If you have a savings account then you may be pretty disappointed in the amount of interest that you can get on it. Rates tend to be pretty low on accounts, especially if they are instant access accounts (meaning you can draw money out whenever you wish). It might seem like all rates are pretty dire though and you may feel it is not worth bothering to look and then go through the hassle of switching things over. However, there are some reasons why this could be a good idea.
Higher Interest can add up
It is worth considering how much a higher interest rate can add up. Even if the interest is only a little bit higher, if you keep adding to the account, having the interest paid into the account or even just not withdrawing any money from it, it can add up. The longer you leave the money in the account, the more impact it will have if you have a higher interest rate. It seems silly not to try for a higher rate and get more money in a way, you will have to do very little in order to get it and it is essentially free money.
Some accounts can pay more interest
There are different types of savings accounts and some will pay out more money than others. For example, if you are prepared to give notice before making withdrawals then this will help you to find accounts with higher interest rates. Obviously, you may want to be able to get hold of your money quickly, but if there is some that you are happy to tie up for a while, then these types of accounts can be handy.
There are also fixed rate bond accounts, where you have to leave your money in the account for a year or several years. These will offer a fixed rate of interest for this time period and so there is always a risk that interest rates will go up and you could have had a better deal elsewhere. However, the rates tend to be more favourable that what is available on instant access accounts, so even if rates on these go up, chances are that you will still get more.
With both of these types of accounts, you need to be aware that you will not have instant access to the money. You will need to think about whether you will be able to tie it up, as if you do withdraw it early (if you are even allowed to) you will lose out on the interest that you were due to be paid.
It is Easy
It may seem like hard work, but it is very simple. There are plenty of websites where you can research and compare the rates of savings accounts so that it is easy to identify which one is paying the most. Transferring money across is also simple. You will need to send ID if you are applying to a bank or building society that you have never used before, but you may be able to just take some into a branch. Once you have done this then the process of opening the account is straightforward. They will want to make it easy for you as they will be keen for you to save with them. It is therefore likely that you will only have to give them a bare minimum amount of information and transfer the money over and the account will be open. Just a little bit of time to make more money, does seem well worth the effort.
If you want to buy a house using a mortgage then most lenders will require that you have a deposit. They want you to pay a portion of the cost of the house for two main reasons. They want to make sure that if they have to repossess and sell the house, that they will be able to get their money back even if the house is worth less than if you bought it. They also want to see that you are capable of being responsible with money which will mean that you are more likely to be able to budget well so that you can repay the loan and cover the monthly payments that are needed. But how much do you need to save up?
Check with the Lender
Lenders will vary in how much money they expect you to pay towards the mortgage. On average it is probably 10% but some may be 5% and there have even some that have offered a mortgage with no deposit at all. You may have a particular lender in mind and therefore you can check out what their requirements are. Otherwise have a look at some of the lenders you are likely to consider and see what they are asking too. It is worth having an idea of what you are likely to need.
Consider the Cost of the House
Of course, the actual amount of money you need will be determined by the price of the home that you are buying. You may have an idea of the size of home and location and so could look on local estate agents’ websites to find out how much a home is likely to cost in the area. You could also find out how much a lender is going to lend you. They will often have some sort of formula depending on whether the person borrowing the money is doing it singly or jointly. It might be up to four times your income but it will vary a lot. So, find out this as well and it will help you to consider how much you will be borrowing.
Consider Using More
It is worth noting that the more you borrow, the more you will have to repay and the more interest you will pay. Therefore, it is in your interest to borrow the lowest amount possible. So, if you can save up a higher deposit, you will not need to pay out as much money as you can borrow less. However, it may also help you to borrow more money. If you have a more expensive home in mind, then by having more money than is required for the deposit, you will be able to get a more expensive property than you would otherwise be able to get.
So, whether you should save a huge deposit will depend on a lot of factors. If you want to pay less interest and borrow less, then having a larger deposit can help with this as long as you do not spend too much on your home. If you do want a more expensive property than you can get based on the amount of mortgage you can borrow, then you will need a larger deposit to be able to afford it.
It can be wise to just save up as much money as you can and then you will be able to use it to your advantage when you are buying a home. It could even be well worth starting to save up when you are very young so that by the time you want a home you have accumulated a significant amount of money.
Many of us have an overdraft and the interest on these can be vey high. Recently many banks and building societies have put their interest rate up on overdrafts as well and so what you are paying in interest on your overdraft could be much greater. It may therefore have got you thinking about whether you should repay it and if so, how you should repay it.
How Overdrafts Work
An overdraft is an option that is given with a current account. It is something that will allow customers to be able to borrow some money so they can spend more than they hold in the account. The amount that they are allowed will vary depending on the provider. An overdraft is charged interest only (no extra fees or charges) so you will be able to find exactly how much you will have to pay for it. The interest rates will vary a bit between providers so you can compare them. The interest will be charged daily until the overdraft is paid off. An overdraft will automatically be repaid as soon as money goes into the current account.
Should they be Repaid?
Some people hold overdrafts for a long time and some people repay them as soon as they are able so it can be hard to work out which is best. As the interest is charged daily, then you will be accumulating costs every day that you have the overdraft and so the sooner you pay it off, the sooner you can save that money. However, for a few people paying it off could be problematic. Once it is repaid, some people might see that as opportunity to spend money using it again. Therefore, they may soon get back into debt. This is because some people see an overdraft as money for them to spend, almost like they had earned it themselves, rather than thinking about it being a loan with no guarantor that they will be charged for and need to repay. If they borrow the money to pay off the overdraft, then spend the overdraft again, they will end up with two loans rather than just one. So, although it seems to make sense to repay it right away, you will need to think about whether it will actually make sense for you.
How to Find the Money
If you do decide that you are going to repay the overdraft then you will need to think about how you will do this. Obviously, you will need to get some spare money. You might decide to borrow the money or to earn more or to try to spend less to free up more money or you may decide to use a combination of these things.
If you decide to borrow money then make sure that the cost of the loan will be less than the overdraft or else there is no point in borrowing money to repay it. Also be careful, as discussed above that it does not result in you having two loans rather than one due to you spending the overdraft again.
If you want to earn more, then you will need to think about whether you are going to do this through working more hours in your current job or finding additional work. There are lots of opportunities such as online work, freelance work, temping, starting a business, getting a second job etc. Think about what you would like to do.
Spending less can be easier than you might think. Comparing prices on everything you buy and switching to cheaper retailers, providers and suppliers can save a lot. Then if you cut back on things you do not need, you will find that you can make quite significant savings.
There are many big chains that will offer a store card to their customers. Store cards tend to work in a similar way to credit cards and they can have some advantages and some disadvantages. It is a good idea to think about whether it is something which will work out well for you.
Some stores will give customers special offers if they have their store card. This could include a percentage discount when you first take one out, preview sale evenings, regular discounts and things like this. It is a good idea to find out what particular stores are offering and this will enable you to decide whether you want a card to take advantage of this. If it is a shop you use regularly then it could be worth it if they have a lot of good deals.
By using a store card you will get some interest free credit on your purchase. When you pay using the card, you will not need to pay it off until you get sent a monthly statement. This means that you can delay paying for the items. It can be good to negotiate with the card issuer that they send your statements so that you have to pay them just after you get paid so that it is easier for you know that you will have the money available to pay it.
You will have the option of repaying the full balance and you will then not have to pay any interest and so the card will be free to use as well. You can even set up a direct debit to repay the full balance each month, which can make this really easy.
If you do not repay the card in full then you will have to pay interest on the money that you owe. This can be expensive and it can be the case that the interest on a store card will be higher than the interest on a credit card. Therefore, if you already have a credit card it might be better to use that as the interest will be less. You will find any savings you make from special deals you get as a card holder will be worth far less than the interest you pay on the card if you do not repay in full.
You may find that, because you have a card for that shop, that you shop there more than other shops. This could be okay, but it is important to make sure that you are not paying more money for items than you would if you were shopping elsewhere. Make sure that you compare prices carefully and do not pay more than necessary.
You may also be tempted to spend more because you do not have to pay for it right away. Make sure that you are not just buying things for the sake of it just because you can. Check with yourself whether it is something that you really need or really want and whether you can justify the expense. Having deals as a card holder can multiply this as you may feel you need to buy something as it is reduced. Make sure you are retrained and only buy things that you would have bought anyway.
If we get lots of different cards it can be harder to keep a check on how much we are spending on them. This means that we can end up spending more money than we can afford. So, unless you keep a careful track of what you are spending, you need to think hard about whether it is wise to get another card and risk building up a lot of debt.
There are many people that have credit cards but around half of people are in credit card debt. This can be useful sometimes, but not always and it is worth thinking about how credit cards work and how you can take advantage of them rather than them taking advantage of you and taking money from you each month.
How do Credit Cards Work?
A credit card is a form of loan. It allows you to shop in many places without having to pay with cash of debit card or spend any money right away. The money that you spend, goes on the card and then you will get a statement up to six weeks later where you will be given options with regards to paying back the money that you owe. The statement will give you two main options with regards to repaying. You will be able to repay the full balance and then pay nothing extra apart from what you have spent. However, you will also have the option of just repaying a minimum balance and pay interest on what remains. This is where you will have to pay a charge. They will tell you how much it is, so you can decide, but they do not tell you everything. Firstly, think about the cost and the fact that if you continue to pay just a minimum amount, then you will have to pay this charge every month. This will soon add up to a significant amount of money. Secondly, there is an option to repay more than minimum amount but not the full amount. This will allow you to repay more of what you owe, even if you cannot afford to repay everything. This will keep the charges down and hopefully will mean you can pay it off pretty quickly.
How Can I take Advantage of Them?
It is best to use a credit card and avoid paying any fees at all. You can do this by repaying the balance in full each month. You can even set up a direct debit to do this so you will never forget and never accidently be charged. You will need to be careful though and make sure that you track your spending. It is important to make sure that you do not spend more money on the card than you can comfortably repay. You may be able to track online how much you are spending or you can keep a note, perhaps in a book or on a spreadsheet.
Another thing to consider is whether getting a cashback card might be a good idea. These are not that easy to find but there are some issuers that will offer this service. These work by giving you some money back for what you spend and it is often a percentage. It will be a very small percentage and card issuers to this to try to encourage you to use the card more. You can take advantage of this by using the card for everything you buy and then paying it off in full so that you do not get charged. You do need to be careful though. It can sometimes be tempting to spend more money because you are getting cashback. Just remember that the cashback is a very small percentage and it is not worth spending extra just to get it and it cannot be used to justify extravagant purchases. However, it is a great bonus that you can take advantage of when you buy items that you were going to buy anyway. Make sure you think carefully about whether this would work for you.