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Making Your Money Work

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Making Your Money Work

In times of economic slowdown and falling interest rates, everyone is keeping a very close eye on their finances. Although it is unlikely that you will be totally immune to the credit crunch, there are ways to make your money go further. “The start of a new year is the ideal time to take stock of your finances and plan your way forward,” says Ken Thorkildsen, Director of Obelisk Private Finance. “Even small measures can lead to big savings.”
Top of the list of potential money-saving measures are mortgages. Lower interest rates – currently 1.5% in the UK and 2% in the eurozone with further falls expected during 2009 – can be used to the loan holder’s advantage. If you currently have an interest-only mortgage, now could be the time to switch to a repayment option and make the most of the current low interest rates.
Remortgaging is an option if you have substantial equity in the property – financial experts recommend remortgaging only if you have at least 25% equity. “Remortgaging can attract high costs so it is important to do your maths to ensure any savings you make on monthly repayments are not cancelled out by bank fees,” states Ken. “Before leaving your current mortgage, take advice from a mortgage expert who can offer you the best options on the market.”
A further option for home loans holders is overpaying your mortgage. Even making small extra payments every month can reduce both the balance of the amount you owe and the term of the mortgage. “This option does entail more initial outlay, but it means you can make huge savings in the future,” says Ken. However, Ken advises reading the small print on your loan since some lenders have a minimum amount, e.g. ₤100, you can overpay. Some lenders have high early redemption penalties, which may cancel out savings you make.
Credit cards are another area to target to save money. If possible, pay off all your credit card debts within the interest-free period (usually 50 or 56 days in the UK). If necessary, consider using your savings as interest rates charged by credit cards are often several times higher than interest payments on savings. Credit cards offering cashback options by reimbursing a percentage of your bill are worth investigating.
Those with savings currently in accounts with dwindling interest rates should shop around for the best rates, but as Ken points out, you need to act quickly since changes in interest rates often means savings products offering high returns disappear literally overnight.
Money saving measures also involve taking a look at your pension provisions. The subprime crisis has meant that many pension funds managed by banks and insurance companies have lost substantial sums of money. 2009 may well be the year to look into managing your own pension fund such as a Self-Invested Personal Pension (SIPP) fund. “SIPPs attract important tax breaks and allow diversification of funds including commercial property such as hotel rooms,” says Ken.
 

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