New year cash: give your finances a makeover as we charge into 2021
The new year is always a good time to take a look at your finances: it’s cold outside, you may be feeling a bit skint after Christmas and if you do a tax return you will be gathering together paperwork. But with 2020 having changed incomes and spending habits so comprehensively, this January there can be few people who would not benefit from reviewing their situation. Here are some tips on where to start.
Household bills
It is easy to fall into the habit of buying things from the same place – from your supermarket shopping to your electricity – so devote an afternoon to shopping around.
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Visiting multiple supermarkets to compare prices is not an option at the moment but you can log in to the various sites and have a look at how much your regular buys cost. If you are a member of Which?, you can check out its monthly price comparison tool.
The LatestDeals app will let you compare prices of branded goods at six supermarkets, including Sainsbury’s, Aldi and Waitrose, so you can get a steer as to where the things you usually buy are cheapest.
If you haven’t switched energy supplier recently, there’s an easy £200 a year saving to be had. The cheapest dual fuel tariffs now start at about £850 a year – for average consumption – compared with the Ofgem capped price of £1,042. This is what you are paying, on average, if you are on your supplier’s default tariff.
For a quote, get your annual consumption figure from your latest bill and do a comparison using one of the switching websites. We like Energyhelpline.com and uSwitch.com for ease of use. Make sure you filter the results to include the plans that require you go direct, as this will show you everything, not only the firms paying commission to the switching site.
View image in fullscreenUsing a switching website can help if you want to change your energy supplier. Photograph: Alamy
The cheapest firms at the moment – Green, Utility Point, London Power and Neo Energy – all are around the £850-£860 a year mark. However, the Guardian is getting a lot of complaints about Utility Point at the moment. A look at the Citizens Advice service ratings shows that Green tops the chart, making this the obvious choice.
Tom Lyon at Energyhelpline.com says all the indicators suggest prices will start rising during 2021, making a fixed tariff a good option for those who want to just switch and forget about it.
Green’s Stirling tariff is about £880 a year, fixed for 12 months. If you want to fix for two years, there are a host of companies offering tariffs at about £990 a year for average consumption.
Given that we have never relied on our broadband connections more, it may seem a strange time to consider switching supplier. However, with a few caveats, there’s nothing to stop you, and at most you will lose only an hour of service.
Rory Stoves, uSwitch’s personal finance expert, says January is typically a good time to switch supplier as the firms offer some of the cheapest prices of the year, and switches are going ahead during lockdown. However, he cautions against trying to upgrade your existing package to an ultra-fast deal (packages above 67Mbps speed) right now – with the exception of Virgin – because that has the greater capacity to go wrong.
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Customers who have not switched or renewed their contract for a while could easily be paying more than £40 a month for their broadband/landline package alone. By switching you can get this down to below £25 a month.
You may want to avoid Vodafone, which tops the Ofcom complaints league, and Plusnet, which doesn’t score too well either. Guardian Money receives too many complaints about Virgin Media to heartily recommend it.
If you don’t want to risk switching your broadband supplier, but would still like to save some money, take a look at your TV outgoings and cull anything you don’t use.
No longer watching Disney + (£5.99/month or £71 a year), drop it. Do you need that expensive Sky Cinema package at £19/month, when all you watch is Netflix or Amazon Prime? Sky and BT Sport – are you really watching both? Stoves advises a “lockdown audit” to decide whether the packages you pay for are still offering good value for money
Even if you decide to keep your existing package in its entirety, it is worth calling your provider to make sure you are on the best deal. It is amazing how often the threat to leave results in a new contract offer – at a much lower monthly fee.
While you are going through your spending, it is worth setting reminders for any payments or expiry dates that may cost you – when your MOT or any parking permit runs out, the end of a free Amazon Prime membership or even when your library books are due back. For insurance policies, set it several weeks in advance of the renewal date and shop around then for a new policy.
Savings
View image in fullscreenAre you getting the most out of your savings? Photograph: Guido Mieth/Getty Images
Start with a reckoning of what you have and where. Spend some time gathering together old statements and passbooks, and checking emails, and draw up a list of all the accounts you have and how much you have in each one.
Unless you are an avid account hopper, you will probably have money that is earning as little as 0.01%. Moneyfacts.co.uk is a good place to start for a list of best-buy accounts – currently it shows you can get 0.5% interest on an easy access account at Atom Bank on a balance of any size. Bringing several small accounts together may mean you can access a better interest rate, and it will also help you keep tabs on how much you have.
“You can see whether you have three to six months’ worth of essential expenses in an easy access savings account, and whether you can tie up additional savings for fixed periods in order to lock into a higher rate,” says Sarah Coles, a personal finance analyst at the advice firm Hargreaves Lansdown.
Bear in mind that if you are lucky enough to have more than £85,000, anything above that sum will not be covered by the Financial Services Compensation Scheme should the bank fail.
Another option, says Coles, is to consolidate your savings on a savings platform. These let you run accounts with several providers in one place and make it easy for you to switch between them. Hargreaves Lansdown has one, while others include Raisin and Octopus Cash.
Pensions
Again, start by working out what you have. If you have moved jobs, you could have built up small funds in several different places.
“Millions of people have pensions from previous jobs that they have either lost touch with completely or where they haven’t had a statement in years,” says Steve Webb, a partner at the pensions consultancy LCP. He advises “digging out all those unopened letters from pension companies and asking for up-to-date statements from any who haven’t been in touch for a while”. If you can’t find paperwork or have lost touch with your old employer, the government’s pension tracing service should be able to help.
Whether you move or not, it could be worth paying in more to boost what you will get in retirement
Once you know what you have, you may want to move it to one place – particularly if you have any old pensions with high charges. However, make sure you are not giving up any perks, such as guarantees. “You also need to check whether there are any charges for switching and whether you will lose bonuses for regular contributions,” Coles says.
Whether you move or not, it could be worth paying in more to boost what you will get in retirement. Webb says many employers encourage workers to save more by matching regular extra contributions. “If you are not maxing out on what your employer will add to your pension, and if you can afford to do some additional regular pension saving, this is an incredibly cost-effective way of boosting your retirement pot,” he says.
You may think there is not much you can do to increase the sum you get from the state when you retire but you could be wrong. Webb says you should check your national insurance record to make sure you have been credited for all of the years you have worked. If you are a couple with children, make sure the lower earner (or non-earner) is claiming the credits that are available – even if you do not claim child benefit. Webb says carers and grandparents looking after grandchildren should do the same. “Just one year of credits can add more than £250 a year to your pension in retirement,” he adds.
Borrowing
View image in fullscreenWhat sort of mortgage do you have? Photograph: Alamy
If you have debt problems, get help. It may be that simply calling a lender direct will be enough – as well as currently being able to offer payment holidays, they can often offer to restructure repayments to take the pressure off. If you have fallen behind on bills, speak to energy providers and the like first, as they are obliged to come up with a solution.
There are lots of charities offering advice online, and phone assistance for people who are struggling. Try StepChange, Citizens Advice or National Debtline. Don’t pay for help – if you do end up having to take action such as a debt relief order or individual voluntary arrangement, there will be some cost but make the most of free advice.
If your borrowing is under control but you want to cut the cost, your mortgage is likely to offer the biggest potential for saving money. Anyone on a standard variable rate is likely to be paying considerably more than they need to: Halifax and Nationwide’s are currently 3.59%, and others are higher. Meanwhile, two-year fixed-rate mortgages cost as little as 1.05%, says David Hollingworth at the broker L&C, adding: “A £150,000 repayment mortgage over 25 years at 5.00%, say, would cost £877 a month, versus £592 at 1.39%.”
Hollingworth says you should think ahead and start looking three months before the end of your current deal if you want to move to a new lender.
“If there has been a change of situation as a result of coronavirus that has affected income levels, there may still be some good options from your existing lender,” he says. “Lenders have increasingly improved the range of deals available at higher LTVs [loan to value] as well, so it’s not just an option for those with large amounts of equity.”
