As I wrote several months ago in my Financial Meltdown series, I took out a consolidation loan in January 2009 to pay off 2 higher-rated loans, and get in return one, cheaper, lower rate loan. The two old loans were with Barclays (my banking provider of choice), and so was the new loan.

I made an appointment with a Personal Banker in January, and proceeded to spend over an hour with her. I was open and honest, and she really spent time with me. I discussed my goals, where I was financially, and she talked through the options open to me. I left feeling very, very happy. I had finally taken steps to securing my financial future for the first time in my adult life and left with an even more positive view of my bank of choice.

The first of the two higher-rate loans was settled without complication. The other – due to the loan being created on the ‘old’ system but settled using the ‘new’ – refused to close in its entirety.  I was advised to “not worry about it” and it would resolve itself eventually.

The account remained attached to my online banking with a balance showing. I phoned every few months to check all was in order, and each time I was assured: all was in order. During each call, the balance remaining was described as simply the PPI refund that I had not had to pay during settlement. The ‘new system’ would get bored with it eventually and close it off.

On the 3rd July 2009 I received a ‘Loan Account Statement’ covering the 1st October 2008 to 2nd July 2009 listing a ‘Closing Balance’ at the end. No further correspondence was received and I took this to mean that the settled loan was in the final throes of being removed from my account. A little cheer was given, and the letter filed.

Fast forward to this month, and a Direct Debit for £7.83 bounced from my current account (as the instruction had been canceled by the branch when the old loan was settled). Curious as to what this amount was for, I phoned my branch. The lady I spoke to advised – after considerable digging – it was an attempt to take payment for the old loan still showing on my account. Due to limited information available to counter staff, she could not offer any further information.

Perplexed, I phoned the Barclays Loan line and spoke to a lending specialist, who could not answer why the payment attempt was made. Nor could she answer why it had taken over 10 months to attempt it. All she could tell me was I now owed Barclays £8.29 – courtesy of daily interest. I paid this with her by Fund Transfer, but she could not guarantee me that it would not be registered with the Credit Reference Agencies as a Late Payment.

In a letter to Barclays Customer Relations I penned:

“I find this incomprehensible and indefensible. Not only have I wasted most of this evening reviewing correspondence, bank and loan statements, and telephone records, but now fear negative reporting to my credit rating. Ostensibly, the payment is some 10 months late, but not due to any action or inaction on my part. When you settle a loan and receive repeated reassurances that everything is in order, is it unreasonable to believe that this is the case?

Currently, the loan account is registered as Satisfactory with no late payment markers. I want to ensure that this loan account is now marked as Settled without detriment to my credit history – for what is either a Personal Banker error; a computer error; or a combination of the two. I would also like to discuss the matter of compensating my time for having to be writing this letter in the first place.“

I love Barclays. But a relationship where they have treated me very well over the last 14 years is in danger of falling apart from a silly error on their part. The outcome of this complaint will very much determine where the remainder of my adult banking is conducted.

Tread carefully, Barclays. Very carefully indeed.

Have you ever been in conflict with your bank?

• Dig Yourself Out of Debt: Avalanches and Snowflakes
• Could You Live on Half Your Income?
• My Financial Meltdown: Part 3
• Patience is a Virtue
• Dig Yourself Out of Debt: Cleaning Up

There are a few interesting differences between the way English banks and American banks seem to function on a day-to-day level. I have been trying to decide which is best, but I have come to the conclusion that ultimately each has its good and bad points.

Overdrafts

In America, it seems to be quite unusual to have an ‘agreed overdraft limit’. Rather, a checking (current) account holder can have ‘overdraft insurance’, which seems to cover  short-term budgeting errors.

Overdrafts are abused in England; some people take them as extensions of their paycheck and routinely ‘live in their overdrafts’, to the point that a paycheck merely takes them back to £0, before they start downwards into it again. Some don’t even make it back that far up the ladder month to month.

Banks love this of course. The interest charged can be as high as 30-odd percent, or in the case of the HBOS group, £1 per day in lieu of interest. Add that up over the course of a year or more and that is serious money being thrown down the drain for what is nothing more than dreadful money management skills.

My agreed overdraft is £1,500, and the first £250 of that is interest free. I haven’t entered it since January, but it is handy buffer for budgeting errors. The £250 interest free part comes with the account that I have, but the additional £1,250 beyond that just grew over the years with my account; Every once in a while they would push it a little further. It seems to have finally settled at the figure it is on.

Peculiar to my bank there is also a facility beyond the arranged overdraft called ‘Personal Reserve‘. It’s a £500 overdraft after your overdraft. Horrible little thing, it costs £22 per day to go in it, but I suspect if you need it, then it is handy to have.

ATMs

Another thing I find peculiar about the American banking system is fees for using different banks’ ATMs. I have never been charged anywhere in the UK for using an ATM that didn’t belong to my bank – beyond those convenience stand-alone ATMs you find in small shops.

This could just be scale. The UK ‘grew up’ as one large piece of infrastructure, whereas America has been hacked together by different institutions in different states at different times. Or is it just one further method of extracting money from the unwary consumer?

Cheques

I have written precisely 1 cheque in the last 5 years – no kidding! Cheques are pretty much extinct here in the UK. Shops have all but stopped accepting them as a form of payment. Yet I have never heard of a personal banking customer in the UK being charged for cheques -  this seems ‘the norm’ in the US? Companies such as Checks In the Mail even seem to print cute designs on them.

Online Billpay

Various blogs extol the virtues of using this system, and if you’ve only had doing the cheques yourself as prior experience, then I can understand. But it seems lightyears away from our Direct Debit system. If the company you are paying isn’t wired into the bank, the bank physically print and mail the cheque? Amazing.

Direct Debit while appearing insecure on the outside, is actually quite brilliant. Take my credit card as an example:

When I got it, I ticked the box on the online account to set up the direct debit. I punched in my bank account and sort code, and set to pay £120 a month. Just this month, it’s now set to “pay in full”.  I could equally set it to “pay the minimum” or somewhere in between. The billing party then submits a Direct Debit request through the banking network, and my bank sends – electronically – the amount requested.

If anywhere along the line there is a screw-up, the Direct Debit Guarantee immediately resets the transaction. I can cancel the Direct Debit authorisation at any time from my Online Banking menu, and ultimately, it’s a stroke of genius.

About the only thing you cannot set up a Direct Debit for in England is your groceries.

Fees

It seems there are banking fees abound in America – even if you run your account right. A fee for even just having a checking account. A fee for checks. A fee for a debit card. A fee if you go over a certain number of transactions. A fee if you have less than a certain amount in your account. A fee for this, that and the other.

I am shocked by this. About the only fee I have paid in the last 10 years for banking has been the odd bit of interest for going into my overdraft here and there. I’ve never paid for cheque books, debit cards, the account itself or anything else.

Perhaps I am just viewing the UK system with rose-tinted spectacles, or the US system isn’t nearly as bad as some blogs make out. Or, perhaps, I’m spot on; in which case, for once, I am glad to live in the UK!

I’m sure at least one of my American readers will set me right soon enough if I have got it wrong.

• My Financial Meltdown: Part 3
• A Formal Complaint to my Bank
• Reclaim Bank & Credit Card Charges
• The Long Term Cost
• 6 Mistakes That Doubled The Price of My Car

Personal finance is a complicated world. In my “A Guide To:“  open-ended series, I’ll do my best to break down potentially complicated topics into easily-digestible bite-sized chunks that I hope will remove some of the frustrating complexity or just sheer mystery surrounding a lot of day-to-day finance products.

After each guide, hopefully you will be a little less scared at the mere mention of the topic at hand. If you would like to see a particular guide next, drop me a line.

Today, and the first in the series, I’m going to attack ISA’s.

ISA? TOISA? Mini? Maxi? PEP? TESSA?

Is it any wonder people hear the phrase ‘ISA’ and their eyes glaze over?

Just What is an ISA?

An ISA – or Individual Savings Account – is in simple terms a savings account where you generally don’t pay tax on your interest, nor tax on the sum when you remove it from the account. Anyone looking to save should max out their annual Cash ISA allowances before plunging into regular, standard or alternative savings account types because in doing so the tax man keeps his grubby mitts off your money.

Always a good thing.

What is a Cash ISA?

For once in the world of personal finance, a cash ISA is just what it says on the tin. It’s an Individual Savings Account that you can put cash in.

The current annual allowance is £3,600 and this allowance will increase to £5,100  from April 2010 onwards. The over 50’s have a bit of a head-start on us: their allowance goes up as of October 6 2009.

Think of a Cash ISA as simply a savings account that you do not pay tax on. It’s still just as safe as any other savings account, and is still government-guaranteed up to £50,000 per institution. Your initial investment cannot change or be lost, or eaten up in fees. It’s just a nice clean simple savings account without the tax hit.

For those who have heard the term “Mini ISA”, these are now called “Cash ISA”.

Where Can I Get a Cash ISA?

There is little shortage of options when it comes to choosing a Cash ISA provider. You will need to do your research just like you did for your savings accounts, looking out for the best rates and least lock-ins. Try some of the price comparison websites to begin with (GoCompare, MoneySupermarket, Confused) to get a rough-and-ready look at the going rates, and then go and check the bank websites, too.

Are There Other Types of ISA?

It stands to reason that if there is a Cash ISA, then there must be at least one other kind, and you’re right. There is also the ‘Stocks & Shares ISA’, also less commonly referred to as the Equities ISA. There is one other called a ‘Self-Select Stocks & Shares ISA’ but this is about the same as an Equities ISA, just you can select your own stocks to go in it.

Anyone who has stumbled across the slightly older term “Maxi ISA” will have some idea. A Maxi ISA is now a Stocks & Shares ISA.

Stocks & Shares ISA

This account type lets you put money into a range of investments, such as unit trusts, open-ended investment companies (OEICs – similar to unit trusts) and investment trusts, as well as government and corporate bonds.

Unlike a Cash ISA, this means your investment can go down, as well as up.

A Stocks & Shares ISA also has a different allowance to a simple Cash ISA. You can invest up to £7,200 in the current tax year (2009/10) and if you are over 50, you will be able to invest up to £10,200 in one from October 6.

As with the Cash ISA, those of us under 50 will have to wait for April 2010 to realise the additional allowance.

Unlike a Cash ISA, Stocks & Shares ISA’s are not completely tax-free, either. Buying share-based investments (such as unit trusts and OEICs) through ISA’s saves you tax only if you’re a higher-rate taxpayer, or are likely to pay capital gains tax. However, if you use your Stocks & Shares ISA to invest in interest-bearing investments, like corporate bonds, the interest is tax-free whatever tax band you fall into.

Stocks & Shares ISA’s also have charges that are used to pay commission to financial advisers, cover administration costs, and pay fund managers. These vary, depending on what you invest in, but aren’t usually any higher than those you’d pay if you invested outside an ISA. The key here is to do your homework before choosing which to use.

Self-Select

You can also buy individual shares and put them into an ISA – this is known as a Self-Select Stocks and Shares ISA. It’s really just a sub-type of the Equities ISA, with all the same caveats.

Can I Transfer My ISA Type?

You are able to transfer your previous years’ Cash ISA’s into Stocks & Shares ISA’s without affecting your current year ISA allowance. You can also transfer your current year’s Cash ISA to a Stocks & Shares ISA, provided you transfer the whole amount.

As you may have gathered, you cannot do a transfer the other way around from a Stocks & Shares to Cash.

Can I Transfer My Cash ISA to Another Provider?

Just as you would look to maximise your interest rate in your traditional savings account, you might be tempted to do the same with your Cash ISA as well. You can do this without penalty providing you follow the ISA Transfer Rules which your new provider will help you with. Basically it’s like picking up a cardboard box – not opening it – and taking it to someone else’s house. If you do that, you are fine.

If instead you open your cardboard box, and pack the contents into someone else’s to allow the move, you fail and lose the tax free status of your money.

Analogies out of the way, do not simply withdraw from your old ISA to open the new one. Doing so will nullify the tax free status of the cash you now hold and if you had a considerable sum from many years of ISA’s, you will be in a whole world of hurt.

Can I Only Have One or The other?

You can mix-and-match the types you hold, but your initial investment and savings in a Cash ISA cannot exceed your total allowance when combined. Therefore unless you have a penchant for risk, a 50/50 split is a good idea. This means you can have (at the time of writing) £3,600 in a Cash ISA, and £3,600 in a Stocks & Shares ISA. If you like the idea of a bigger risk for a bigger return, then there is nothing to stop you plunging your entire allowance into a Stocks & Shares ISA (£7,200, again at the time of writing) but you then cannot hold a Cash ISA for the same financial year. Likewise if you wish to hold a Cash ISA, the maximum you can put in it is £3,600. Beyond that your tax-free option would have to then be opening a Stocks & Shares ISA.

It sounds complicated, but it’s really not when you get down to it.

If I Withdraw, Can I Put Back In?

This is the really big difference between a standard savings account and an ISA. You can put money into it up to your annual allowance, and withdraw any or all of the money you put in it.

No problem there.

But once you withdraw a sum, you cannot put it back in. This is important to note because if you need short-term access to money, then this can be a very expensive way of gaining access to it. You are stealing from your future self, in effect. If you have £3,600 in the current financial year’s Cash ISA and withdraw £500 of it, your ISA will close with just £3,100 in it. You can never replace the amount you withdraw.

When Can I Get A New ISA?

New ISA’s can be set up from each April 6th onwards. ISA’s you open in previous tax years get “closed”, i.e. you cannot pay into them any more but they continue to earn nice big tax free sums of interest year on year.

The Stock Market is Too Volatile. Any Options?

If you have maxed out your Cash ISA and still have cash you want to shelter from the tax man in the future but are concerned about market volatility in the present, then you could take advantage of ‘cash parking’ inside a Stocks & Shares ISA. Shrewd Cookie has more information on this.

Pre-ISA Questions

I Invested in a PEP. What Happened?

The ISA was introduced by the Labour Government in 1997 as a replacement for Personal Equity Plans, introduced by ex-Chancellor of the Exchequer Nigel Lawson, as a way to encourage people to invest in the stock market.

The PEP focused on investing in UK-listed companies and the maximum investment was £2,400 per calendar year. If you held a PEP, you still have your investments (stock market performance aside), but you now have a Stocks & Shares ISA instead.

All PEPs were converted during the changeover.

I Had Savings in a TESSA. What Happened?

The TESSA or Tax-Exempt Special Savings Account, was introduced in 1990 by the then Chancellor, John Major, and they were designed to balance the equity-orientated nature of a PEP by allowing investors to invest cash in a TESSA-designated deposit or share account.

Since April 1999 it has been impossible to open a new PEP or TESSA, however, existing accounts could continue. TESSAs had a fixed life on five years and upon maturity could either be cancelled or rolled into an ISA. If you did neither, your account automatically turning into a TOISA, or TESSA-only ISA. In other words, you got to keep your tax exemption irrespective of what you did (or did not) do at the time of maturity, other than if you withdrew the cash.

In Conclusion

More than 17 million Britons have already taken advantage of the tax benefits ISA’s have provided since introduced in 1997. Those who have made full use of their annual allowances every year since then, will have sheltered £79,400 from the tax man!

Have you yet?

• Hedging Against Pump Price Increases
• My Networth Update - Aug 2009
• Cash ISA Allowance Increased for Over 50's
• Cash ISAs vs. Regular Savings Accounts
• Why Rate Chasing is Worth It

My friends have so far looked at me sideways when I have explained that I plan on moving my money around every year, chasing the very best savings rates. They consider doing so an extreme waste of time as “the banks only screw you over anyway” and that a few percentage points make zero difference.

A few percentage points make ALL the difference. For a little bit of effort (generally about 2 hours a year), you can earn hundreds or thousands of pounds worth of extra interest, than if you left your money in the same place on an institutions Standard Variable savings account.

Don’t believe me? Let me show you. For the sake of argument, let us say I have £10,000 to save, and I am looking to put it in an account somewhere and let it build over time.

My Barclays Tracker Saver account pays 0.10% interest on balances over £50. It calculates daily and compounds monthly. After 12 months in those conditions, my savings would have grown by just £10. The bank has paid me just £10 to lend them my £10,000 for the entire year.

Daylight robbery.

Let’s open a new account with ING Direct instead. At the time of writing, they are guaranteeing new customers 3.20% under similar conditions otherwise to barclays, i.e. compounding monthly. For my £10,000 they will pay me £324.74 in interest. That is much better. But now my introductory offer has expired, I’ve dropped onto their Standard Variable saving rate of 0.50%. If I don’t move my money, how will it fair next year?

If I am lazy (and the bank hopes so), next year they will pay me just £51.74 in interest.

More than 6 times less than they paid last year.

Instead, when my introductory offer ran out with ING I moved my money to another introductory offer paying (for the sake of argument) 4%. Remember I have £10,324.74 to move courtesy of the 3.2% interest from ING last year, so I move that sum to a new Halifax account.

12 months later I now have £10,745.39. And after another move the next year that paid 4.5%, I have £11,239.03!

In 3 years the amount of savings I had has grown by £1,239.03 because of 2 hours work opening a new account and closing an old one each year. By the time you’ve run out of places to consider opening an account as a new customer, ING Direct have forgotten about you and you qualify as a new customer again.

If I had not chased the good rates and left it languishing in my original Barclays account, I’d have earned a paltry £30.04 over those 3 years. If I had not moved it out of ING when the first introductory offer ended, I’d have earned £103.74 in total.

By chasing the higher rate and moving my money every year, I would end up with £1,239.03 in interest alone.

If you have more to save then your returns will be even better.

Banks are relying on you being complacent with your money in the longer term. You can beat them at their own game with just a few hours work each year. Is rate chasing worth the time and effort annually? In my opinion you’re mad not to. It’s free money for minimal work on your part.

Are you a chaser,or is it all just a waste of time in your view?

• My Financial Meltdown: Part 4
• Cash ISAs vs. Regular Savings Accounts
• Savings Roundup - September 2009
• My Financial Meltdown: Part 3
• Frugal Friday! Cutting Electricity Bills

Everyone should have what I call Total Situational Awareness where their money is concerned. If you are like me and either have or plan to have savings accounts all over the place chasing the best rates for your money, then it can be hard keeping on top of where your money is, and what it is doing.

Throw in the odd current account or 3 and credit card or 3, and things start to get really complicated.

If something is difficult then it’s just human nature – we’re unlikely to continue doing it. Money management therefore needs to be above all else: simple.

The old method was by statements, but this wasn’t very dynamic, and didn’t make projecting easy at all. It merely looked backwards. Spreadsheets came next, first in Excel and more recently in Google Documents.

Then Web 2.0 hit.

Mint.com

Folks in the USA have a cool service called Mint.com. It’s a total money manager or account aggregator, and once you get over the initial fear of giving some random company your login details for your banks and cards, you start to realise just how valuable their service is. It accesses all your accounts in the background and provides you with a complete overview of where you stand; All your debts, all your savings, what’s left in your current account, how much you’ve splurged on your credit cards, and how your investments are doing.

It negates the need to login to 3, 5, or 10+ different financial providers and instead gives you a one-screen view of where you are right now.

The downside of Mint? it doesn’t work for us in the UK.

You Have Mail

An email arrived this morning from a guy called Scott who’d seen my blog, noticed the target market, and wondered if I’d be interested in their service. Ordinarily I’m not too keen on unsolicited commercial contact, particularly from marketing companies, but to his credit he had clearly read my blog, knew what it was about, and bothered to find out my name and my circumstances before writing.

This wasn’t your average spam run, but a hand-crafted contact. I don’t mind those at all.

Kublax.com

Mint I can understand, after all money gets minted. But Kublax? What the heck is Kublax? I’ll let them explain:

The word Kublax is a combination of “Kuber” and “Laxmi”. In Indian mythology, Kuber is the god of wealth and Laxmi is the goddess of fortune, riches and splendour.

OK, that’s a bit random, but I can see it catching on with time. After all I thought ‘Ubuntu’ was a silly name for a Linux distribution, but it is now one of the most popular in the world.

It’s essentially a UK-version of Mint, and I have to say I’m thrilled. I’ve only just created an account so all I can offer right now is my first impressions, but rest-assured I’ll be revisiting this topic once I have played with it some more.

Interestingly, Kublax isn’t a 5-minutes-ago startup, either. It was one of the 2007 SeedCamp winners and officially launched September last year.

First Impressions

I always make a point – particularly with these kinds of services – of reading the Terms & Conditions and Privacy Policies. I’m pleased to report that I can’t find any surprises. It does what it says on the tin, they won’t sell you out, and won’t share your details with the mafia. UK Data Protection laws apply as I’m pleased to see their service is hosted in the United Kingdom (at Rackspace no less, for the geeks amongst us).

The signup process couldn’t be simpler. They don’t even want to know your name. Just supply an email address, a password, a bit of demographic information and off you go.

The site itself is clean, well presented, easy to use and above all fast. There’s a useful introduction video to show you the highlights, and more information available if you want to convince yourself a bit further.

When you first login, it prompts you to start adding accounts. I skipped this step – just to be difficult – and started browsing around the tabs instead. There is a lot of potential here if you use it right. You can set up budgets, budget alerts and compare your debt repayments (anonymously) to others around you to see if you’re paying more than you should be, as well as the more traditional side of money management of seeing where you stand, how you are doing and where you seem to be heading.

This is where they make their money. Kublax is free to use for the ordinary consumer. It’s essentially commission driven and their aim to sell you financial products you might find useful. I can live with that. It’s unlikely they’d know better what I need than I do, but if it makes the service free them I’m happy.

Their suggestions might surprise me down the road, and in general it’ll be useful for those who are not keen on spending their life researching finance like we PF bloggers do! If they make some commission out of me, who am I to complain if it fits my money goals?

Some Interesting Statistics

One of the services I find most interesting is the ability to compare your spending with other nearby individuals based on country region. Alternatively you can get an overview of the average spend of the entire country.

You can do this on aggregate as above, or to your own spending. Guys, do you spend more on cash withdrawals for impromptu nights out than the average? Girls, is your shoe budget getting out of hand? Kublax can tell you all this and more.

To Be Continued

This is just a first look at Kublax. I’m going to start using it and I’ll come back to it in a few weeks and months after putting it through its paces. If you’re cutting edge, come and sign up and we’ll do this together. If you’d like to play it safe and see if they empty my bank account before diving in, then keep checking back.

The Kublax Review is to be continued…

• Cash ISAs vs. Regular Savings Accounts
• Savings Roundup - September 2009
• Personal Recessions
• Dig Yourself Out of Debt: Cleaning Up
• A Fundamental Question - Answered?