Making the Most of the New 7-Day-Switch Scheme for Banking

The long running perception of the UK banking sector as an oligopolistic market- one which is dominated by the four largest banks- may be challenged by the new 7-Day-Switch scheme which should substantially reduce barriers to switching your current account. According to the Office of Fair Trading, Britain’s four top banks- Lloyds banking Group, Barclays, RBS and HSBC- control around 75% of the current account market and have thus been able to offer sub standard current account deals to customers due to a lack of competition.

The Government’s new 7-Day-switch scheme, which began on 16th September, does exactly what is says on the tin. Whereas customers have previously waited up to a month to switch bank accounts, under the new shake up of the banking sector, high-street banks have promised to switch current accounts within seven days. They will transfer across all payments into and out of customers’ accounts, thus reducing the perceived hassle of switching accounts.


How the scheme may benefit you:

With reduced barriers to switching your current accounts, it may be very sensible to start looking at some of the other offers around at present. A spokesperson from the Money Advice Service suggested it was “not uncommon to save £500 or £600 by switching your bank.” Summarised below are some of the best offers out there in the market at the moment:

 
Cashback and Package Deals

·         Santander, 123 Account- One of the few accounts that offers interest on your money. It offers 1% on balances from £1000, 2% on balances from £2000, and 3% on those between £3000 and £20000. It also offers you cashback on household bills payable by direct debit (1% on water, council tax and mortgage payments; 2% on gas/electricity bills; and 3% on mobile phone and broadband). However, you will have to pay a £2 monthly fee and ensure a minimum monthly funding of £500 into the account. 

·         Nationwide, FlexAccount- A packaged deal offering you worldwide family travel insurance, mobile phone insurance, breakdown cover and warranty cover for your appliances. You also get 3% interest on balances up to £2500 and a 3 month free overdraft, although there is a monthly fee of £10.

Fee-free Deals

·         First Direct, 1st Account- Offers you £125 for switching plus a fee-free account provided you pay at least £1000 into the account each month. Further benefits include a fee-free overdraft up to £250 and excellent customer service (£100 cashback if you decide to leave within 6 months).

·         Halifax, Reward Current Account- You get £100 cashback when you switch plus £5 a month reward, provided you pay in at least £750 per month and pay out at least 2 direct debits. 

 
Business Current Accounts 

If you run your own business it will also be of benefit to compare the market for the best business account deals. Some of the key features include fee-free banking, interest on balances that remain in credit, and overdraft facilities. Some recommended business accounts are outlined below:

·         NatWest, Start-up Business account- Offers 2 years free banking with a £500 fee-free overdraft, provided your business is less than 12 months old with a turnover of less than £1 million.

·         Lloyds TSB, StartUp Account- 18 months free banking as long as your account remains in credit. You can also get consultation support from a relationship manager.

·         Santander, Business Start-Up Current Account- 12 months free banking and 0.25% interest on balances.


Summary

The key to finding the best deal for yourself is to ascertain exactly what benefits you most seek. If you often dip into your overdraft then it will be advantageous to look at accounts offering fee-free overdrafts. Alternatively, if you always remain in credit then you can start to shop around for higher interest rates and other perks from package deals. As a business owner you should also shop around to get the best deals and maximise the money you retain in your business.

Very few current account deals are offering interest at present and thus your money is losing value in this inflationary climate. Therefore, it is certainly worth assessing your options in order to maximise the benefits you can receive. Furthermore, as the new 7-Day-Switch scheme begins to take effect, banks should start to offer more attractive and innovative packages to entice customers away from competitors. It is therefore worth keeping a beady eye on new offers as they enter the market.

By Tom Hoadley at Tax Affinity Accountants. Tax Affinity based in Kingston upon Thames are expert accountants and tax advisers with client across the UK and abroad. For more information or a free initial consultation visit www.taxaffinity.com. Please feel free to comment and share this article with your friends. Follow us on twitter @Tax_Affinity for more money saving tips.

Where to invest in the current economic climate- Property versus Shares

There is much debate regarding the merits and fallbacks of investing in property versus shares. Traditionally, investments in property have been seen as more stable whilst stocks are far more volatile. Either way, with the retail banks continuing to offer painfully low interest on savings, coupled with high rates of inflation, investors are looking to achieve higher rates of return on their capital. This article gives an outline of the respective issues surrounding both methods of investment.

Property

Figures for August 2013 show a sharp rise in UK property prices, with the average UK property now worth 3.5% more than a year ago. Economists have pointed towards increased consumer confidence, due to the economic recovery, as a key driver behind rising house prices. Equally, the Government’s Funding for Lending (FLS) scheme and the Help to Buy scheme have gradually improved credit availability.

While rates offered by the banks for your savings remain low, property investment can offer a higher return on your capital. Buy-to-let investment is a very sensible option as it offers two potential returns on your investment. Firstly, assuming you find tenants rapidly, you will enjoy a regular stream of income from rent. And secondly, provided you invest in the right property, you have an appreciating asset that can earn you a healthy profit should you look to sell in the future.

Furthermore, unlike with shares, property allows you to leverage up your investment. This can be simplified as follows:

• Suppose you invest £25,000 in shares. If the share price doubles you will make £25,000 profit.

• Alternatively, suppose you invest £25,000 as a deposit with a buy-to-let mortgage on a property worth £100,000. If the property value doubles then you have made £100,000 profit (minus mortgage interest repayments).

This is a hugely simplistic example which discounts some of the costs of property investment but it does highlight the benefits of leverage in property investment.

Issues with Property

Be careful to choose your location wisely as this will be central to the future value of your property and the rents you can command. Inevitably, the surrounding suburbs of London are extremely popular as they can allow for easy commutes whilst being priced more reasonably than equivalent properties in more central locations. Kingston upon Thames, Ealing, Hackney and Merton are all prime examples of this.

Equally, it is worth considering that this unprecedented period of record low interest rates is bound to come to an end as the economic recovery gathers momentum. If interest rates rise then this will make mortgage repayments a far greater burden on potential property investors.

Shares

Investing in equities is another method for achieving greater return on your capital. The FTSE 100 index has seen a notable recovery since the financial crash around 2008 and now shares are becoming a more appealing investment once again.

However, investment in shares requires more industry-specific knowledge in order to outperform the market and thus it may be advisable to invest in an Investment Fund or an Investment Trust:

• Investment Funds- Investors’ money is pooled and invested by a fund manager who has market expertise and may thus be able to outperform market returns. The idea is to generate a well diversified portfolio to protect against the volatility of equity markets.

• Investment Trusts- Similar to Investment Funds but are actually publicly traded companies that invest shareholders money. Investment Trusts are typically lower cost options compared to Investment Funds but are also riskier.

Tax Implications for Investments in Property and Shares

As with all investments, profits made will be liable for Capital Gains Tax (CGT) so this is worth considering before you invest. However, there are certain methods to avoid CGT. For example, you may wish to put your property or shares into a trust. Equally, stocks and shares ISAs can be used to shelter equity profits from CGT. Also, utilise your full tax-free allowance by splitting your assets with a spouse so as to minimise your tax bill.

Verdict

Overall it is probably fair to say that the optimal investment strategy would involve both property and shares. Bricks and mortar provide a more reliable investment option whilst the riskier option of share investment can reap higher rewards. However, with the FTSE 100 at extremely high historic levels one might argue that property can provide more reliable profit margins.