spokesperson for the Royal Bank of Scotland says it takes about three weeks to issue a new card from the date of application but recommends giving yourself at least five weeks if you’re transferring a balance. And, just in case you’re turned down for a new card, it’s probably worth allowing a couple of months to be safe. If you need to borrow money to supplement your spending, then there are ways to make this more cost-efficient too. Research from Defaqto found that, because lenders often charge less for higher loans, borrowing more can actually cost less. For example, if you borrow £4,950 at 12.5 per cent with Alliance & Leicester you will pay £6,241.92 if you repay it over two years. Borrow an additional £50 and the interest rate drops to 5.9 per cent, costing £5,612.64 over the two years. Therefore you are £629.28 out of pocket because you thought it better to borrow £50 less. “Loans between £5,000 and £10,000 tend to have the cheapest rates, so bear this in mind when you’re borrowing money,” explains Ian Crowder, a spokesman for the AA.

Your bills

You can also save money on your household bills. In fact, if you’ve never switched energy suppliers before, you could save on average £50 a year according to Energywatch. Even just switching to paying by direct debit could shave £20 off your annual bills.

Tom Burgess, director of savemoneynow.co.uk, an internet site that provides comparisons for gas, electricity, home telephone and some financial products, explains how to switch. “All you need to do to find out which supplier is cheapest is input your postcode, how much you spend a year and the way you want to pay,” says Burgess. “Additionally it will either allow you to fill in the switching application form online or give you the details to contact the new company direct.”

As well as changing your gas and electricity suppliers, you might want to change home telephone suppliers. This is easy too, although it can be more difficult to work out which deals are cheapest. “It’s based on when you make your calls and which type of numbers you call,” says Burgess. “BT has got a lot more responsive with its pricing but it’s still possible to find deals that will save you up to 50 per cent on your bills.”

He recommends checking your energy and phone deals about once a year to squeeze the maximum savings out of the suppliers. After all, when business walks, it often results in your original supplier having to cut their prices to compete.

Your car

Another area of expenditure that could be seriously draining your finances is your car. Research from the AA shows that the average cost of running a car is 37.04p per mile for a car costing between £13,000 and £20,000, running on petrol and doing 20,000 miles a year. This equals £7,408 a year.

Switching to a cheaper car and driving more miles a year will reduce this cost per mile. For instance if your car costs between £10,000 and £13,000 and does 25,000 miles a year this works out at 27.17p a mile, or £6,792.50 a year. Buying a diesel car will also marginally reduce running expenses. The more expensive car will run at 34.06p a mile, or £6,812 a year, while the cheaper car will be stacking up annual costs of £6,512.50.

There are other ways to make your vehicle more cost-effective too. “Driving on the motorway at 85mph instead of 70mph is not only illegal but it’ll add 20 per cent to your fuel consumption,” says Luke Bosdet, a spokesman for the AA. So, for a 50-mile journey, speeding will add an extra £2 to the cost of the trip.

Heating and airconditioning can also guzzle your car’s fuel. Airconditioning is the big offender, pushing fuel consumption up by between 10 per cent and 14 per cent while running the rear windscreen heater uses an extra 2 per cent to 5 per cent. “Think about winding down windows or opening doors to cool the car down,” says Bosdet. “Or turn down the aircon or heat once your car has reached a comfortable temperature.”

Using your car for a booze cruise can also save you plenty of cash. For instance, at Sainsbury’s Wine Store in Calais, if you buy a couple of cases of wine, a case of champagne, two cases of lager and a couple of bottles of spirits you can rack up savings in excess of £150, even taking into account the £30 fare to get there.

“Do be sensible about what you bring back,” adds the AA’s Ian Crowder. “UK Customs and Excise got a ticking off from Europe about their strict policy on the amounts people could bring back with them, but it should really be for your own consumption.” Indeed, published guidelines state the allowance is 110 litres of beer, 90 of wine, 60 of champagne, 20 of fortified wine and 10 of spirits – plenty for even the most debauched party.

Crowder also cautions against loading too much into your car. “Five cases of wine are about the same weight as a person so don’t pile too much into your boot as you could end up having to fork out for a new rear axle.” An expense that could seriously reduce the savings you made on the booze.