When we meet new clients and agree to work together, the
number one aim we have for them is that they achieve their
monetary and non-monetary goals in life.
You have probably heard us discuss some of the component
parts to this, such as cash flow forecasting and smarter
investing etc. However, one of the areas we cover is being
smarter with the everyday issues, such as where do you keep
your cash that is needed to cover everyday spending and
direct debits etc.
Most clients tend to have ordinary bank accounts that pay
very little if any interest, and yet the level of cash kept
in these accounts can be many thousands or even tens of
thousands of pounds.
So, what options do you have, and is this important anyway?
Well, first of all, we understand that some clients have an
emotional attachment to their bank. After all, they may
have been with them since they were a student, and the
local branch is fine for them.
However, it could damage your wealth over time!
You have two main options.
Option 1 - Offset Flexible Mortgage With Current Account
Many of our clients have this type of mortgage. In recent
years, the interest rates on these have reduced, meaning
that the rates are almost as competitive as the cheapest
deals.
If you are self-employed or have private practice income,
this option is even more useful, since you can park your
tax monies here.
For higher rate tax payers, this means that you are
obtaining as an interest rate the actual mortgage rate of,
say, 5.5%. But of course this is tax free, compared to a
normal account being taxed at your highest rate.
However, just looking at a balance level on average of say
£7,500 in a given month, the savings could come to
over £400 a year. If you take this over 10 years,
then we don't think £4,000 is to be sniffed at.
Option 2 - Current Accounts That Pay Interest
If the mortgage option is not relevant, it makes sense to
ensure that on any balances in your account, you get a
decent rate of interest.
There are many more banks and building societies now
offering competitive rates. Taking one offering from the
Halifax, it gives 6.17% gross providing you pay in at least
£1,000 per month. So instead of recieving little or
nothing on your account, you could earn £462 a year.
This is taxable of course, which would mean net interest of
£370 for basic payers, and £277 for higher rate
payers. On a joint account it would be circa £323.
Still, over time this adds up, and we would much rather you
had this than adding to the bank's profits!
The Financial Tips Bottom Line
Make sure you get the best value you can on each and every
part of your financial planning, as it can soon add up to
substantial amounts over time.
ACTION POINT
If you have a mortgage, investigate whether an offset loan
would prove your best option. If not, and you are not being
offered a decent rate on your current account, switch to a
bank who will offer you this.
After all...it's YOUR money!
----------------------------------------------------
Ray Prince is an Independent Financial Planner with
Rutherford Wilkinson plc, and helps UK Resident Doctors and
Dentists get the best deals on mortgages, protection and
investments, as well as helping them achieve their
financial objectives. Just visit
http://www.medicaldentalfs.com to get your free retirement
planning guide. Rutherford Wilkinson plc is authorised and
regulated by the Financial Services Authority.
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