Moneywise best buys
Getting the most from financial products can often seem like an awful lot of hard work: you're constantly encouraged to 'shop around' and 'do your research' to ensure you're getting the best deal.
But, sometimes, all you want is for somebody else to give a product the green light, so you know it's a good deal without having to do the leg work.
While it's a good idea to use a number of comparison websites when you're looking into a new financial product, and although it's important to consider your individual circumstances before making a decision, here at Moneywise we like to try and make the process a little easier.
So here's a list of this week's best buys:
Santander - £100 to switch, in-credit interest rate of 5%
The interest rate is fixed for 12 months and available on balances up to £2,500, which means a maximum amount of £125 interest can be accrued.
The £100 bonus for switching is the same as the deal previously offered by Alliance & Leicester, which is owned by Santander and in the process of re-branding its products to align them with Santander's.
Consumers hoping to take advantage of the offer must make the account their main current account and pay at least £1,000 per month into it.
People who have held a Santander account in the last three months or who currently have an account with the bank are not eligible for the offer.
This limitation also extends to those who have held, or still hold, an A&L, cahoot, or Cater Allen account, all of which come under the Santander umbrella.
In addition, customers must have at least one active direct debit set up on the account within 11 weeks of opening it - if they don't have any direct debits to switch they will be unable to apply for the account.
While the 5% interest rate is a competitive rate, customers should be aware that any balance held over £2,500 will not gain any interest.
After 12 months, the rate will reduce to 1% AER (variable). At this point, consumers should consider switching again, depending on whether there are more competitive accounts on the market.
Holiday credit card
Halifax clarity card - no fee to use anywhere worldwide, flat rate typical APR of 12.9%
This credit card launched just this week and is perfect for holiday spending. With no fees to use it anywhere worldwide and no foreign exchange fees, you can avoid nasty surprises on your credit card bill when you get back from your trip.
You receive up to 59 days' interest free credit from the date a purchase is made if you pay your statement off in full and on time each month.
On this card, Halifax do not use negative payment hierarchy, which means there is one flat APR, typically 12.9%. But this is variable, so keep an eye on it for any changes and be aware that depending on your circumstances and lending history you may be charged more.
When a provider uses negative payment hierarchy, you pay off your cheapest debts first - so on a 0% balance transfer card you would pay off your balance, leaving more expensive debts such as purchases or withdrawals to rack up interest.
If you want to use your card solely for purchases or balances, another credit card might be more suitable, depending on your spending habits.
A current best buy balance transfer card is from Nationwide, which offers 0% interest on balances for 15 months (subject to a 3% transfer fee) but then returns to 19.9% APR. So it is crucial you pay your balance off within the 0% interest rate period, or alternatively transfer the balance onto another card.
Another option is Virgin's credit card which offers 0% on purchases and balance transfers (subject to a 2.98% transfer fee) for 12 months. After 12 months the interest rates are 21.9% on balances and 18.9% on transfers, so again you should aim to pay off your debts before then.
Many providers offer competitive deals to existing customers through platinum or gold cards, so it is always worth checking with your current provider.
Fixed interest savings
For a long time ICICI has topped many best buy tables with headline grabbing interest rates, and it continues to do so.
If you are willing to put your money away for five years, the ICICI five year bond has an interest rate of 4.75%. This account is only available online and the minimum investment is £1,000. You can choose to receive your interest on a monthly or annual basis, and for loyal customers renewing their fixed rate account, an additional 0.5% bonus rate is added.
For those looking for a shorter term savings account and who have a bit less cash, Northern Rock offers 3% on balances over £1, but this is postal only. The rate is fixed until 1 August 2011 and early withdrawals are not permitted.
Keep an eye out for more best buys in next week's newsletter.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.
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