You have debts in the form of a £200,000 mortgage and credit card balances averaging £3,500. The rates you pay on these are typical. The mortgage, which you last switched in 2012 when you took the then best two-year fixed rate, now has a rate of 4.5pc. And your credit card charges the average 19pc.
Your cash savings of £40,000 are spread across two savings accounts, one a cash Isa and the other a normal savings account. They earn a disappointing average of about 0.85pc before tax (or about 0.5pc after higher‑rate tax).
You have £90,000 invested in stocks and shares Isas – the investments are all mainstream equity funds managed by well-known fund companies – which you made through the services of an independent financial adviser whom you no longer see or hear from.
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You’re not bad at shopping around for car insurance and energy bills, but it’s not something you do religiously, year after year.
Any of this sound familiar? Of course, it’s not very efficient to have both large debts and hefty savings balances, although it’s not unusual.
Someone in these circumstances probably needs to draw up a more efficient long-term plan. But for now, here’s a blueprint for instant savings.
On a standard variable or “follow-on” rate of 4.5pc, you will be paying £1,530 a month or £18,360 a year, assuming you have 15 years left to run.
By fixing you can slash your monthly repayments and protect yourself against future rate rises.
The question is how long you want to lock in for. A five-year fix, such as Tesco Bank’s 2.19pc deal would cost £1,305 a month. It comes with a £995 fee and is available to borrowers with 40pc equity.
It will cost you £79,295 over the five-year period, including the fee, as opposed to £91,800 on the existing rate. That’s a saving of £12,505.
If you want to lock in for a shorter period, Norwich & Peterborough’s 1.59pc two-year fix, which has no fee and is available to borrowers with 35pc equity, will save you £6,720 by 2017. It will cost a total of £30,000 over two years.
If you want to stay put over the long term then locking in a 10-year rate could be a great option.
TSB has a 3.09pc deal, available only through brokers, with a £995 fee for borrowers with 40pc equity. This would save you £15,805 over a decade:- total repayments would be £167,795 compared with £183,600.
If you would prefer not to use a broker, Nationwide has a 3.24pc deal with a £999 fee. It is available to borrowers with 40pc equity. It would cost £169,479 over 10-years, saving you £14,121.
But taking a 10-year fix not a good option for everyone. The early repayment fees could be crippling if you need to move house before the term ends.
Tables: Latest mortgage best buys
Your unnecessary spending
Ditching a shop-bought coffee each morning would save a you £611 in a year. And those partial to buying lunch instead of making it may find the overall annual cost hard to swallow.
Swapping a bought cheese sandwich – costing £2.49, or £647.40 over a year – for the supermarket-bought ingredients and making the equivalent yourself would save £590.
Don’t forget about the coupons – they can garner an extra £1,040 per year
Coupon queen, Emma Mumford says using money off vouchers could easily save shoppers £20 to £30 a week – and it only takes five minutes to have a look for vouchers online.
Ms Mumford’s biggest haul was a shop worth £256 that she paid just 8p for. However, she said the stash of coupons used took about a month to gather and at least three hours of preparation.
For those who don’t have the luxury of time, Ms Mumford suggests using dedicated sites like Extreme Couponing and Deals UK which she set up in 2003. It is also worth keeping an eye out for deals while browsing online and on social media.
Ms Mumford’s top tips include:
- Lots of supermarkets have magazines which often contain money off vouchers – Ms Mumford suggests picking up one before paying for your shop, to check for missed deals.
- Manufacturers of children’s products are always giving away free samples – keep an eye out for vouchers for free kid’s meals, toys and supplements.
- Don’t buy cleaning products full price – they are often discounted in store and there are always vouchers online. Plus, Ms Mumford says the manufacturers are some of the most generous. She said: “I gave some quite detailed feedback to Dettol and they sent me a £20 voucher. That’s like a year’s supply of cleaning products for me.”
Your life insurance
Switching your life insurance policy could cut your premium by hundreds of pounds – but be very careful.
As you get olde, cover costs more. The same applies if your health has deteriorated. Don’t cancel your existing policy until a new one is set up.
Men are more likely to save money by “re-brokering” their life insurance policies than women, according to insurance broker Lifesearch. This is because new EU laws were brought in two years ago to stop women (who generally live eight years longer than men) getting cheaper insurance. The change caused policies in general to become more expensive.
But if you took your £300,000 policy out in 2009 you could probably undercut it thanks both to falling rates and to your use of a cheap broker that doesn’t take commission. If you were 39 and your broker sold you a mid-market policy at the time from LV=, you’d have been paying £321 a year.
Today you could buy the same cover for £39 a year less at £282 a year.
Not only does your new 20-year policy give you protection later into life, but you’ll save £39 a year – or £780 over the period.
Your credit cards
If you maintain a credit card balance of £3,500, the best way to save without dipping into savings is to transfer the debt now – and then aim to pay it down out of income.
Numerous deals charge 0pc interest on balances for introductory terms of up to 39 months.
They effectively function as a 0pc interest loan.
Most cards charge you a one-off balance transfer fee for shifting your money across, but there are cards that offer lower 0pc balance transfer terms which come with zero fee.
There is a post-Christmas card provider war on right now for balance transfer business. The longest 0pc balance transfer period out there right now is MBNA’s 39 months, although this card comes with a 2.89pc fee on transfers made in the 60 days and a steep 5pc fee afterwards.
Halifax offers a 23 month 0pc term fee-free, but transfers must be made within the first 90 days to qualify for the 0pc offer.
Santander’s 123 credit card offers a 23 month 0pc term on both balance transfers and purchases with no transfer fee, which is worth considering if you still want to use the card to spend.
Your cash accounts
With the leading Bank Rate now not expected to rise until 2017, the outlook for savers is not bright.
But some customer-hungry banks continue to offer interest of 5pc on balances held in current accounts.
Plus, the new personal savings allowance from April means basic rate taxpayers won’t pay tax on £1,000 interest. Higher rate taxpayers will have a £500 allowance.
Assuming you have £40,000 in savings, start by putting £15,240 in the best paying cash Isa. The easy access Isa account from Conventry Building Society pays 1.5pc, earning £228.60 in a year.
The next £20,000 could go into a Santander 123 current account paying 3pc on this balance, plus up to 3pc cashback on utility bills. (There are higher paying current accounts on the market – TSB and Nationwide pay 5pc – but on much smaller sums).
By maintaining a £20,000 balance, savers would earn £600 gross in a year – remember it will be tax free for most people from April. Minus Santander’s monthly £5 fee, £540 remains.
As the Santander account is easy access, savers may want to consider locking the remaining £4,760 away in a fixed account. RCI Bank’s one-year bond pays a top rate of 2.06pc which would give a return of £98.06 over a year.
Savers must remember that deposits held with RCI Bank are not covered by the Financial Services Compensation Scheme which protects £75,000. Instead, balances up to €100,000 are guaranteed by the FGDR, the French equivalent to the FSCS. An alternative is Paragon Bank’s one-year bond which pays 2.01pc.
This means altogether, savers would earn £866.66 before tax on their £40,000 savings.
Data from SavingsChampion puts the current average easy access Isa rate at 0.95pc and the average interest-bearing current account at 0.81pc. So £40,000 split between the two would earn £345.34 – a difference from our recommendation of £521.32.
Your energy bills
Being loyal to an energy provider is likely to mean you are paying over the odds. Especially right now, when falls in wholesale energy prices mean tariffs are at a five-year low.
Let’s assume you pay £1,062, the British Gas standard tariff bill for a “medium user”, (a three-to-four person household using 3,100 kWh/year of electricity and 12,500 kWh/year of gas).
According to USwitch’s price checking tool, switching to Places for People Energy, Extra Energy or GnErgy would save £280 per year on a 13-14 month fixed deal.
The biggest saving available with a Big Six energy supplier would be with Scottish Power, at £257 saved on a 13 month fixed deal. Use this search tool to see the cheapest deals for your postcode.
Another money-saving “hack” is to switch via a cashback website such as TopCashBack (earning you an extra sum of up to £50 depending on how you switch) or Quidco (up to £36).
We’ve assumed that you have chosen to switch via Quidco in our total saving calculation.
Lastly, you could save £130 a year by making some minor hassle free changes to your energy habits, according to figures from the Energy Saving Trust.
Turning down the thermostat one degree saves £73 annually, using the washing machine at 30C saves £6, taking a minute off every shower saves £29, and so on.
You could also opt to switch to LED lightbulbs to potentially save over £200, but we have not included those potential savings in the final figure.
Your Isa funds
It sounds counter-intuitive, but investing directly with a fund manager is typically 33pc more expensive than buying the same fund through a middleman, such as a fund shop or broker.
Although few fund firms still promote their funds directly to investors, they are sitting on billions of pounds of historic investments.
On a £90,000 investment the hugely popular Invesco Perpetual High Income fund, purchased directly through Invesco, would cost £1,503 per year, as the ongoing charge figure (OCF) is 1.67pc. There is also a one-off entry charge of 5pc.
The same fund, bought via Charles Stanley Direct, the broker, costs 0.92pc. Charles Stanley Directly also levies its own fee, 0.25pc, so total fund charges come in at 1.17pc. That generates savings of half of one per cent, or £450 per year.
Over the long term, taking into account investment growth, the savings by switching to a low cost broker are huge (see below for finding the best fund shop).
Your fund broker
It’s not only fees to fund managers that investors must pay – a hefty chunk also goes to the ‘fund shops’ that administer and allow you to view holdings online.
Telegraph Money has comprehensive rankings all of Britain’s top fund shops by price. These are services where no advice is given.
Analysis like this is important because platforms charge customers differently, depending on how much they have to invest. Some charge a flat fee, some take a percentage of what you invest and they have different charges for investing in funds or shares.
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Those charging a percentage tend to be better value for investors with smaller sums, while a flat fee becomes very good value if you have a large pot.
If price is the most important thing to you, the cheapest option for an investor with £90,000 is Interactive Investor, at £100 a year. This compares to charges at the costliest platforms of around £400 – a saving of £300.
For those with £10,000 to invest the cheapest is currently TD Direct, with a fee of £49 a year. Telegraph Investor, our own platform, charges £50 at this level. These independent tables, compiled by analyst Langcat, show which is a good option for you.
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