Every Friday I publish “Frugal Friday!“, an open-ended series with some of the simple and best ways to really save you money both now and in the future.

This Friday I am concentrating on reducing electricity bills. Here in the UK winter-time is traditionally the time of higher energy usage: the elderly use electric blankets, whole families have home lighting left on for longer as British Summer Time draws to a close, and we are generally stuck inside for the evenings more often requiring entertainment.

There are some simple steps you can take (and some cool gadgets you can buy without guilt!), to help lessen the impact of this seasonal increase in our home carbon emissions courtesy of our electric usage.

Check Your Tariff

Before last year, there was massive competition in the domestic supply market with various “lock in” and “fixed” deals. You may well have switched, I know I did. The fix on those tariffs has come to a close now though and prices are floating upwards so it’s time to get switching again.

There are hundreds of sites that will likely find you something cheaper; some good starting points are GoCompare, CompareTheMarket, and uSwitch. Don’t forget to finally go via QuidCo to get any cashback available, too!

Energy Saving Lightbulbs

Fairly obvious this one, and easy to achieve. Morrison’s just last week had an offer on of 4 for £1, and not low-quality either. As the nights get longer, more retailers will be trying to tempt us, so keep your eyes peeled. Even if you pay full price for them though you will still make a saving. The average bulb lasts for 5 years of normal use and consumes between 11 and 17 watts.

By switching all the bulbs in your house to low-energy equivalents, you could save around £112 a year and up to a whopping £307 over the life of a typical 8,000 hour bulb.

Turn Them Off

When you leave a room, turn the light off. Sounds so simple but take a moment and think – in the depths of winter – how often do you walk/drive/cycle around and think half of the houses you come across look like they are attempting to imitate the Blackpool Illuminations? Why pay even a reduced amount to keep an unoccupied room lit?

This can be a challenge with children, but with a little perseverance even the family dog can probably manage to turn the light out when it has finished in the kitchen. Your moody teenager may require slightly more effort.

Kill The Standby

Televisions, DVD players, computers, Satellite, Cable, modems, microwaves, food mixers, video recorders, printers, even modern intelligent washing machines and dishwashers. It’s amazing what has a ’standby’ mode these days. When standing by, ready for action, these devices are still sucking electricity and adding to your bills yet giving little to no benefit. Switch them off at the wall when you are done using them and again save upwards of £50 over the course of a typical year.

The Bye Bye Standby Energy Saving Kit takes the hassle out of such energy efficiencies by automatically killing the power for you when the device enters standby. It even comes with a handy remote to remotely control whatever you plug into it.

Monitor Your Usage

Last year, I got an Owl Cm119 Wireless Electricity Monitor, and they are absolutely fabulous. You can literally see, in real time, just how much money is being wasted in your home – and perhaps more impressive – see the difference after your efforts. The device pays for itself inside the first month or two, and you can find yourself doing seasonal challenges if you are not careful!

Banish the Tumble

As convenient as the tumble-dryer may be, it costs pounds to use every time. Pop the clothes out on the line if the weather is nice and get nicer clothes that last longer, dried for free courtesy of mother nature. Even if it is windy but lacking in sun you’ll be surprised how quickly clothes can dry in the open air.

Fridge & Freezer

If your freezer requires it, keep it defrosted regularly. Any build-up of ice means it has to work harder, consuming more electricity. If your fridge is regularly half-empty or more, fill it with water-filled bottles. These will help keep the inside temperature stable and reduce the effects opening and closing the door have. If your appliance(s) are older, when replacing ensure you get A-rated.

Never put warm or hot items in your fridge or freezer, either. Not only will this play havok with the internal temperature, it can take hours for your appliance to restore the previous temperature and damage food already within as well.

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I have a dear friend who I have known since school. She is funny, caring, tough and always the life of any party.

She also never has any money, and is perpetually in debt.

Here’s why.

She is a Dog Owner

I have been down the pet path myself in the past with cats.

While having a pet is a great boost in certain areas of life, they can be a real big money drain. Food, vets, insurance, initial purchasing, sundry items such as carriers, leads, clothes etc. etc. Year on year these prices just go up and up and sap the life out of your finances.

My mother is in a similar situation – with 3 cats with big appetites (and of course, they will only eat premium food), she spends more on them per month than she does on the adults in the house.

My friend has a rather large dog, that costs rather a large sum to feed and insure. To add insult to financial injury, due to the times she works (she is an A&E doctor), she has to pay for someone to come and walk it at least once every day as well.

I hazard a guess that in total she spends over £4,000 annually keeping her four-legged friend.

She Likes Expensive Holidays

Everyone needs to get away for a while to relax and recharge, but it does not need to be to expensive destinations year in year out. For the last 4 years running she has flown to Las Vegas which is expensive enough, but to compound the issue she then spent 2 weeks gambling whilst there (and lost overall, naturally).

I estimate she spends £2,500 a year on each holiday.

She Only Buys Premium Food

If it is not from Waitrose or Marks & Spencer, she doesn’t eat it. For those of you not in the UK, they are the two more ‘upmarket’ supermarkets that cater for the more well-to-do in society (or those who wish to be associated with same). An average microwave meal from either will set you back approximately £5, where the same could be purchased in Tesco for £1.50 or so, or even half of that if you are not averse to buying from the Value range. In other words, these stores are 6 times more expensive for no good reason other than buying into the brand ethos.

As an experiment at the beginning of the year just before I found my frugal self, I shopped exclusively in both stores just as she does for a whole month. I have just dug out my bank statements and added up each visit for the month.

I am shocked.

My food bill rocketed from an average of £97 to £339!

Over £4,000 a year just on food to feed one person. Nearly 3 and a half times my spend then, or nearly 7 times what I spend now.

She Drives a Lexus SUV

When she bought her four-legged friend, she felt she needed to upgrade her car to not only be able to carry the thing in comfort, but also project a more professional persona in line with her vocation.

She splashed out on a brand new 4×4 – on finance – to do this. Couple the interest payments and horrific mile per gallon calculations for the vehicle concerned, I suspect Sarah is sinking an additional £7,000 a year here compared to if she had just kept her perfectly suitable and fully owned, cheaper to insure, cheaper to run, cheaper to service previous vehicle.

She Carries a Credit Card Balance

You may wonder how I know this, but let’s just say it is amazing what friends will disclose after a few drinks. My attempts thus far to bring her round to financial sense have failed, despite probing questions and long discussions.

Her current credit card balance is around £2,000 at 19.9%. She always pays the minimum amount and by my calculation will be free of this debt around 2036 having paid £3,240 in interest for having done so. If we include the accrued interest, let’s say keeping this revolving balance costs her £1,000 a year.

She Smokes 20-a-day

My thoughts on smoking aside, a packet of her cigarettes currently costs £6.04 for a packet of 20. If she buys a packet every single day as her habit demands, this adds up to £2,204 a year.

She Cannot Resist Clothes Shopping

Remember that carried credit card balance? The majority of it is from her regular romps up to London for clothes shopping. She thinks nothing of spending the entire day traipsing up and down Oxford Street going in all the fancy designer clothes boutiques and coming out with armfuls at a time.

Wow.

Every year, adjusting for the fact she needs to buy some kind of food, my friend is spending £16,000 a year either servicing habits, keeping a companion or trying to inflate her lifestyle.  If instead of spending this she saved it at 4% for 25 years (the amount of time until she will theoretically retire) the effects of compounding would result in her having a retirement fund of her own – excluding the one she pays into with our employer – of – wait for it.

Wait for it.

£731,211.33!

Very nearly three quarters of a million pounds.

Do you have any friends you’d like to hit with a financial clue-stick?

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Every Friday I publish “Frugal Friday!“, an open-ended series with some of the simple and best ways to really save you money both now and in the future.

I was suffering from a small degree of writer’s block today. When I first came up with the idea of ‘Frugal Friday’, I had millions of post ideas zinging around in my brain, and it took much restraint not to write one huge article there and then with my ideas.

Now I have come to actually write another one, and my mind has gone blank. Every writer’s worst nightmare.

So I sat back and analysed myself for a moment. “What do I do that is frugal?”. I have written recently about saving money on your cooking and food shopping which are two of my passions, and something that everyone else has to do as well. I wrote about making good savings on the running cost of your car. Again, most people have a car and so that was a worthwhile article.

Then it suddenly dawned on me: haggling.

I have saved countless hundreds if not thousands of pounds over the years by haggling: with car dealers; shop assistants; telesales folks; a real varied range of different scenarios and people that more often than not, resulted in a saving.

Some examples from just this year include getting half-priced multiroom (for 2 rooms) for 12 months and a free Sky+ box for my satellite viewing pleasure. I got a 15% discount on my mobile phone bill without entering into a new contract. I even saved £150 off of a new set of tyres for my car.

So how do I did I do it, and how can you do the same?

Ask For a Discount

One of the simplest and most obvious ways is simply to ask for a discount. I once got 10% off in Curry’s just for asking if they could do me a discount! Front-line sales folks often have small discretionary powers when it comes to knocking value off of a product, but they won’t unless you ask.

Go Armed

I needed a new tyre earlier on this year on my car due to a slow-puncture in a non-repairable place. Two others were coming up for probably being illegal, so I decided I’d get them all replaced at the same time.

Unfortunately the ’slow’ had suddenly gone from slow to not so slow, and I found myself in the nearest Kwik-Fit. While they are not exactly my first port of call for maintenance, it was a case of “needs must” as I would not have made it home.  After choosing my brand, I sat down in reception.

I didn’t read the free magazines or drink instant plastic coffee, however. I dug my mobile phone out of my pocket and began price hunting for the brand and model of tyre I had just been cajoled by circumstance into purchasing. Unsurprisingly, the price I was paying was well over the odds of what I could have paid if I had ordered online.

When the chap called me over to pay, I asked for a discount. When he replied that the “price was good” already, I showed him my findings. Even my Ford dealer was coming out cheaper than what they were charging, and that was saying something. I walked out after a few more minutes of discussion with over £150 discount applied.

A Warning Shot

This works really well for services provided on a monthly basis such as satellite TV or cable, mobile phones, insurances, credit cards and so on. Mention that you are “considering leaving for another provider” and many customer service agents will launch into retention mode. How far you get depends on who you get, and what the company is, but sometimes this is all you need do.

I did this to Sky earlier in the year, and got offered Sky+ for free instead of the usual £60 installation. A good result. You can do the same with your credit card if you don’t like the interest rate, or your cell phone package, or your gym membership or any number of regularly paid for services.

Make The Explicit Threat

Sometimes though merely thinking aloud to a customer service agent is not sufficient. Sometimes you must explicitly state “I wish to cancel my account” before they will pass you through to the Retention Team. These folks have enormous power, and can make the world move if they like you enough and you are otherwise profitable.

I escalated my Warning Shot to Sky to an Explicit Threat and the tone of the conversation changed. It was no longer a cheerful discussion, it was pure business: They wanted mine, and they would clearly work to get it. In the end I settled for a free Sky+ box, free installation, and half-priced multiroom x2 for 12 months.

Don’t Be Afraid to Back Down

Sometimes, despite escalating through the stages of Asking, Arming, Warning and Threatening, you get met with the grim response of “very well. Your account will be cancelled.”

Ack! They have called your bluff.

You now have two options. You can back-pedal if you wish. “I should really discuss this with my partner first. I will get back to you on this” is a good back-down method. Sometimes, despite fighting the good fight, you lose. If you are ultimately happy with the service you are being provided with then there is no shame in backing down from the haggling fight.

Or Follow Through

If however you don’t mind switching (remember, new customers generally get some cracking deals), keep going. You may well find you get a call back about 5 days before your contract expires pleading with you to reconsider. This worked very well for me with my mobile contract with Three. I had built up a 6 year relationship with the company, but I was not really happy. I am still not, but that is another post altogether. I went through the stages, and eventually asked for my PAC code to transfer my number and close down my account. I had not expected them to let it get to that stage, though.

To my utter surprise, they gave it to me. Without argument.

I rolled with it and followed through. I was not actually all that concerned about losing the service, in reality. Except, 4 days before my contract was due to be shut off, I received a call from their retentions team pleading with me to renew my contract. I spent a good 20 minutes on the phone with them explaining that I did not wish to renew, but would remain if they could reduce my monthly payments.

I received a 15% discount without having to renew my contract. They will apply a 15% discount to my monthly bill on a month-by-month basis until I decide to re-cancel, upgrade or renew. That suits me perfectly!

Haggling is at the end of the day, all about being brazen enough to ask. As someone far wiser than I once quipped: “If you don’t ask, you don’t get!”

Have you haggled, or does the thought of arguing over a price seem embarrassing to you? Share your views in the comments!

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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?

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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?

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