SELECTING THE RIGHT SAVINGS ACCOUNT 3 ESSENTIAL CONSIDERATIONS

Transcription

1 SELECTING THE RIGHT SAVINGS ACCOUNT 3 ESSENTIAL CONSIDERATIONS

2 Research has revealed that the average UK worker has seen their income reduce by almost 10% in real terms (when adjusted to account for the impact of inflation) since 2008 *. Making incomes stretch further means that saving has been a challenge for many. But as a busy professional, you know it s sensible to make the money you put aside work as hard as you do, in order to achieve your future goals. Choosing where to put your money can seem daunting there s a wealth of savings accounts to choose from, each with varying rates of interest, access criteria, deposit requirements, and so on. We understand that selecting the right savings account for your individual needs can be time consuming, and sometimes confusing - so we ve put together this straight talking eguide to help you focus on 3 key considerations that you may not have thought of. So, before you select a savings account for your hard-earned money, invest a little time in reading on to discover: the value of establishing clear savings goals what you need to know about the introduction of the Personal Savings Allowance how to select a provider with a customer focused culture. This eguide is not intended to give you a comprehensive explanation of all the factors you need to consider. The best savings product(s) for you will depend on your individual circumstances and you may want to seek professional advice before making a final decision. *The London School of Economics and Political Science, March 2015

3 1. ESTABLISHING CLEAR SAVINGS GOALS Just stop and think for a minute about where you see yourself in 5 or 10 years time or even further down the line? What would you like to achieve and how much do you think it would cost to realise those dreams? It s good to start planning your financial future as early as possible to make your dreams a reality. Failing to clearly identify your savings goals can mean you run the risk of not being able to afford the things you want, because you didn t put the necessary funds in place early enough. We asked over 400 professionals what they were saving for - top of their lists included: New car Once in a lifetime holiday Deposit for a new house Reserve money to cover 9 months salary Reserve money to cover 10 months salary Children s School and University fees Deposit for their childs house Total needed to cover these items Teachers ,372 Lawyers ,370 Dentists ,279 Doctors ,904 Research based on a survey of 417 professionals (including 106 teachers, 100 lawyers, 109 dentists and 102 doctors) by Censuswide on behalf of Wesleyan, March By establishing clear savings goals, you can identify whether you intend to meet them over the short - (0-5 years), medium - (5-10 years), or long-term (10-15 years). This simple consideration will help you to identify: how much you will need to save each month, or year, in order to stay on track towards meeting your goals whether you will need easy access to some, or all, of your savings at short notice, and without incurring a financial penalty which type of savings or investment might be best for you. For example, are you willing to invest in property or stocks and shares, which may mean leaving your money tied-up over the longer term in order to ride out potential fluctuations within property or financial markets whether you should explore financial products designed to meet specific goals (such as saving into a Junior ISA for your child s future).

4 2. WHAT YOU NEED TO KNOW ABOUT THE PERSONAL SAVINGS ALLOWANCE The Personal Savings Allowance will be introduced in April From this point, Banks and Building Societies will stop automatically taking income tax from the interest earned on non-isa (Individual Savings Account) savings. If your total taxable income is less than 17,000 you won t pay tax on any income earned from savings. Your Personal Savings Allowance will depend on whether you re a basic, higher or additional rate tax payer: Highest rate of income tax you pay Basic 1,000 Higher 500 Additional Personal Savings Allowance No entitlement The introduction of the Personal Savings Allowance has led some people to question whether there is an ongoing need for ISAs. ISAs are tax free and, for the 2016/17 tax year, anyone: 16 or over can save up to 15,240 in a cash ISA 18 or over can save up to 15,240 in a cash ISA, Stocks and Shares ISA, Innovative Finance ISA or any combination of the three. Please note Innovative Finance ISAs are being introduced from 6 April 2016, to allow interest and gains from peer to peer loans to qualify for the tax advantages of an ISA. How inflation can erode the value of your cash savings Keeping money in cash savings, (rather than other asset types such as stocks and shares) is often considered as low risk. But low risk, doesn t mean no risk. Simply put, inflation is a measure of how much you can buy with your money, or what it is worth in real terms ( 1 today, for example, buys you much less than it would have 100 years ago). Inflation rates (Consumer Price Index - CPI) are currently very low 0.2% (Dec 2015), and the Bank of England is predicting average annual inflation to rise to 1.2% by Q4 2016, with a longer term target of 2%. For the purposes of this illustration, let s assume that the rate of inflation is 2% (based on the Bank of England long term target). If you put 10,000 into a bank account with 0% interest, in real terms it would be worth: 9,800 in 1 years time 9, in 5 years time 8, in 10 years time. So, unless you put your cash into a savings account where the interest earned outperforms inflation, its value could decrease in real terms. The With Profits ISA Holding your savings in a variety of asset classes can help you to protect them against sharp turns in the stock market and the affect of inflation on cash savings. The Wesleyan With Profits ISA is a Stocks & Shares ISA which accepts new investments into Wesleyan s With Profits Fund with the tax advantages of an ISA. The With Profits Fund aims to provide capital growth over a medium to long term period by investing in UK and International shares, fixed interest stocks, property, cash and other related investments. The fund aims to avoid sharp rises and falls by smoothing the return on your investments over the period of the plan. This product is designed for those who are willing to invest for a minimum of five years with the potential for long term capital growth and income, who are also prepared to accept that when the investment is cashed in, the value might be less than has been paid in. Source: BoE Inflation Report, Nov 2015

5 3. SELECTING A PROVIDER WITH A CUSTOMER FOCUSED CULTURE Opening a savings or investment account is the start of your relationship with the provider you choose. It s important to consider how easy you feel it will be to communicate and interact with them over the years. Here are some questions to think about to help you assess a potential providers customer focused culture : Does the provider proactively promote information about their most recent customer satisfaction ratings? How often will the provider send you a statement so that you can check the progress of your savings towards your goals? Is there a helpline you can call with queries about your account, or its performance? Is it UK based, and what are the opening hours? Are there shareholders that the provider needs to satisfy when making short-term commercial decisions about where to invest your money? Would you prefer the culture offered by a mutual or friendly society who work exclusively for the interests of their members? Selecting the right savings or investment account for you requires careful consideration. You need to look beyond the headline grabbing interest rates and work out what you are saving for; how you will spread and manage the risks; and which provider is most likely to pro-actively help you achieve your financial goals. If you would like help thinking through your savings options, you can arrange a no-obligation appointment with a local Financial Consultant: financialreview@wesleyan.co.uk Please remember to include your name; postcode; occupation; and quote reference number We need this so that the Financial Consultant who contacts you is local to your area, and has specialist training in understanding the financial considerations specific to your occupation. If you would like to find out more information or apply for a Wesleyan With Profits ISA online, please visit: wesleyan.co.uk/investments

6 For all your financial needs: Savings and Investments Retirement Planning Life and Income Protection Mortgages and Insurance For further information, please call Or visit: If you would like this document in Braille, large print or audio format, please contact For regular news, updates and information find us on social media. Visit: Head Office Wesleyan Colmore Circus Birmingham B4 6AR WESLEYAN is a trading name of the Wesleyan Group of companies. Wesleyan Assurance Society is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Incorporated in England and Wales by Private Act of Parliament (No. ZC145). Registered Office: Colmore Circus, Birmingham B4 6AR. Telephone: Fax: Telephone calls may be recorded for monitoring and training purposes. Advice is provided by Wesleyan Financial Services Ltd. WESLEYAN is a trading name of the Wesleyan Group of companies. Wesleyan Financial Services Ltd (Registered in England and Wales No ) is authorised and regulated by the Financial Conduct Authority and is wholly owned by Wesleyan Assurance Society. Wesleyan Assurance Society is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Incorporated in England and Wales by Private Act of Parliament (No. ZC145). Registered Office: Colmore Circus, Birmingham B4 6AR. Telephone calls may be recorded for monitoring and training purposes. WFS-WP-45 02/16 A