RACHEL LACEY: We wouldn’t use the full Junior Isa allowance – even if we could

RACHEL LACEY: We wouldn’t use the full Junior Isa allowance – even if we could

The Junior Isa limit has risen, but is it really achievable for most savers?

Rachel Lacey
Wed, 03/25/2020 – 16:38

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Like most parents, the thought of my kids learning to drive, going off to university – not to mention buying a property – freaks me out. Never mind the sleepless nights when they start going out, or the empty nest syndrome when they eventually leave, it is the cost of gaining all this independence that worries me.

Don’t get me wrong, I’m all for my two boys getting part-time jobs while they study and I certainly don’t think they should have everything handed to them on a plate. However, I do think they will face greater financial hurdles than my generation so, like many other parents, we would like to be able to help them in at least some way. That’s why we — and their grandma — pay a bit of money into a Stocks and Shares Junior Isa (Jisa) for them every month.

But I’m not sure it was parents like us that the new chancellor, Rishi Sunak, had in mind when he announced in the recent budget that the annual allowance for Jisas would more than double from £4,368 to £9,000 a year.

Commentators in the financial press were thrilled by the announcement. The increase would allow parents — and grandparents — the chance to harness the power of compounding growth and build a serious wodge of cash for their children.

While it might be a great boon for the wealthy, for most parents it will come as something of a hollow gesture. How many parents, even with the help of grandparents, can afford to put £4,368 into an Isa for their child in a single year, let alone £9,000? I know we certainly can’t.

According to figures from Moneywise’s parent company, interactive investor, in the most recent tax year, only 37% of Jisas were fully subscribed, and that is for a platform that has a cost structure that favours larger investors. For Hargreaves Lansdown, only 15% of Jisas were fully subscribed.

With a none-too-shabby £80 going into each of my boys’ Isas every month, they are only putting away £960 a year — a little over 10% of the new allowance.

And would many parents even want to save £9,000 a year for their kids, even if they had the means? As interactive investor pointed out after the Budget, parents who managed to put away £9,000 a year over an 18-year period would be handing over an enormous £265,851 to their children on their 18th birthday. That’s a huge sum for an 18-year-old who may not have the same financial priorities as his or her parents.

My two certainly won’t become that rich on their 18th birthdays. Nonetheless, based on assumptions from interactive investor of 5% growth, the £80 we pay in every month should still rack up to £27,863.

It is not £250,000, but it is a positive demonstration of the power of compounding returns and the benefits of regular saving. It shows that if you have time on your hands — like an 18-year childhood — you don’t need to be putting away hundreds every month to build a serious pot.

If we are lucky and find ourselves able to save more for their futures, I would rather put it into our Isas, keeping the money in our name but being in a position to help them out as and when we want. Between us, we have a combined annual Isa allowance of £40,000, another limit we have no worries about ever exceeding.  

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Five ways to cut your energy bill when working from home

Five ways to cut your energy bill when working from home

Millions of homes could save on energy bills while staying at home due to coronavirus 

Brean Horne
Wed, 03/25/2020 – 13:18

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UK households are predicted to spend an extra £52 million a week on energy bills as people stay home due to the coronavirus pandemic, data from Uswitch shows. 

The price comparison site found that the average home could pay £16 a month more for energy – roughly £195 extra per year. 

There are a number of ways to bring down the cost of your energy bill while working from home. 

From fitting energy efficient bulbs to unplugging unused appliances, we round up five simple ways to reduce how much you pay for power while staying in. 

1) Switch off unnecessary lights

Simply switching off lights that are not in use could save you £14 a year on your annual energy bill, according to the Energy Saving Trust. 

Where possible, try working in a room with lots of natural light. This can help you save money on powering unnecessary desk lamps and overhead lights.

2) Replace your light bulbs

Fitting energy efficient light bulbs in your home could bring down the cost your energy bill.

Households using energy efficient LED lights could save £35 a year, estimates from the Energy Saving Trust show. 

3) Turn down the thermostat

Keeping an eye on your thermostat can help slash your energy bills.

Turning down your thermostat by just 1°C could help you save as much as £75 per year, according to Uswitch. 

4) Unplug devices not in use

Leaving unused devices and appliances plugged in can push up bills. 

Even charge cables that are not plugged into rechargeable devices but are atill connected to a socket can waste electricity. 

Unplugging anything that is not actively being used, or switching off the power at the plug, could save £50 to £85 a year,

5) Switch to a better energy deal

Standard variable rate energy tariffs are are often expensive, as the price you pay per unit of energy changes at the discretion of your supplier.

If you are on a variable tariff, switching to better deal could save you hundreds of pounds a year. 

Cordelia Samson, energy expert at Uswitch.com, says: “Working from home and entertaining children during the day means having the heating on when it wouldn’t usually be, and using extra gas and electricity for cooking, making cups of tea, televisions and computers.”

“There are plenty of simple ways you can reduce the amount of energy use around your home, however, and if you’re concerned about the amount you’re paying, you should compare energy deals to see if there is a cheaper plan you can move to.”

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Inflation slows as petrol prices fall

Inflation slows as petrol prices fall

Inflation drops to 1.7%, but shoppers have been warned food prices could go up

Stephen Little
Wed, 03/25/2020 – 13:04

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Inflation slowed last month following a drop in fuel and video game prices, according to the Office for National Statistics (ONS).

The Consumer Prices Index (CPI) 12-month rate was 1.7% in February, down from 1.8% in January.

The CPI shows the change in prices of a typical basket of goods in the UK.

The ONS’s alternative measure, called CPIH, which includes housing costs, also dropped from 1.8% to 1.7% in February.

The statistics authority says that falling fuel and computer game prices helped to push inflation down.

Petrol prices fell by 2.4p per litre between January and February. Diesel prices fell by 3.2p during the same period.

However, the figures were collected on 18 February, before the full impact of the coronavirus hit the UK.

Economists expect inflation to fall even further in the coming months because of the pandemic.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says: “Looking ahead, CPI inflation looks set to decline sharply over the coming months and to fall comfortably below 1% in the summer.”

He says the cap on energy bills and the closure of non-essential shops, restaurants, and recreational venues will stop prices rising.

“Prices in these sectors will remain frozen at their pre-virus levels for as long as the Government’s shutdown lasts,” he adds.

But some experts think inflation could rise in the coming months due to stockpiling and disruption to supply chains as a result of the coronavirus, before falling again.

Ruth Gregory, senior UK economist at Capital Economics, says that households stockpiling could lead to food prices rising, but still expects inflation to fall to 1% in the middle of the year.

Inflation-beating accounts

Earlier this month the Bank of England cut its base rate to a record low of 0.1% to help reduce the economic shock to businesses of the coronavirus pandemic.

But the cut is bad news for savers, who have seen savings rates eroded in recent years.

When the base rate falls, high street banks often pass this on to customers with cheaper loans.

But while a drop in interest rates is often good news for borrowers, the opposite is true for savers. With many savings rates below the rate of inflation, you could effectively be losing money with many deals.

There are currently no easy access or notice accounts that beat inflation at 1.7%, according to data from Moneyfacts.

To mitigate the damaging effects of inflation it is important for savers to choose the highest-paying account, so where should you put your money?

Data from Moneyfacts also reveals that there are only 36 fixed rate bonds which can now match or beat inflation. Within that, 26 fixed bonds pay more than 1.7%. 

One of the highest paying bonds is from Gatehouse Bank at 2%. This five-year bond requires a £1,000 deposit and can be opened online. This is a sharia-compliant account and offers an Expected Profit Rate (EPR) rather than interest. Savers would need to be comfortable locking in to the five-year term and take the chance that inflation would not rise above 2% in the period.

EPR is a unique concept to Islamic finance deals, and is not technically guaranteed. However, no EPR deal in Britain has ever failed to pay its advertised rate to savers.

The shortest bond term that will still beat inflation is three years, and the best deals at this length are a 1.8% deal from either United Trust Bank or Investec.

Eleanor Williams, financial expert at Moneyfacts, says: “There may be a balance to be struck if savers are looking for a new deal at the moment.

“Fixed rate accounts could be a better option to secure the highest available returns, but savers need to be confident they are happy to lock their money away for a period of time. One option could be for savers to not put all of their eggs into one basket.”

She says that while easy access accounts pay low rates they have the advantage of giving flexible access to savers’ cash.

“Things are changing rapidly at the moment, and those wanting to secure a deal would do well to act quickly before an account is withdrawn,” she adds.

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