Money To The Masses http://moneytothemasses.com Putting you in control Sun, 26 Jul 2015 00:58:57 +0000 en-GB hourly 1 Best of the Sunday papers’ MONEY sectionshttp://moneytothemasses.com/news/best-sunday-papers-money-sections http://moneytothemasses.com/news/best-sunday-papers-money-sections#comments Sun, 26 Jul 2015 00:00:48 +0000 http://moneytothemasses.com/?p=16650 26th July 2015 The Independent How to avoid loan sharks: The alternatives for people who need credit fast Switching your current account? Pick one that reflects the way you run your finances 'The elderly and people moving home are vulnerable to scammers' The Telegraph The biggest pensions shake-up in a century: how will it affect...

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26th July 2015

The Independent

How to avoid loan sharks: The alternatives for people who need credit fast

Switching your current account? Pick one that reflects the way you run your finances

'The elderly and people moving home are vulnerable to scammers'

The Telegraph

The biggest pensions shake-up in a century: how will it affect you?

Cheapest and most expensive countries for car hire this summer

Four money 'nudges' the Government recently used on you

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Best of the Sunday papers’ PROPERTY sectionshttp://moneytothemasses.com/news/best-of-the-sunday-papers-property-sections http://moneytothemasses.com/news/best-of-the-sunday-papers-property-sections#comments Sun, 26 Jul 2015 00:00:36 +0000 http://moneytothemasses.com/?p=16656 26th July 2015 The Independent Tom Cruise's luxury London rental is for sale for £35 million Huf Haus is bringing pre-fab chic to London: bold and elegant, are these the UK's most sustainable homes? An interest rate rise may be on the way - act now to secure a better mortgage deal The Telegraph Fed...

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26th July 2015

The Independent

Tom Cruise's luxury London rental is for sale for £35 million

Huf Haus is bringing pre-fab chic to London: bold and elegant, are these the UK's most sustainable homes?

An interest rate rise may be on the way - act now to secure a better mortgage deal

The Telegraph

Fed up of the city? Move to a sailing spot to suit you

In pictures: The £10m villa behind Bond baddie's underwater lair

London garden sells for £1.2 million

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Life insurance and Inheritance Taxhttp://moneytothemasses.com/tax-advice/tax-mitigation-tax-advice/life-insurance-and-inheritance-tax http://moneytothemasses.com/tax-advice/tax-mitigation-tax-advice/life-insurance-and-inheritance-tax#comments Thu, 23 Jul 2015 19:24:34 +0000 http://moneytothemasses.com/?p=19726 Life insurance and Inheritance Tax When assessing the potential inheritance tax liability on your death it makes sense to consider life insurance as a method of protecting your estate from inheritance tax meaning that you can pass on more of your assets to your family. When should you consider life insurance for inheritance tax protection? if...

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Life insurance and Inheritance Tax

inheritance tax adviceWhen assessing the potential inheritance tax liability on your death it makes sense to consider life insurance as a method of protecting your estate from inheritance tax meaning that you can pass on more of your assets to your family.

When should you consider life insurance for inheritance tax protection?

  • if your estate exceeds your available inheritance tax nil rate band (£325,000 per person or £650,000 if you've inherited a deceased spouse's allowance) and you want to pass your estate on to someone other than your spouse
  • If you want to prevent the sale of your home or any other valuable asset to pay inheritance tax
  • If you want to ensure that any inheritance tax is paid without reducing the assets you leave to your beneficiaries
  • If you have made substantial gifts (in excess of your inheritance tax nil rate band) to friends or family in the last seven years as these are deducted from your inheritance tax allowance first in the event of your death within seven years of the gift.

What type of life insurance policy do I need to pay the inheritance tax on my estate?

  • A whole of life insurance policy could be arranged so that life cover continues throughout you life
  • The policy should be held in a trust so that the proceeds payable on death fall outside your estate and, therefore, not liable for inheritance tax themselves
  • The sum assured should be enough to pay your estimated inheritance tax liability

Other ways to avoid inheritance tax on your estate

However there are other simple steps that can be taken to reduce any inheritance tax liability. It can be a simple case of arranging your assets differently. This FREE guide to Inheritance tax* contains real life examples including how one person saved over £371,000 in inheritance tax and instead passed the money on to their family. It is FREE inheritance tax advice that could save you £100,000s.

Further reading:

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The best annuity for £100,000http://moneytothemasses.com/saving-for-your-future/pensions/the-best-annuity-for-100000-and-100k http://moneytothemasses.com/saving-for-your-future/pensions/the-best-annuity-for-100000-and-100k#comments Thu, 23 Jul 2015 19:01:11 +0000 http://moneytothemasses.com/?p=19763 How to find the best annuity for £100,000 Anybody approaching retirement needs to think about what is the best way to take their pension income to support themselves in retirement. With the recent relaxation of income drawdown rules pensioners can now gain greater access to their pension fund rather than just take a standard annuity...

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How to find the best annuity for £100,000

Over-50s life insurance - what is it & is it worth buying?Anybody approaching retirement needs to think about what is the best way to take their pension income to support themselves in retirement. With the recent relaxation of income drawdown rules pensioners can now gain greater access to their pension fund rather than just take a standard annuity in retirement. However, annuities can still play a significant role in any pension planning and should not be dismissed too readily in the rush to get hold of cash from a pension pot. But before I tell you the best annuity rate for £100k it's important to understand what an annuity actually is.

What is an annuity?

An annuity provides a regular income for an agreed period of time in exchange for all or part of your pension pot. The level of income provided will depend on a number of factors such as - the size of your pension pot, your age, health and any minimum payment guarantees.

Should I buy an annuity?

Using all or part of a pension pot to purchase an annuity can still be a sensible option to guarantee that there is a regular income to pay your bills in retirement. Although getting your hands on your entire pension pot can be appealing consideration should be given to maintaining your standard of living in retirement. There are also tax implications when drawing a cash sum from your pension as any tax payable will be charged at your marginal rate of income tax.

How much income could I get from a £100,000 annuity?

The amount of income received from an annuity will depend on a number of factors

  • whether it is a single or joint life annuity
  • whether you want the income guaranteed for a number of years
  • whether you want the income increasing in payment to keep in line with inflation

The following table shows these choices can affect the income generated for a male aged 65 next birthday. The best annuity rate for 100k is:

 

Male aged 65Monthly income
Single annuity£522
Single annuity guaranteed. 5 years£521
Single annuity guaranteed. 5 years increasing 3% p.a.£338
Joint annuity£480
Joint annuity guaranteed. 5 years£480
Joint annuity guaranteed. 5 years increasing 3% p.a.£299

The above are indicative of best annuity rates for £100,000 available July 2015

Is it worth delaying the purchase of my annuity?

If you are able to delay buying an annuity then the monthly income available will increase but you will need to consider the following points.

  • your pension pot may increase in value if left invested, however, investments can go down as well as up which may reduce the amount available to purchase an annuity in the future
  • any increase in monthly income paid due to delaying the purchase of an annuity could be offset by the number of years of annuity payment that would be forfeited

The table below illustrates the potential effect of delaying the purchase of an £100,000 annuity by 5 years

 

Male LifeMonthly income age 65Monthly income age 70
Single annuity£522£558
Single annuity guaranteed. 5 years£521£553
Single annuity guaranteed. 5 years increasing 3% p.a.£338£402
Joint annuity£480£509
Joint annuity guaranteed. 5 years£480£507
Joint annuity guaranteed. 5 years increasing 3% p.a.£299£353

The above are indicative best annuity rates for £100,000 a

I am currently in poor health will that affect my annuity income?

If you have been diagnosed with an illness or have other health problems that could reduce your life expectancy then you might be able to obtain an increased income from your annuity. This is often referred to as an enhanced annuity.

The following conditions may result in being considered for an enhanced annuity

  • Cancer
  • Diabetes
  • Heart attack
  • Stroke
  • Kidney failure
  • Multiple sclerosis

If you have any condition not named above but are receiving ongoing medical attention then it is worth checking with an annuity provider to see if you would be considered for an enhanced annuity. Also smokers can get better annuity rates.

How to find the best annuity for £100,000

If you already have a pension plan with a pension provider then they will inform you of your options approximately six months before your selected retirement date. Their pack will inform you of the annuity options available together with the benefits of shopping round for the best annuity available across the whole market.

I would recommend using this annuity calculator which will help you find the best annuity for your needs. Purchasing an annuity is a 'one time' opportunity to get the best retirement income your money can buy so make sure you use a comparison tool like the one above to get the best deal.

Once you have selected the annuity provider and the type of annuity you require you can contact the provider direct and they will arrange the annuity for you. I would also recommend using an independent financial adviser to discuss all your pension needs.

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Should you ever invest in gold? If so how much?http://moneytothemasses.com/8020-articles/should-you-ever-invest-in-gold-if-so-how-much http://moneytothemasses.com/8020-articles/should-you-ever-invest-in-gold-if-so-how-much#comments Thu, 23 Jul 2015 14:32:26 +0000 http://moneytothemasses.com/?p=19788 The price of gold has recently been in free-fall plummeting to a five year low (see chart below of performance for the year to date). Those trying to rationalise the rout are citing a rising dollar (gold is denominated in dollars so a strong dollar makes it expensive to buy), lower demand from China and...

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The price of gold has recently been in free-fall plummeting to a five year low (see chart below of performance for the year to date). Those trying to rationalise the rout are citing a rising dollar (gold is denominated in dollars so a strong dollar makes it expensive to buy), lower demand from China and improving investment market confidence. Yet gold's price has been falling since late 2011 so it's nothing new. Is the old investment adage of always holding a certain amount of gold as an insurance against market volatility even true. Should you ever invest in gold?

gold ytd

Why the world is obsessed with gold

Gold has held humans entranced for centuries. Part comes from its beauty and much from it's relative scarcity and the fact that it is chemically uninteresting. By the latter I mean that it doesn't react with anything which is always a good thing if you want to make coins and jewellery out of an element. It's therefore no surprise that it is deemed the most valuable of all the elements. But just how scarce is gold? It is estimated that if we collected every tiny piece of gold we've mined and melted it down it would all fit into a 20 metre cube!

Beyond jewellery gold has limited other uses. It is no longer used as a currency, something which ended when Richard Nixon cut the US dollar's tie with gold. Previously currencies were backed by gold, which is what gave them their value. You had to have gold in your vaults to back up the money you were printing. But the lack of gold meant that supply was running out. So to ensure that you can produce enough of your currency to keep up with economic demand it makes sense to ditch the gold standard. So from that point on money was worth the value written on it just because the Government said so, plus they were free to print as much as they wanted.

The price of gold throughout history

This was a crucial time in gold's history as it meant that Government's didn't have to hold on to huge amounts of gold. Yet while demand continued to grow the supply of gold didn't because you still have to mine it. So the price of gold started to become increasingly volatile. The chart below (click to enlarge) shows the historic price of gold over the last 750 years up to 2011. You can see the huge spike on the far right around the 1970s.

But as you can see the price of gold has been very volatile in previous periods of history, again due to lack of supply. Interestingly you can see the price of gold crashes in the 15th-16th Century which was when Christopher Columbus discovered large gold deposits in South America.

historic gold price

 

Investing in gold

Yet beyond it's limited uses gold is seen as an intrinsic store of value. In a world where currencies do not have to be backed by the precious metal the value of money fluctuates and is influenced by economics, financial stability and politics. As such a currency's value can be artificially inflated/deflated and can even swing wildly overnight. Remember what happened with the Swiss Franc when it appreciated by 40% in a single day in January this year!

Gold is often said to be a hedge against volatility and vulnerability in financial markets. So in times of uncertainty gold is often touted as a store of value. Warren Buffett, probably the most successful investor of all time, once famously said:

Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.”

 

Is gold a good hedge against volatile markets?

Does gold actually work as a portfolio diversifier and act as insurance against a market collapse. If so how much gold should you buy?

To be clear, I am talking about investing in physical gold and not gold mining shares. Lots of gold funds actually just invest in the shares of mining companies and so are incredibly volatile, especially when markets have a wobble. Fortunately these days you can invest in physical gold by using certain Exchange Traded Funds (ETFs) which are physically backed. I cover this in more detail later in this article.

If an asset is to be a good diversifier it shouldn't be correlated to bonds or equities, which are the assets most DIY investors invest in. Fortunately there is a statistical measure that exists to measure whether two things are correlated (i.e whether they follow each other or not).

The table below shows this measure for 3 asset classes namely gold, UK equities and Bonds since January 2000. In that time we've had the dotcom bubble burst, the financial crisis as well as a host of other geopolitical events. A score of 1 would suggest that the two assets follow each other while a score of -1 suggests that as one rises the other falls and vice versa. A score of 0 means that the two assets are not correlated.

  AssetGold PriceTypical UK Strategic Bond FundTypical UK Equity Fund
Gold Price n/a0.080.00
Typical UK Strategic Bond Fund0.08 n/a0.60
Typical UK Equity Fund0.000.60 n/a

So the upshot is that while UK equities and bonds have a weak positive correlation (i.e. they tend to move in a similar direction more often than not) gold does its own thing.

A lesson from recent history

I painstakingly went back over time and recreated numerous portfolios assuming a different percentage of gold was invested in each, with the balance of each portfolio split equally between bonds and equities. The result of this analysis is shown below (click to enlarge):

gold 200 to 2015

 

The above chart would almost suggest that the more gold you hold the better. Yet if you overlay the price of gold on this chart you can see that the price of gold experienced a huge rally that skews the result somewhat when you simply look at total return over the whole period (click to enlarge).

gold 2000 to 2015 with just gold

 

However if you look at the period after the gold price peaked in September 2011 holding any gold at all was a bad idea (see chart below - click to enlarge)

gold post 2011

 

How much gold should you hold in your portfolio?

To answer this we need to dig a bit more deeply and scrutinise the performance on a week by week basis rather than taking a single long term view. When you do the result is a bit more useful. The table below shows various statistical measures for each portfolio.

The key points to take from it are:

  • Holding a small amount of gold reduces the volatility of your portfolio
  • Gold is not a hedge against volatility as the more gold you hold the more volatile your portfolio.
  • Holding gold reduces the size of your maximum losses to a point, yet holding too much will start to increase them again
  • Holding more than 5% of your portfolio in gold starts to increase the frequency of your losses and reduces the frequency of your gains (as shown by the number of positive and negative weeks)
PortfolioMax single fallMax single gainMax LossNegative weeksPositive WeeksAverage annual returnVolatility
5% Gold portfolio-24.9411.31-19.533244865.027.15
10% Gold portfolio-21.7114.75-17.513304805.367.18
15% Gold portfolio-19.2414.13-12.943334775.687.59
20% Gold portfolio-17.3817.34-11.793394715.998.2
25% Gold portfolio-16.1817.26-11.463454656.288.9
0% Gold portfolio-35.3413.72-24.113254854.629.24
30% Gold portfolio-15.8217.18-11.513404706.569.62
100% Gold portfolio-38.0320.55-17.333664439.6417.79

 

Should you ever invest in gold?

If you look at the charts above gold does not always rally when the market (indicated by the 0% portfolio) tumbles. So it is not a hedge against market falls. Neither is it a complete hedge against volatility as if you hold more than 25% of your portfolio in gold you actually increase your exposure to volatility.

However gold does well when everyone is in complete disarray and in fear of complete financial meltdown, as Warren Buffett alluded to above. That's what happened back in 2008 in the aftermath of the financial crisis as illustrated by the divergence of the portfolios in the first chart above. Numerous other geopolitical events in the following years in the Middle East and the eurozone kept the price of gold elevated. But since 2011 the price of gold has collapsed.

Holding gold in a market that is not in the grip of fear is painful. Despite the current concerns over a possible Greek exit the price of gold has been hammered, down 7% in the last week. Does that sound like a safe haven play to you?

Based on my research only buy gold to protect yourself from Armageddon but don't hold more than 5-10% if you plan to buy and hold it for the long term.  Use an ETF that physically holds gold such as the ETFS Metal Securities Ltd Physical Gold.

A better strategy altogether

But what would have happened if you'd used the momentum strategy that lies at the heart of the 80-20 Investor algorithm? The line in red speaks for itself! Click to enlarge the image.

80-20vs gold

 

 

 

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Neither MoneytotheMasses.com/80-20 Investor nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Funds invest in shares, bonds, and other financial instruments and are by their nature speculative and can be volatile. You should never invest more than you can safely afford to lose. The value of your investment can go down as well as up so you may get back less than you originally invested.
Information provided by MoneytotheMasses.com/80-20 Investor is for general information only and not intended to be relied upon by readers in making (or not making) specific investment decisions.
Appropriate independent advice should be obtained before making any such decisions. Leadenhall Learning (owner of MoneytotheMasses.com/80-20 Investor) and its staff do not accept liability for any loss suffered by readers as a result of any such decisions.
The tables and graphs are derived from data supplied by Trustnet. All rights Reserved.

 

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Latest interest rate predictions – when will rates rise?http://moneytothemasses.com/owning-a-home/interest-rate-forecasts/latest-interest-rate-predictions-when-will-rates-rise http://moneytothemasses.com/owning-a-home/interest-rate-forecasts/latest-interest-rate-predictions-when-will-rates-rise#comments Sun, 19 Jul 2015 07:01:39 +0000 http://moneytothemasses.com/?p=12789  This article is continually updated to bring you the latest analysis on when interest rates are likely to rise. You can now enter your email address here to receive updates to your inbox. At the bottom of this article I also tell you how to quickly calculate the impact of an interest rate rise on your...

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bank of england This article is continually updated to bring you the latest analysis on when interest rates are likely to rise. You can now enter your email address here to receive updates to your inbox.

At the bottom of this article I also tell you how to quickly calculate the impact of an interest rate rise on your own monthly mortgage payments. Plus I explain why you should consider remortgaging before a new EU rule comes into effect later this year and what you need to do now.

If you are wondering whether you should fix your mortgage rate, but don't know a mortgage adviser whose opinion you trust, then we've partnered up with an award winning mortgage advisory firm to provide fee-free expert mortgage advice for everyone. The service, which I've personally vetted, compares thousands of mortgages here* and you also can see the current best-buy mortgage deals as well.

When will interest rates go up?

In summary: in recent months the market consensus of when the Bank of England's first interest rate rise would occur has dramatically shifted. At the start of 2015 the consensus had been for the first rate rise to occur in the second half of 2015 but weak economic data and falling prices (negative inflation), because of a collapse in the price of oil and a strong pound, pushed this back into late 2016. Following the recent Inflation Report and public comments from Mark Carney, the Governor of the Bank of England, the market is now pricing in the first interest rate rise to occur in the first half of 2016. See bullet points below for more detail. Also enter your email address here to receive interest rate updates to your inbox.

The forecasting of the Bank of England base rate has been transformed in recent years. First of all Mark Carney, the Governor of the Bank of England (BOE), issued new 'forward guidance' on when the Bank of England will raise interest rates.

This was a policy which he employed during his previous role in Canada's Central Bank to try and control the market's expectations of when interest rates will rise. The reason for doing this is that an expectation of a rate rise is as important as the actual rate rise itself. If a market thinks that the BOE will increase rates then the cost of borrowing throughout the economy will rise. This can prove damaging for a stuttering economic recovery, meanwhile artificially low interest rates also make cash deposits unattractive, which in turn boosts consumer and corporate spending.

Mark Carney originally created a notional link between the UK unemployment rate and the BOE base rate. In a pledge to keep rates lower for longer Mark Carney said that rates would not rise until UK unemployment fell below 7%. But this threshold was hit, somewhat unexpectedly, so Mark Carney had to ditch the unemployment trigger when it looked like a breach was imminent, instead replacing it with 18 economic indicators.

So now Mr Carney has moved the goal posts on when interest rates will likely go up:

  • The BOE has now decided it won't tie interest rate rises to any particular economic indicator but a range of 18 of them.
  • Throughout 2014 Mark Carney kept the markets guessing over when interest rates are likely to go up again. After much speculation that interest rates would go up in 2015 this now seems unlikely because inflation recently turned negative for the first time on record and is not expected to head back to its 2% target until 2017
  • Yet Mark Carney is keeping the market guessing as to what the Bank of England's next move will be. In February he suggested that the BOE could start printing money again or cutting interest rates further if inflation does not pick up soon! The market wasn't expecting that at all and since then inflation has kept falling. Mark Carney has had to write to the Chancellor, George Osborne, in each of the last eight months to explain why inflation is below 2%. It was in the first of these letters that Carney suggested that the boost to the economy that the low oil price will give could mean that he will have to increase interest rates again sooner than the market thinks. Then on 14th July 2015 he also announced that the date of the first rate rise is drawing nearer. Also, just two days later he said that the decision of whether to increase interest rates would come into sharper focus at the end of 2015. It would seem that Mark Carney doesn't know his own mind at times. While most of the recent rhetoric coming from the BOE has been about raising rates, just days before Andy Haldane, a member of the rate setting committee, hinted that he would prefer rates to be cut! Unsurprisingly the market is taking each new piece of rhetoric with a pinch of salt.
  • At the start of 2015 the market had priced in that interest rates would go up in the second half of the year at the very earliest, but now the first quarter of 2016 is looking much more likely based on the BOE's latest Inflation Report and Mark Carney's recent comments
  • Either way, Mark Carney keeps reiterating that when rates do rise it will be gradual and, in the medium term, materially below the 5% level set on average by the BOE historically. It is expected that the first interest rate rise will occur in the first quarter of 2016, at the earliest, to 0.75% followed by further 0.25% increases at regular intervals.

So the current forecast of when interest rates will go up is: Markets are now pricing in the first rate rise (to 0.75%) to occur in the first quarter of 2016 with interest rates remaining below 2% in 2017 and 2018. They predict that interest rates will most likely be around 1.5% at the start of 2018 and 2.5% in 2025.

Whilst the BOE is now claiming that not just one economic indicator will be used in any 'forward guidance' of when rates will rise, a range of them will still determine when they actually do put them up. So economic indicators are still important in judging when interest and mortgage rates are likely to rise. Below is a roundup of the most important indicators which will influence when interest rates go up:

So what might influence when rates rise, despite the change in the BOEs 'forward guidance'  

  • Inflation remains low after turning negative – in February the official measure of UK inflation fell to 0%, but then fell to -0.1% (the lowest level since 1960) in April. Inflation is now once again back at 0%. That means that the cost of living is the same as this time last year. Inflation has tumbled in recent months, the biggest reason being the fall in the price of oil as well as heavy discounting in the shops. Inflation doesn't look like spiking any time soon either and Mark Carney has admitted as much in his latest inflation report. In fact, Mark Carney correctly predicted that inflation would fall to below 0%. Don't forget that the Bank of England's target inflation rate is 2% (with anything above 3% or below 1% getting a slapped wrist from the Chancellor). To combat inflation interest rates would be increased but the prospect of low inflation for the foreseeable future has fuelled speculation that the first interest rate rise will now not occur until well into 2016.
  • Official support for a rate is gaining traction – between August and December 2014 the Bank of England’s Monetary Policy Committee (MPC), who are the people who decide the UK base rate, were not unanimous in their support for holding interest rates at 0.5%. In fact, 2 out of the 9 committee members consistently voted for an interest rate rise. However since January's MPC minutes the voting has once again become unanimous (9-0) for holding rates. This is a dramatic turnaround (a result of fears over falling inflation) and was taken as a sign that the date of the first rate rise has been pushed back until 2016. But on 14th July 2015 Mark Carney publicly stated that the date of the first interest rate rise is getting closer, which was unexpected by the market given the lack of inflation. He cited the strengthening economy as one reason that the date of the first rate rise is drawing closer. Which is another way of saying that they are getting closer to voting for an interest rate rise once again. Another member of the MPC also hinted that they might start voting for a rate rise as soon as August this year.
  • The UK economy isn't growing as slowly as previously thought – UK economic growth has faltered of late. However, the Office of National Statistics has confirmed that the UK economy grew by 0.4% in the first quarter of 2015, and not by the 0.3% which was previously estimated. Either way this is still well below the 0.6% GDP figure in the last quarter of 2014 when the UK became the fastest growing industrialised economy in the world. Although economic growth is back at its pre-crisis level the slowdown in growth is a concern. Yet a growing economy still increases the prospect of a rate rise and what has surprised a few people is that Mark Carney is worried that the low oil price could in fact see economic growth rates soar and force an early rate rise.
  • There's cautious optimism about future economic growth - be it the UK services, manufacturing or construction, official data has pointed to improved signs of economic recovery. However, the services sector which accounts for about 75% of the economy, saw an unexpected slip in activity at the end of 2014 which fed through to the official GDP figures for the first quarter of 2015, as mentioned above. Things haven't improved as in May the sector grew at its slowest pace in 5 months. However, if the economic recovery strengthens then interest rates will rise sooner and faster than suggested by the official guidance.
  • Unemployment has stopped falling – The number of people out of work fell by 15,000 to 1.85 million in the three months to May. This was a bit of a shock as unemployment had been falling steadily over the last 2 years. The UK unemployment rate still sits at 5.6%, well below the BOE's old 'forward guidance' threshold, a threshold the BOE hadn't expected to be breached until 2016. But interestingly wage growth now comfortably exceeds inflation - a trend we last saw back in 2009. In fact the growth in annual average earnings jumped to 3.2% which is comfortably above the current rate of inflation and the fastest rate for 5 years . A lack of wage growth is a sign of slack in the economy which would make an early rate rise less likely. But if wage growth continues to improve then calls for an interest rate rise will increase. The only stumbling block will be if the rate of unemployment keeps falling.
  • UK economic growth forecasts are being tempered – while there is optimism for UK economic growth the previous bullish forecasts have been repeatedly downgraded. The Bank of England now expects the UK economy to grow by 2.4% in 2015, which is slightly lower than the 2.5% forecast in March and well below the 2.9% forecast back in February. The Confederation of British Industry has also downgraded its forecasts, predicting economic growth of 2.4% for the UK in 2015. Interest rates are unlikely to raised until economic growth is more stable.

The new EU rule that could soon stop you remortgaging

The ability to remortgage and/or fix your mortgage became a bit more difficult last year as the rules surrounding the affordability tests when applying for a mortgage were tightened slightly. Lenders had to make sure borrowers could still afford to pay the mortgage if interest rates went up. However, if you were simply remortgaging lenders didn't have to apply the more stringent affordability tests. Some lenders did just that which made remortgaging a bit easier. But new EU rules taking effect later in this year will remove this option for lenders which could end up leaving some borrowers stranded on their existing deals.

If you are planning on fixing your mortgage rate when interest rates start going up the new EU rules may prevent you - leaving you stranded on your existing deal with your mortgage repayments rising in line with the bank base rate or your lender's whim. 

If you are on your lender's standard variable rate then I strongly suggest you do the following exercise which will takes you a few seconds but could prevent your mortgage repayments crippling your finances in the near future.

Step 1 - Use this interest rate rise / fall calculator to calculate the impact on your monthly mortgage payments

Quickly calculate the impact of an interest rate rise on your mortgage payments in pounds and pence by using this interest rate rise calculator*. Just make sure you enter the original details of your mortgage, such as the original amount you borrowed and the original term. This will ensure that the starting monthly mortgage payment matches yours. Then simply enter different interest rate rises and you will see how your monthly mortgage payments will change.

So let's say for example that back in 2007 I borrowed £200,000 for 30 years at a rate of 5%, which has since dropped to 2.5% (the lender's standard variable rate). In the calculator I would enter the original loan amount (£200,000 on a repayment basis), the original term (30 years) and the current rate of interest (2.5%). The bank of England base rate is currently 0.5%. So let's say I want to see the impact if the base rate increased by 4.5% (to 5% - which is the historic long term average) I just enter 4.5% into the 'anticipated rate change' box and click calculate.

The result shown below the interest rate rise calculator tells you that my current mortgage repayment would increase from £790 a month to £1,331 a month. That's an extra £541 a month that I'd need to find!

Once you have the result move on to step 2 below.

Step 2 - The best way to find out your mortgage options

Consumers are unaware of the impending EU rules and the fact it will leave some stranded on their current deals. At best their mortgage repayments will increase in line with the Bank of England base rate, at worst at the whim of their lender.

Most consumers will wrongly assume that using a price comparison site is the best thing to do when looking to remortgage. However, bear in mind

  • many mortgage deals are only available via mortgage advisers so don't appear on price comparison sites
  • not everyone can get the rates quoted on price comparison sites
  • price comparison sites don't take into account your credit rating or personal circumstances which will determine whether a lender will actually lend to you. For example you may not be eligible for the deals quoted by comparison sites and won't find out until they credit check you. That in itself will then hinder future mortgage applications

That is why you are almost always better off dealing with an independent mortgage adviser rather than going it alone. Which is why most borrowers now use a mortgage adviser to find the best deal from a lender who will actually lend to them.

We therefore recommend that you book a FREE callback from this award winning mortgage broker* before you do anything else. There is no obligation on your part and I've personally vetted them. Simply click on the link, enter your name and number and they will take the hassle out of searching the market and make a recommendation, even if it is to stick with your current deal. Alternatively you can call them for FREE for an informal chat on 0800 073 2325.

If you already have an independent mortgage broker that you trust then I suggest you get in touch with them ASAP. There has never been a better time to remortgage.

Further reading - should you fix your mortgage rate now

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The best strategy in a stock market crash – Stick or Twist?http://moneytothemasses.com/8020-articles/the-best-strategy-for-a-stock-market-crash-stick-or-twist http://moneytothemasses.com/8020-articles/the-best-strategy-for-a-stock-market-crash-stick-or-twist#comments Fri, 17 Jul 2015 10:52:40 +0000 http://moneytothemasses.com/?p=19729 What should you do when the market has a bad day? It's the million dollar question. Should you sell at the first sign of trouble? When do you buy back in? Or should you just stay invested and cross your fingers and hope for the best? That is what this piece of research answers. The problem...

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investWhat should you do when the market has a bad day? It's the million dollar question. Should you sell at the first sign of trouble? When do you buy back in? Or should you just stay invested and cross your fingers and hope for the best?

That is what this piece of research answers. The problem with investment commentators is that they are quick to recite investment mantras and perceived wisdoms. How many times have you heard someone say that you shouldn't panic when markets crash and 'you have to be in it to win it'.

Ask an investment professional to show you the evidence to back their claims and they will clam up. In truth, investment management companies and financial advisers want you to keep your money invested otherwise they don't get paid. Don't forget they get paid by taking a slice (a fee) of your portfolio every month. 80-20 Investor is all about testing facts and analysing markets to produce action points that can stack the odds in your favour.

How to answer the million dollar question

To begin with you need a huge set of historical data to analyse. The main UK stock market, the FTSE 100, has been around since 3rd January 1984. Since that time there has been an incredible 8,216 trading days. In that time we've had huge rallies (such as the dotcom boom) and crashes (including the financial crisis after Lehman Brothers collapsed as well as Black Monday). We've had wars, political upheaval, recessions and even the birth of home computing and the internet. So as far as data sets go it is pretty robust.

So over the course of 3 days I analysed the opening and closing prices of the FTSE 100 for every day over the last 31 years. I also analysed the changes in the FTSE 100 index from day to day.

In very simple terms the perfect investment strategy would be to ensure that you are in the market for the best days and avoided the worst days. If markets behaved in a random way then the best and worst days for investors should be spread out randomly throughout the 31 year period.

For the record the best ever day for the FTSE 100 was 24th November 2008 when the FTSE 100 rose 9.839%. Meanwhile the worst was the day after Black Monday (20th October 1987) when the index fell 12.216% in a single day.

That fact alone gives a tantalising breadcrumb trail to follow and see where it leads. On 15th September 2008 Lehman Brothers (a financial services firm in the US) filed for bankruptcy. This then caused the stock market to collapse and financial markets to go into meltdown.

It may seem surprising that the best ever day of the FTSE 100 was just two months after one of its darkest moments. But upon further investigation the second best ever day for the FTSE 100, with a gain of 8.84%, was 19th September 2008. Just 4 days after the Lehman Brothers collapse!

Best and worst ever days for the FTSE 100

After analysing the daily movements in the FTSE 100 for each day over the last 31 years I compiled a list of the 20 best and 20 worst days in terms of performance. Below I've compiled these lists into a single table sorted by date. The 20 worst days are highlighted in red while the best days are highlighted in green. The daily movement of the FTSE 100 for the day in question is shown in the second column.

If you run down the list you should start to notice a trend beginning to emerge. There is a statiscally significant correlation between the occurrence of the worst days on the FTSE 100 and the best.

beset and worst days

It is not random

Clearly the best and worst days don't happen independently of one another. In fact rather than be spread out across the 31 year timeframe the chart below shows that they are mostly grouped into 3 small windows centred around the biggest market corrections in history. The first was Black Monday, the second was the popping of the dotcom bubble and the third was the aftermath of the collapse of Lehman Brothers. These are shown by the greyed out areas in the chart below and represent 32 of the above dates. Click on the chart to enlarge it

best and worst

This grouping becomes even more apparent if you extend the analysis to looking at the best 50 days and the worst 50 days for the FTSE 100 Index. So clearly the best and worst days occur near each other. But is there a pattern in the order that they occur?

Somewhat amazingly 30 out of the 50 best days occur within 7-8 days following one of the worst days on the FTSE 100. A lot of these actually occur within a day or two.

Furthermore 36 of the '50 worst days' occur within two weeks of one of the' 50 best days'.

Can you time the market?

Of course there are instances where the time between a terrible day on the FTSE 100 and one of its best days slips into months or occasionally years. But is it possible to determine the typical length of time between one of the worst days and a subsequent bounce?

The answer is yes. In a data set such as this one where there is a lot of bunching with just a few outliers you need to look at the median value. What you find is that following one of the worst days on the FTSE 100 you typically have to wait just 6 days for a one of it's best performing days to appear. Or in other words...

When markets suddenly sell-off typically they will bounce back strongly around 6 days later.

But will you still lose money?

I decided to take the analysis one step further. I looked at where the FTSE 100 index was at the end of a bad day and then where it was after the subsequent 'best' day. Or in other words I was trying to see whether the bounce was worth waiting for.

As you'd expect there was a wide range of outcomes at either extreme but again there was a clustering.

Typically the bounce after a sell-off will take you 1.8-2% above where the FTSE 100 closed on the initial bad day.

Market over-reaction

On the face of it my findings will surprise a lot of investors but they can be explained by investors' biggest weakness, their emotions. If you look back at the chart of the FTSE 100 above you will notice that the greyed out areas, where the best and worst trading days occur, are at the latter stages of a wider market correction. This is because at the start of an unfolding severe market correction investors are in denial and remain in the market. However once the trend becomes entrenched panic sets in and investors bail out en-masse.

This is when the biggest daily falls occur. However, there always comes a point when the market is oversold and eventually bounces back. This is when the best trading days occur as the fearless investors spot the value opportunities and everyone else catches on. The market then continues to climb but in a more tentative fashion as investor confidence returns.

So when the market sell-off dramatically what should you do?

Clearly there is no fool-proof strategy but history suggests that following a severe market correction you would be better off staying in the market, especially if it comes after the market has already been falling. It's a case of holding your nerve as a knee-jerk reaction will crystalise the loss and you'll miss the subsequent bounce.

The evidence seems to back my 'falling glass' analogy when I was recently talking about what to do regarding the Greek debt crisis.

So how does this all relate to our stop loss alerts?

So you might wonder where 80-20 Investor's trailing stop alerts fit into all this. Is the research saying that stop losses alerts are pointless?

No. If you look at the above chart a trailing stop loss would have triggered near the top of the 3 greyed out areas, long before the worst trading days occurred. Had a cautious investor sold then they would have missed the overall market correction and the worst trading days in history.

What this research shows is that if you ignore stop loss alerts and take a long term view you are better off staying in the market and riding the remainder of the storm out. Rather than regretting your earlier decision and selling in a knee-jerk reaction.

 

The material in any email, the MonetotheMasses.com website, associated pages / channels / accounts and any other correspondence are for general information only and do not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation. See full Terms & Conditions and Privacy Policy
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Funds invest in shares, bonds, and other financial instruments and are by their nature speculative and can be volatile. You should never invest more than you can safely afford to lose. The value of your investment can go down as well as up so you may get back less than you originally invested.
Information provided by MoneytotheMasses.com/80-20 Investor is for general information only and not intended to be relied upon by readers in making (or not making) specific investment decisions.
Appropriate independent advice should be obtained before making any such decisions. Leadenhall Learning (owner of MoneytotheMasses.com/80-20 Investor) and its staff do not accept liability for any loss suffered by readers as a result of any such decisions.
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Critical illness insurance – what is it, and is it worth having?http://moneytothemasses.com/quick-savings/insurance-2/critical-illness-insurance-what-is-it-and-is-it-worth-having http://moneytothemasses.com/quick-savings/insurance-2/critical-illness-insurance-what-is-it-and-is-it-worth-having#comments Mon, 13 Jul 2015 09:00:29 +0000 http://moneytothemasses.com/?p=10724 Most people imagine that a serious illness only happens to other people. However the true picture is quite different - 25% of women and 20% of men will suffer from cancer or a heart attack before they reach retirement age. We often consider what would happen to our families if we were to die prematurely...

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critical illness cover is it worth itMost people imagine that a serious illness only happens to other people. However the true picture is quite different - 25% of women and 20% of men will suffer from cancer or a heart attack before they reach retirement age. We often consider what would happen to our families if we were to die prematurely but rarely consider the effects of a critical illness. Critical illness can have a devastating effect on a family, whether it is just paying the bills or extra costs involved in adapting a home or travelling for hospital treatment.

What is critical illness insurance and is it worth it?

Critical illness insurance is designed to ease the financial pressures of suffering from a serious illness by paying out a lump sum on diagnosis. Normally the policyholder must survive one month before the policy will pay out. Critical illness cover should not be confused with income protection insurance as the latter pays out an 'income' in the event of you being unable to work due to sickness or an accident. For more information see my article 'What is the difference between income protection and critical illness insurance?'

So is critical illness cover worth it?

What is covered under a critical illness policy?

All policies should cover seven core conditions - cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis or stroke. In addition to this most critical illness policies will pay out if the policyholder becomes permanently disabled due to injury or illness.

In addition policies can cover a total of 20 or more other conditions,, but this varies from insurance company to insurance company so you will need to check the details carefully.

Often critical illness cover can be added to a life insurance policy where payment is made on either diagnosis of a critical illness or death, which ever is sooner. With a combined life insurance and critical illness policy the premiums would be cheaper than two separate policies as there is only ever one lump sum paid out by the insurance company.

Normally critical illness cover is available for people between the ages of 17 and 70.

Why should I consider critical illness insurance?

Most people feel that life insurance will cover the needs of their family if they should die prematurely, but suffering from a critical illness or long term disability can be just as devastating financially. You probably will not be able to carry on work, with the subsequent loss of income, or have to outlay a substantial amount of money to have alterations made to your home if you become disabled. So if you have dependents relying on you for an income then critical illness insurance is worth it.

If you are considering critical illness insurance then you should act now as due to advances in medical technology and an increase in claims (a result of more people surviving critical illnesses) many insurance companies are reviewing their policies. This could result in a reduction of the illnesses covered or an increase in premiums for policies taken out in the future.

Also, I would think carefully when linking critical illness cover to a mortgage protection policy as the amount covered reduces over time. This would leave you with little or no critical illnesses cover at a time when you are most likely to suffer.

How much does critical illness insurance cost?

The cost of the critical illness insurance will depend on a number of factors

  • Age
  • Smoker/non smoker
  • Current health, weight and family medical history
  • Occupation
  • Amount of cover

What is the application process for critical illness cover?

As with all types of insurance you will need to compete a proposal form which will ask if any members of your family have suffered from any serious illnesses. If they have then your policy may be rated, meaning that you will pay a higher premium to be covered for certain illnesses. You may also need to undergo a medical which is a fairly standard procedure for applicants of a certain age or medical condition.

It goes without saying that you should be honest and provide complete information to the insurer when applying for any critical illness insurance. If you do need to claim the insurance company will investigate your medical history fully in a bid to uncover any undisclosed information.

Is critical illness insurance worth it?

I guess, as with any insurance, if you need to claim then the policy has been good value. I would point out, however, that critical illness insurance is rather expensive - £100k of life insurance for a male non-smoker aged  35 would cost £7.50 pm for a 20 year term, whereas the same level of critical illness cover would cost £28 per month for a 20 year term.

The above figures assume that you are accepted at ordinary rates and have no illnesses excluded.

Are there any things I need to be aware of  when considering critical illness insurance?

  • There are over 200 versions of critical illness cover available which can vary widely so obtaining advice from a financial adviser or critical illness specialist. First of all I suggest that you compare critical illness insurance prices online here* and get a quote. Make sure you enter the level of critical illness and life insurance cover you need in the relevant boxes. We've partnered with a protection specialist to bring you this tool. Should you need any help we've vetted their service and their advisers are experts in their field.
  • When considering critical illness cover always check the policy details carefully making sure you understand the illnesses covered. Remember cheapest is not always best when it comes to critical illness insurance.
  • Ensure you understand what constitutes a claim in regard of both seriousness of the illness and the extent of any disability
  • Check whether the premiums are fixed or are reviewable by insurance company after a few years.

I have heard that many critical illness insurance claims are being rejected, is this true?

As you can see from the table below the number of successful claims is very high with main reason for declining being the definition of illnesses.
Company% of CI claims paid
AEGON93
AVIVA94
BRIGHT GREY91
FRIENDS LIFE90
LEGAL & GENERAL93
LIVERPOOL VICTORIA88
SCOTTISH PROVIDENT91
ZURICH92

figures supplied by Kevin Carr of Protection Review and relate to 2012

Conclusion: Critical Illness cover - is it worth it?

Critical illness insurance should be considered as a part of your overall financial planning but, due to the high premiums, may not fit within the budget of some. But don't be put off, some cover is better than no cover and by reducing the sum assured or the term of the policy you can reduce the premium. Always seek independent financial advice or use a specialist protection adviser and check the policy details fully before purchasing.

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The best way to take money on holidayhttp://moneytothemasses.com/quick-savings/travel-quick-savings/the-best-way-to-take-money-on-holiday http://moneytothemasses.com/quick-savings/travel-quick-savings/the-best-way-to-take-money-on-holiday#comments Mon, 13 Jul 2015 04:20:25 +0000 http://moneytothemasses.com/?p=12675 The best way to take money on holiday Here are the various options available to take money on holiday and some help in deciding what is best for you. Around this time of year you may be planning for your annual holiday and, if travelling abroad, how much spending money you will need. Once you have...

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The best way to take money on holidaythe best way to take money on holiday

Here are the various options available to take money on holiday and some help in deciding what is best for you. Around this time of year you may be planning for your annual holiday and, if travelling abroad, how much spending money you will need. Once you have decided on the amount of money to take on holiday, you will also need to decide what is the best way to take money on holiday.

Cash

The simplest method of taking money on holiday is just carrying cash in the currency of your destination. However, there are a couple of drawbacks with this option.

  • Security - obviously carrying a large amount of money anywhere creates a security problem, often when abroad we inadvertently advertise the fact we are tourists - checking maps, asking for directions etc. - thus leaving us vulnerable  to theft.
  • Exchange rate - All foreign currency services advertise two exchange rates - buying rate and selling rate, this means that you buy foreign currency at a higher rate than the one offered if you have money left over at the end of your  holiday that you wish to change back.

Obviously, you will always need to take some cash on your holiday to pay for things like taxis and tips, but make sure you take no more than necessary and be mindful of security at all times.

Credit card

One of the safest ways to take money on holiday is a credit card as the security issue is minimal and you don't have to decide in advance how much money you will need. If you do lose your credit card, or have it stolen, then just contact the card provider and they will issue a replacement. There a couple things you need to be aware of before deciding on this method to take money on holiday.

  • Conditions - check the conditions for your particular credit card as there will usually be charges for cash withdrawals and even for just using your card abroad. One thing to note is that most cards charge interest on cash withdrawals even if you repay the balance.
  • Dynamic currency conversion -  this means that suppliers may charge you in sterling rather than the local currency, the rate used for these sterling transactions is invariably uncompetitive so always opt to pay in the local currency.

If you do not currently have a credit card then there a number of credit cards offering 0% interest, for a period of time, as well as reduced or no transaction fees,  but again make sure you check all the conditions.

Using a credit card will also require a degree of discipline to make sure pay off the balance on returning from holiday, and not end up still paying for this year's holiday next year.

Some of the best credit cards with no overseas transaction fees are:

Halifax Clarity

  • No worldwide load fee (exchange rate fee)
  • No ATM fee
  • Representative APR on spending: 12.9%
  • Representative APR on cash withdrawals: 12.9% if balance fully repaid, 12.9% if not fully repaid

Aqua Reward

  • No worldwide load fee
  • ATM fee of £3 or 3%
  • Representative APR on spending: 34.9%
  • Representative APR on cash withdrawals: 39.9%-59.9% if balance fully repaid, 34.9% if not fully repaid

Other good alternatives are the Post Office credit card or, if you are over 50, the Saga Platinum credit card.

Prepaid card 

Prepaid cards are a fairly new way to take money on holiday,  you can put as much cash as you want on the card before the start of your holiday. These cards can then be used in a similar way to a credit or debit card as well as used to withdraw cash at an ATM, a pin number will be sent to you after setting up the card. Most cards will  allow you to check the card balance and add or withdraw funds,  either by phone or over the internet. The charges on these cards vary by provider, so again check the conditions. At present, prepaid cards are only available in the main world currencies but as their usage increases more currencies will inevitability become available.

Be aware - if you use a prepaid card when checking into a hotel or hiring a car you need to be aware that the provider may 'ring fence' an amount on your card to protect themselves against future charges for services used or damage incurred. Typically a hotel will 'ring fence' around £250, whilst with a car hire firm this could over £1,000. This amount will not be charged taken from your card but will mean you cannot use this amount until you have checked out of the hotel or returned the car. It may be wise, therefore, to use your normal credit card as security in these instances but make sure you settle the bill in the local currency as the providers currency exchange rate will normally provide poor value.

The current best travel prepaid cards are:

Ukash*

  • Free cash withdrawals
  • No charges on spending
  • Top up is free via direct/debit or online
  • Currencies: Dollar, Euros
  • Exchange rate: the best prepaid card rate in the market, which is determined daily by Ukash. You can find more on the Ukash card here*

Caxton FX*

Highly recommended - This is actually the card I use when I take money abroad. Easy to use, good value and very easy to top up.

  • Free cash withdrawals
  • No charges on spending
  • Top up is free via direct/debit or online
  • Currencies: Dollar, Euros
  • Exchange rate: one of the best rates out there,  determined daily by Caxton. You can find more on the Caxton card here*.

Travellers cheque

For years this was the most way to take money on holiday but more recently their usage has reduced dramatically due to the rise in the usage of cards.

Travellers cheque are still a viable option but there are a couple issues with this option.

  • Fees - there will be a fee charged for buying the cheques and another charged for changing them into the local currency.
  • Ease of usage - with the reduction in their usage, not all stores and restaurants will accept travellers cheques leaving you to change the cheques for cash at your hotel or local bank.

Best way to take money to the USA

The USA, and in particular Florida, is a popular destination with British holidaymakers and taking money to the USA has never been easier. Personally I use the Caxton FX* card mentioned above as it has a great exchange rate and comes with a handy smartphone app that enables you to keep an eye on your money. You can also top your available cash through the app or online if you overspend at the theme parks. Although you can use a pre-paid card to purchase items, just like a debit card, I also make sure I have a credit card with me for larger purchases or in the unlikely event that my pre-paid card is not accepted.

Conclusion

In my opinion the best way to take money on holiday is a mixture of cash and a prepaid card, if available in the currency required. Keep the amount of cash to just the amount needed for low ticket items, such as taxis or tips,  leaving the card for bigger purchases or withdrawing top up cash when needed. Although withdrawing cash at an ATM may incur a small charge (usually levied by the ATM operator and not the prepaid card provider), this is a small price to pay for the security provided.

Final tip

If you are using a credit card to settle bills when abroad you will often be asked whether you want to pay in local currency or in pounds sterling. You should always choose the local currency otherwise the retailer can apply what is known as Dynamic Currency Conversion

Also read my articles:

7 ways to keep your money safe while travelling

How to save money on your travel insurance

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Car hire warnings following changes to UK driving licences – time period extendedhttp://moneytothemasses.com/quick-savings/travel-quick-savings/car-hire-warnings-following-changes-to-uk-driving-licences http://moneytothemasses.com/quick-savings/travel-quick-savings/car-hire-warnings-following-changes-to-uk-driving-licences#comments Sat, 11 Jul 2015 08:25:34 +0000 http://moneytothemasses.com/?p=18980 Car hire warnings following changes to UK driving licences Motorists are being warned that they could face problems when hiring a car abroad following changes to UK driving licences. What are the changes being made to UK driving licences? The DVLA plans to scrap the paper part of the UK driving licence, which contains details...

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Car hire warnings following changes to UK driving licences

Car hire warnings following changes to UK driving licencesMotorists are being warned that they could face problems when hiring a car abroad following changes to UK driving licences.

What are the changes being made to UK driving licences?

The DVLA plans to scrap the paper part of the UK driving licence, which contains details of driving convictions, and transfer this information to a database. From June 8th UK drivers will not be obliged to carry the paper part of their driving licence as up to date details of convictions can only be checked online, by phone or by post.

How will these changes affect me when I hire a car abroad?

When you hire a car most companies need see the paper part of your driving licence to check if you have any driving convictions. From 8th June the paper part of your driving licence will not be updated, so car hire firms may not accept it as proof of convictions and may refuse to hire you a car.

What can I do to prevent any issues when collecting a hire car?

  • You will have to register with the DVLA website before travelling.
  • By entering your driving licence number you will obtain a code to allow the car hire firm to gain access to your records.
  • This code was originally only valid for 72 hours but after pressure from motoring organisations this has been extended to 3 weeks.
  • There will be the facility for drivers to download a printable copy of their driving record but it is not clear yet whether this will be accepted by car hire firms.

 

image: digitalart

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