Podcast 65: Interest rates rising, How best to switch funds & A little known tax break

48 min Read Published: 29 Nov 2015

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Show transcript

Andy: Hello and welcome to episode number 65 of the MoneytotheMasses Podcast with your resident expert as always, Damien Fahy; and me, Andy Leeks. Damien, welcome back. How are you doing?

Damien: Good, Andy, very good.

Andy: Yeah, you're looking good.

Damien: Thanks. Nothing like starting a show with a compliment. Yeah, I'm good. I'm still chugging along with the final throes of the loft conversion. So I'm pleased about that. The painters and decorators have come in. Actually on the painters and decorators, I started to talk to you off air, didn't I? And I stopped myself because there's a quick tip in here. I think most people do this, but it's just a reminder to people. If you're going to get a tradesman to come in and paint or do anything, always get at least three quotes, maybe go for more if you can.

The reason I mention it because I was just telling Andy that I got four quotes to have the loft painted and some other parts of my houses. Before people think I'm lazy, well, I suppose I am slightly when it comes to DIY, but I needed to get it done fairly quickly. We got four quotes, and I'll tell you what, I won't say the numbers, but let's go for percentages. How much, what percentage difference do you think there was between the quotes, Andy? Between say the cheapest and the next one up, what sort of percentage difference do you think there was?

Andy: I shouldn't imagine it would be any more than a 20-25% difference maximum. So you're going to shock me now, aren't you?

Damien: That's a good start, because three of the quotes came within that ballpark. There was a guy who, I kid you not, his quote came in at more than double any other person who quoted for this exact same job.

Andy: More than double. That's ridiculous.

Damien: More than double. To put that into some sort of context for people out there, it was almost going to get bordering on about a fifth of the cost of me doing the entire loft, having the loft built. The amount of money he wanted to charge you'd think I lived in some sort of palace rather than the end of terrace house. Maybe he just didn't want the job, but my advice to any trades-person out there is if you don't want the job or you haven't got the time or capacity to do it, then just say so. I'd rather he said he didn't want to do it. So anyway that was just a quick tip because I always get four quotes or at least three because then you can compare, see where the market average is, and then you can choose to go for somewhere probably in the middle.

Andy: Yeah, good tips. He's not a friend of the guy just a few doors down where you found his wallet, is he? Maybe he heard about what you did to him and he's trying to get you back.

Damien: That's quite a good link into the next thing I was going to say. Walletgate. There was a rather bizarre update on Walletgate, not related to the guy himself, but again, talking to the builders and stuff who are just finishing my loft, and he was in there and I was chatting to him. He started to tell me a story he'd heard on the radio about a guy who'd found a wallet in the street. You know where this is going, don't you? He started to tell me and I said-

Andy: You won't believe this.

Damien: You wouldn't believe it. That was me. He'd heard it on, I think it was LBC Radio, which is a London radio station.

Andy: It was probably a phone in or something like that, was it?

Damien: Yeah, and they pick up funny stories in the press. Apparently that story came up, and he had no idea it was to do with me. We were just talking about something. How strange is that? That's one of those bizarre moments where you start talking to somebody and they tell you a story of something. You're not going to believe this. And then in the end it happened to be me.

Andy: Just to fill listeners in who perhaps don't know what we're talking about, Walletgate, we haven't really referenced that. If you go back a couple of episodes there's one that talks about a wallet. Yeah, I'm not going to spoil it. Go back and listen to it, and you'll know exactly what we're talking about.

Damien: And for those who do know what we're talking about, I just wanted to throw in another money-related story. It's vaguely money-related, but it goes along the same lines of ludicrous viral stories. I saw an article yesterday in a newspaper about a lady who went on a date. So she went for a date with a chap and they had gotten coffee. Cut a long story short, she didn't want to see him for a second date, and he got fairly annoyed about that fact and actually texted her his bank details and asked that she transfer the £3.50 back to his account for the wasted coffee. That story went viral and that story ended up in the Daily Telegraph. So there clearly is a slow news period if my wallet episode ended up in the Daily Mail, and the story of a woman who got asked for a refund on the coffee she was bought on a date ends up in the Telegraph. So there you go. If you've got any ridiculous stories related to money, send them into the national newspapers.

Andy: Yeah. Early to mid-November is obviously the time when you want to be hitting the news because there's not much going on.

Damien: Definitely, definitely.

Andy: Back to the podcast then. What have we got coming up this week?

Damien: We've got a whole bunch of pieces. I've got to again squeeze quite a bit in. I'm going to talk a quick bit about investing and a tip for people out there who are reviewing their portfolios. I want to touch upon a bit of advice on daft things that people have done on social media relating to money, which is a bad idea and could lead to you having all sorts of identity theft problems. Then we're going to touch upon an allowance that people need to be claiming, and there are probably around 4 million people who've not claimed a tax allowance that they should do. So I want to bring that in. I may even touch upon when interest rates are going up. We did it once before, a whole podcast on it, and we try not to date the podcast, but I'll chuck it in there because it's becoming more and more relevant. So let's crack on, shall we?

Andy: Good, yeah. Let's do it.

Market timing

Damien: Right. Investment. The last few podcasts, we've talked about bench-marking and we've touched upon when to sell a fund.

Andy: Short squeezes. I remember short squeezes.

Damien: Short squeezes, Andy. Have you experienced any short squeezes since we last spoke?

Andy: Not recently. No, I'm a married man. It doesn't happen.

Damien: That just put me off, there. That picture, I'm trying to get it out of my mind. For people who didn't listen to last week's podcast, sometimes every now and then people betting on the market falling can actually cause it to go the opposite way and rally incredibly strongly because they end up having to close out their bets as it starts to rally, and they buy back in, and it's self-perpetuating.

So what I did, last month I reviewed my portfolio right at the beginning of October for my 50K investment, which I do live. I actually carry it out live on the 80/20 Investor portion of my website, the DIY investment service that I run. What actually happened, really interesting, some people might consider it slightly unlucky, is the day that I made a whole load of switches, fund switches, and it wasn't because my portfolio wasn't doing very well. In fact if people go back to the previous podcast my portfolio was beating 98% of fund managers, but you need to stick with a process, and 80/20 is all about investment process.

Now, I did some wholesale changes, and the day I happened to be out of the market, which I think was the 2nd of October, and this was the strongest day on equity markets pretty much this year. So the market bounced. Now, I knew that was a possibility because obviously I've been doing this long enough. I knew that if you change all your funds on one day, because they don't happen immediately, they transact overnight, and on occasion over a few days that's one of the drawbacks of funds. If you use ETFs or investment trusts, they tend to go through far quicker, and almost on the same day, but unit trusts, which is what everybody who listens to this podcast will use, they actually take up to a couple of days to go through, but usually, they're done within 24 hours. So what happened is I missed out on that beginning part of that rally, and what I wanted to just pull out, it's not to say what worries me. That's just unlucky. Because earlier in the year I had the opposite happen to me where I did a trade and the funds I switched in happened to be a day before the Chinese market rallied 15%.

So you win some, you lose some. But if people out there aren't prepared for the potential rally or bounce of the market, particularly if the markets are volatile, then I suggest that you do your fund switches in stages. It might seem obvious in hindsight, but for most people, they will sit there and do their fund switches ready and they will do them all in one go. I quite like that approach because I fully accept the possibilities in what could happen, good or bad. But if you're not happy about that potential, then do your fund switches over a few days, because that way if the market does bounce, you've still got some skin in the game.

When will UK interest rates go up?

Andy: Good stuff, good tips. What have we got next?

Damien: Let me just chuck in a quick piece on interest rates, because at the moment...now this podcast is in November, 2015, but we're always wondering when interest rates are going to go up, because they've been at their historic lows of 0.5% for over six years. I don't tend to bring it up on the podcast, as I say, because I don't want to date things, but now it's becoming a little bit more interesting because people were thinking, they were betting on the idea that interest rates were going to go up this year, so before Christmas, but then that's been pushed back. So they were looking at the middle part of next year.

Now, just to give people a steer, if you look at markets where they're pricing in the first interest rate rise, and the first one they're only pricing in to be quite a small one, just a bump up to, say, 0.75%, they're pricing that in now at the back end of 2016, potentially at the beginning of 2017. Now, the markets don't always get this right because they've been pricing in increases for quite some time, and generally they always tend to price them in about six months to a year ahead of where we are, because it always seemed we couldn't have rates this low for much longer, but we have.

The thing that's pushed things back this time around is that there are big concerns that the global economy might be slowing down particularly China. So China's growth rate isn't as great, or economic growth isn't as fast as it has been. So that's the thing that's got Mark Carney and the Bank of England worried. So for people out there, it looks like interest rates will probably stay where they are for another year, but things can change quite rapidly. We could be talking about this again in a few months' time and saying the rates look like they're going to go up much, much sooner.

Andy: Remind me again how often they review these interest rates. Is it monthly?

Damien: Yeah, it's monthly. What's happened is they all meet, this committee of nine people, and the governor, Mark Carney of the Bank of England, he's one of those people. They effectively lock themselves in the room, sit there, have a chat over it, and then they vote. It's a majority vote, and when they get to the point that more people want rates to go up than to stay still or be cut, then they will start to move up. To give people an idea, at the moment, we've only got to the point where eight people are voting for rates to stay the same, and only one is voting for a rate rise. So we are quite some way on the scale of voting for an increase. We'd need at least four more people to decide interest rates need to go up on that committee, and that doesn't look like it's happening soon.

So there's a lot more transparency than there used to be. The first Thursday of every month is when the Bank of England announce their decision, and these days...what they used to do was tell you the rates were either going up, going down, or staying the same. But now what they do, they tell you that piece of information, but they also tell you the voting. So that's changed in the last few months. So that gives everybody a bit more clarity about what's going to happen and what's likely to happen. So if you're worried about your mortgage going up, then just flick the news on on the first Thursday of every month and you'll get a bit of insight.

Andy: Good. This comes at quite a timely time actually because I actually got an email from Barcleycard today. I've got a credit card with them that's currently got no balance, I'm pleased to say, but they still send me the marketing emails and bits and pieces. So today they sent me an email and they said as from February of next year it's likely from then on that interest rates might go up. So they're changing their terms and conditions on their cards to say that they will basically increase whatever the rate is on the card by whatever rate it goes up by. So it's just them covering their backsides, I suppose, and changing the Ts and Cs like they can.

Damien: Yeah, and that's the thing, they can do it. They're not the first people to do it. I remember a couple of credit card companies changed them probably about 18 months ago, because at that point, they thought rates would have gone up by this point in time. So it's interesting you hear that. People have got to start to realize that will happen. Probably what spurred that on is that over in America, they have the same thing where their interest rates have been at historic lows, but they are now talking that they are going to start increasing their interest rates from December, 2015. So that could be next month. So this idea of really low rates forever is starting to change, and if it's starting to change in the U.S. then history says that our Bank of England will start to follow at some point. On a positive note it's a sign that the global economy can start to be self-sustaining. It doesn't need to be on this life support machine. It's a bit like you find a pulse and you start taking some of the drugs away. That's all it is. So we do have to realise that we're going to go to this new world.

So go onto moneytothemasses.com, and if you go and look at the interest rate prediction page I talk about this all the time on there. There are links so you can test how much your mortgage will go up by when interest rates go up, and you can fiddle around with the interest rate, do that, and don't get caught out, because also there are some cracking mortgage deals out there at the moment that surprisingly, and in part it's because interest rates are not expected to go up for quite some time. If we'd done this same segment a month ago, then I wouldn't have been talking about 2017 probably. I would have been talking more towards the back end of 2016. So that just shows you how things have been pushed out.

Social media money mistakes

Andy: Okay, so we're talking about stupid things that people do on social media, specifically that lead to things like fraud. Now, I'm probably guilty of most of these, because I'm a fairly careless individual. This is going to be a fun piece, I think.

Damien: Yeah. There are basically four things that people do and they should try not to. Actually, before I go on to that, talking social media, people listening last week would have heard me tell the story of my five-year-old daughter who tried to con the tooth fairy by pretending her teeth had fallen out and leaving a note. I've actually found that note and I've posted it on the MoneytotheMasses Facebook page. So go to that Facebook page and you'll see the childlike scrawlings which are trying to scam the tooth fairy out of some money.

Andy: I've seen it and shared it, and it is worth a look. It is absolutely brilliant. Do you know what, I think she's going to go somewhere, your young daughter. She's got something about her.

Damien: Prison or the Apprentice I think are the two complete opposite ends of the scale. Actually I also saw this week...I was going to mention it on the pod, but decided not to because I can't remember if we touched upon it before, but there was a survey done on the going rate paid by the tooth fairy at various places around the country. There is a definite north-south divide. I can't remember if we did something on it, but put it this way, it's about £2.60 a tooth now. So no wonder my daughter was trying to con a fictional being.

Andy: My daughter's lost four so far and we've just stuck to the pound. We did £2 for the first one and then £1 thereafter. So what am I? I'm a fiver down.

Damien: Are you?

Andy: Yeah, so you're a fiver better off than I am.

Damien: It sounds like she's pulling them out. So going back to the daft things people do on social media, number one is there are people who quite frequently share a picture of themselves with their credit card, grinning next to it in excitement for either acquiring a credit card or maybe going shopping.

Andy: Making a purchase, yeah.

Damien: Or making a purchase. What they do, they just hold the card up displaying that wonderful 16 digit number across the middle, and it enables scammers to get quite a bit of detail. They might not have your PIN number or some of the other details, but it doesn't take a genius to work out what some of those details could be or have enough details just to try and scam somehow. To prove that this isn't just one off, there's a Twitter account that's got more than 17,000 followers where all the account does is just retweet pictures of people-

Andy: Idiots.

Damien: It basically retweets, as you put it, Andy, idiots. It's got 17,000 people following it. So do not do that even if you think it might be a bright idea of excitement, then anything like that, there are people out there who are clearly...with 17,000 people following a Twitter account dedicated to stupidity, that shows you there must be a demand for credit card numbers. So don't do it. That's one of the worst ones. The next one I was quite surprised at, really. I hadn't thought of it myself, but showing off gig tickets or tickets to events. Say you're going to a concert.

Andy: Yeah, I see a million of those photos every day.

Damien: And people who are excited. What scammers are doing is copying the tickets, they're taking the bar-code numbers and producing fake tickets. So when the person they sell them, the person goes and uses them and they get into the event. You then walk up and your ticket has already apparently gone through the turnstiles. So there's a scam out there that is ripping off tickets. So if you get a gig ticket you might be excited, but don't show it off on social media. Do not post a picture of yourself on Twitter or Facebook because you probably won't be so smug when you're turned away. The other one is refreshing the cache on social media. Apparently some people are, I don't know what the word is, but boastful enough to be waving money on social media if they come into it. So they might get a bonus or something, and be waving a bit of money. Somebody did this-

Andy: I think the technical term is being a complete fool.

Damien: You can keep that in, Andy, when you edit. You don't have to edit. It was a word I was thinking, but didn't say. Yeah, there are people who do it. A girl did this in Australia, a 17 year old girl who flashed the cash on social media.

Andy: And someone went straight round and robbed her.

Damien: That's exactly what happened.

Andy: I was kind of joking.

Damien: Three or four hours later some people went round to her house and basically raided the place demanding the money. So it just proves that there are people out there who would go on social media to find out this stuff. Now, the last one I want to quickly point out, there are kind of two on this. One of them I've mentioned before and has largely been ignored by the world which I don't quite understand. One of them is obviously limit the amount of information you share on social media about yourself. So I'm not just talking about what you're up to, I'm talking about things like pets names and your favorite things and all that sort of stuff, stuff that would make a password...you know when people ask you, "Where were you born?" and all this sort of stuff. Now that is the sort of information that people do also share on their social media profiles. You go on Facebook and you'll find lots of people. The thing I don't get about Facebook is that it seems to me nearly everybody's profile is open in some way.

I'm almost going to commit Facebook suicide and get off the thing because I find that when I go on now my feed is full of people who I don't even know and pictures of people. You can click on their profile and you're thinking, "I don't even know this guy." So that means you can find out information about them. So limit the stuff you do.

A couple of years ago, I actually went through and, to prove something, I went onto First Direct bank. Now a lot of banks have social media profiles, and people go on and like their bank. I don't know why you'd do that. I've never felt such an affinity to a financial institution that I want to give them the thumbs up. But even though Facebook seems to have limited the information...because you used to be able to get a list of people who like the page. Now at the moment when you interact with a page, so people go on there and say, "I'm having problems logging on," or something like that, first direct are fantastic because they will respond, and it's a brilliant page. But what it also does is you go on there, you can see straightaway why all these people, I now know the bank they bank with and I know they've got internet banking with that online bank.

Andy: And potentially that they've got issues.

Damien: And they've got issues. The thing is you can then go through and click on their profiles. I'm not a stalker, but I did this as an experiment a couple of years ago and I published...go onto moneytothemasses.com and if you Google, "first direct Facebook," in the search bar you will find a post that I did about five years ago. What happened, we went through it and, to prove a point, went on there and started...we took out somebody's name, we didn't actually name them, but listed some details about them like their date of birth, when they got married, because it's all stuff that they've shared over time on their Facebook profile and you can just go and click through where they'd worked, what their pets' names were, what their favorite songs were, their favorite lyrics. All these things have become password details, could be, and a myriad of information. I actually sent it round, but even though I sent it round to all the national newspapers at the time, and this was before I was regularly quoted in the press, and nobody really took any notice of it. That was about four years ago.

Before I did this podcast I went on there and I looked again to see if things had improved, and they haven't. You can still go through. I was looking at people's profiles and finding information. Some people share less, but others will share lots of stuff in their profiles. I just think it's slightly dangerous if you associate yourself with a bank because when you converse on Facebook everyone can see it. So this is just my own personal tip. Don't converse with your bank on Facebook. Ring them up on the phone. Do it directly. Don't do it in the public domain.

Andy: I think that's brilliant. Did you ever hear the story about Jeremy Clarkson and some idiotic thing that he did to do with banking?

Damien: What's that? Enlighten me.

Andy: Well, what happened is he used to have a regular column. He probably hasn't got that column anymore since his recent troubles, but he's a fairly fiery character. He was complaining about people moaning about fraud and online fraud, and he was saying how things have gotten so much better and that people should be thankful that system and processes have improved so much. So he was kind of picking on these people saying, "Look, don't moan about something that's so trivial," and he said it's so trivial and it's so difficult these days for people to actually scam you that I'm going to print my bank details in the national press. And he did. In his article he put his eight digit account number and his six digit sort code and he said, "No one can do anything with this information. It's purely an account number and a sort code. All you can do with that information is pay money into my account, and I would welcome you to do so." Next week he had to print an apology and an update to that. What he forgot was people could use the eight digit account number and six digit SAW code to set up direct debits. Do people set up charity debits for the RSPCA, the NSPCC, the RSPB, and he had literally hundreds and hundreds, if not thousands, of pounds being debited from his account because of direct debit. So yeah, what an idiot.

Damien: Well, they say a fool and his money are easily parted, Andy. I think that kind of sums it up. But again, going back to the piece I said earlier, sharing your bank card, even if they didn't see the 16-digit number they can still see those details, your bank account, and the sort code, and even if they just wanted to have fun and do something like that it just shows you you don't need to give too much information away. Combining that first tip with what you said and also with the idea of if they went and found you on Facebook and they could then add all the other details, you can see how people can build up this information. So don't do it, people.

Marriage allowance

Damien: The final piece this week is one that could affect or does affect 4 million people. Now, I'm not big-headed enough to think we've got 4 million listeners, Andy, but what we hope is that people will start sharing this and talking about it. A few podcasts ago, well, probably the back end of last year. So it's quite a few podcasts, we talked about something called the marriage allowance. Do you remember?

Andy: I do.

Damien: It was a new tax break. What it is, just to refresh people, in the autumn statement in 2013 the chancellor, George Osborne, stood up and said people were going to be able to transfer part of their personal allowance of income tax to their spouse. So let's just use an example. If there's a wife who doesn't use her whole income tax allowance, as it was then, that money was lost. If you didn't earn any money, then you couldn't pass your income tax allowance on. That seemed a bit unfair because there were people who would be a little bit more creative with their finances and would still use their spouse's...self-employed people were employing their spouse, for example. So for employed people it seemed a bit unfair. So he brought in a rule that would allow people to transfer part of their unused allowance to their spouse. Now, you could actually transfer a maximum of £1,060 to your spouse of unused allowance, which would equate to you actually saving just over £200 in tax a year. It's not a lot, but it's better than a kick in the teeth.

What happened is they estimated that 4.2 million people would be eligible to claim that allowance. There have been some figures that have been released recently that suggest only 165,000 people have claimed that allowance, which means there must be 4 million people who could claim that allowance. Now, if you're thinking that you might be able to claim this allowance, there are one or two rules that you have to meet. The first one is you have to ensure that...let's just say it's me and my wife. I'd have to ensure that I'm not earning more than 10,600, which is the personal income tax allowance. So therefore I would have some allowance left that I could give to my wife. Now, the other thing is my wife would have to be earning less than £42,365 a year. Or in other words she would have to be a 20% income taxpayer. She can't be a 40% taxpayer because those people in that bracket are deemed far too rich and they're not allowed this tax break.

So basically you need to have a spouse, one of the couple has to not be earning the full amount, and the other person has to be a basic rate taxpayer. The other minor caveat, which won't affect many people, is that you have to be born after 1935, because people before that get a different tax perk. So make sure you claim it if you think you're entitled. If you're not sure, there are a lot of people who probably got excited when I started talking about that and then realized that the criteria screened them out, but there are 4 million people out there that must be eligible. If you think you're one of those people, then you can ring the income tax helpline on 0300-200-3300.

Andy: Good luck calling that number, by the way. I have recent experience calling that number and I was on hold for 58 minutes. So good luck with that, though. It is free at least, 0300. So enjoy. You might want to put one of our old podcasts on in the background while-

Damien: Even two at that rate, Andy. Fifty eight minutes?

Andy: Yeah, 58 minutes. The alternative is you can apply online at gov.uk/marriage-allowance. So there we go, Andy. That's it for this week. We're all wrapped up.

Andy: Good. Enjoyed it.

Damien: Yeah, we covered a lot, as ever. We've had some good...I should have at the beginning said about getting more reviews. I did it last week and we got a bunch more reviews, and they do help us shoot up the charts because at one point this week we were number 12 in the iPod charts for investing, which is pretty incredible. So we need those reviews. If you're listening to this podcast, so many people who get in touch say, "I meant to have left a review," and we can see the number of downloads we get. The current position, we've got just 26 reviews. Yet we've got many, many...we can see every time we launch an episode we have thousands of downloads, don't we, Andy? So we know people are listening. They just aren't reviewing. I don't know why. They write to me and say they love it. Please don't just tell me in an email. Tell iTunes because then we shoot up that chart further.

Andy: Brilliant. Yeah, do that, please do. If you want to get in contact with Damien and ask any questions, as always he will be happy to answer your questions. It's [email protected] or on Twitter it's simply Money2TheMasses, and we use the number two there. That's it, I think.

Damien: That is it, Andy. That's it for this week and I will see you next week.

Andy: Ciao.

Damien: Ciao.

Andy: I don't know, yeah. Au revoir.

Damien: Auf wiedersehen.


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