Firstly, ‘Happy New Year'. This guide looks at the political and economic challenges to your money in 2017, and how you can get ahead of the curve.
2016 was a turbulent year, Brexit, Trump, and the rejection of constitutional reform in Italy. Unfortunately, this political and economic upheaval is going to spill over into 2017 and beyond.
With that in mind we take a look the ways you can boost your finances in 2017, and protect them against the inevitable political upheaval.
It’s not all doom and gloom. There are a number of fast and easy ways to improve your fortunes in 2017 outside of the political and economical events.
Firstly, switch your bank account.
The current account market is undergoing a major upheaval as banks look to slash interest and rewards, but there are still a host of decent deals around for those who are willing to switch.
First Direct – New customers can now earn £100 to switch. To get the bonus you need to use the First Direct switching service (which will close your old account) and pay in at least £1000 within three months of switching. The £100 bonus will then be paid within 28 days.
The account has a £10 per month fee, but this is waived for those paying in £1000 or more.
First Direct regularly top customer satisfaction surveys, and that combined with the switching bonus, make it our top pick for 2017.
Other notable mentions go to:
Invest in a ISA
The Help to Buy ISA is dead. It’s been superseded by the new Lifetime ISA that will come into play in April this year. For would-be first-time buyers it’s a complete no-brainer.
The Lifetime ISA allows those under 40 years old to save up to £4,000 tax free, and enjoy a yearly 25% bonus from the state. This is a totally new way to save, and could see many opting to ditch their pension plans, or at least minimise them in order to maximise their Lifetime ISA account.
We covered the Lifetime ISA in more detail when it was first announced and will update our articles once it’s fully launched, but in summary, you can save up to £4,000 per year either in a lump sum or drip fed throughout the year, and the state will then add 25% bonus at the end of each year. That’s a £250 for every £1,000 you save. If you max out your allowance, by the end of the first year you’ll have £5,000 before interest or growth.
The bonus is paid until the age of 50, so the earlier you start the better. Those opening an account at 18 contributing the maximum amount each year would stand to earn £32,000 in bonuses alone by the age of 50. It is designed to be used for two specific purposes, for first-time buyers to put towards a home, or to take out for retirement once you hit 60.
Back in August last year the Bank of England cut interest rates to just 0.25 per cent, slashing returns for most savers. It has now said it will take a wait and see approach before making any further decisions, meaning you should act now rather than wait for better deals to come along.
If you’re eligible, we recommend the Lifetime ISA. If you’re not eligible or want to save more than permitted under the Lifetime ISA, then take a look at these top savings accounts:
OK so the first three are actually current accounts, but they offer such good savings potential in comparison to the rest of the market we think they deserve to be mentioned here.
Bank of Scotland – 3% interest on balances between £3,000-£5,000, but you can open up to three accounts giving you 3% on £15,000. £1,000 per month minimum pay-in.
Nationwide Flexdirect – 5% interest fixed for 12 months (1% after) on up to £2,500. £1,000 minimum pay-in per month.
Santander 123 – A current account that pays 1.5% interest on up to £20,000 and 3% cashback on (some) bills. £500 per month minimum pay-in.
We’ll skip right over easy access savings accounts, as even the best on the market only pays 1%. Savers with more substantial sums, willing to lock away their cash for up to 5 years can earn 2% annually on balances up to £250,000 with Masthaven, or 1.95% with Paragon Bank, or Vanquis. All three offer full FSCS protection up to £75,000, so it would be wise to split large amounts between banks.
Keep in mind that since April 2016 basic 20% rate taxpayers can earn £1,000 per year interest tax-free, and higher 40% rate taxpayers can earn £500 per year interest tax-free.
Additionally, if you’re seeking alternative ways to save, see our guide on ‘How to beat pitiful interest rates.’
2017 politics – what to watch out for, and how to beat it
The next 12 months will see a number of tweaks to the rules governing pensions. The indication is that some of these tweaks will aim to reduce the benefits associated with pensions. Particularly through the tax relief system which at present is linked linked to income. This means that those in the higher income tax brackets actually gain more government support than those in lower tax brackets. Those currently making good use of tax relief on their pensions, should keep an eye on the media in the run up to the budget on 8th March.
Mortgages are strongly linked to the rate of inflation. Despite the doom and gloom predictions, the UK enjoyed the fast growing economy in the G7 in 2016. This growth combined with the fall in the pound and rise in consumer borrowing has led the Bank of England scrap plans for further rate cuts. Instead it has announced it will hold the current 0.25% rate.
The last rate cut was back in October 2016, and lenders have been slow to pass that on to customers. With inflation moving toward the Bank’s two percent target more quickly than expected, it seems the only way for interested rates it up in 2017.
At this stage many advisers will likely be recommending that that their clients lock in the best rates now before they rise. In fact many of the cheapest mortgages are already disappearing. The latest at the time of writing being HSBC’s 0.99% 2 year fixed rate.
Since mortgages vary so wildly form person to person and property to property we don’t list any ‘best buys’ In this category. Instead we’d suggest you take stock your current mortgage and find your top deal with a mortgage comparison.
Holiday money, and foreign exchange
Before the Brexit referendum the pound was trading at 1.49 versus the US dollar. Since the vote it’s been hovering around the 1.24 mark. As a result, holidays to the US are now likely to be up to 20 per cent more expensive. Of course the Euro fell too, but to a lesser extent. Nerveless, holidays in the Eurozone are also likely to be more expensive, in part due to the fact that oil is priced in dollars (US), leading a rise in the cost of airfare and transportation.
There’s no telling how rates will change in the future, but would-be holiday makers should pay close attention to the media. Talk of a hard Brexit is likely to further reduce the value of the pound, while the opposite might not necessarily result in a rise.
Whether you should lock-in your exchange rate now, or wait until closer to your trip, all depends on which way you expect the markets to go. If you feel rates are going to fall, you can lock in by using a pre-paid currency card such a Revolut, and loading and exchanging money on the card ahead of time. Otherwise you’ll get maximum bang for your ‘buck’ by using specialist plastic such as the Halifax Clarity, Creation Card, or Monzo.
See our holiday currency guide for more information.