The Sunday Times - UK (2022-05-01)

14 The Sunday Times May 1, 2022

MONEY

CREDIT CARDS INTRODUCTORY RATES Provider Card type Introductory purchase APR^1 Reward Contact Barclaycard Platinum All-rounder V 0% for 24 months 21.9% No 0800 151 0900 Sainsbury’s Bank Dual Offer MC 0% for 24 months 21.9% Yes 08085 40 50 60 M&S Bank Shopping Offer Plus MC 0% for 24 months 21.9% Yes 0800 997 996

BALANCE TRANSFERS Provider Card type Introductory purchase Transfer fee^2 APR^1 Contact Virgin Money Balance Transfer MC 0% for 34 months 2.7% (min £0) 21.9% 0800 389 2875 Santander Everyday Longterm BT MC 0% for 33 months 2.65% (min £5) 21.9% 0800 912 3123 HSBC Balance Transfer V 0% for 33 months 2.7% (min £5) 21.9% 0345 7404 404

CASHBACK CARDS Provider Card type APR^1 Cashback Contact American Express Platinum Cashback 30% 0.75%-1.25%. Intro 5% for 3 months 0800 917 8047 American Express Platinum Cashback Everyday 24.7% 0.5%-1%. Intro 5% for 3 months 0800 917 8047 Halifax Cashback MC 19.9% 0.25-0.5% 0345 944 4555 1 APR = annual percentage rate, dependent on credit rating.^2 Fee charged on the amount of each balance transfer during the introductory period. Source: moneyfacts.co.uk

Ali Hussain explains how to work out

the cost of your investment platform

Homeowners

cash in on record

house prices

Homeowners taking money from their properties to help children and grandchildren are sparking an equity release boom. A record 23,395 people borrowed a total of £1.53 billion against their home in the first three months of this year, with a record average loans size of £131,781, according to the Equity Release Council, a trade body. In the same period in 2016, the average loan was £89,189. In March 2016, the average house price in Britain was £209,946. It was £280,229 in February this year — a rise of 33.5 per cent. “The popularity of equity release is the natural result of an ageing population and a property market where growth has outstripped inflation,” said David Burrowes of the ERC. Equity release loans last until your property is sold when you downsize, die or move into care. You do not pay any of the loan back until then but can choose whether to pay interest or allow it to be added on to the debt. Competition has increased the number of deals available and pushed down costs. There were 53 equity release deals in January 2016, according to the data firm Moneyfacts, with an average rate of 6.07 per cent. Now there are 689 deals with an average rate of 4.71 per cent. The average time a debt would take to double in value

has gone from just under 12 years in 2016 to over 15 years. David Forsdyke from the mortgage broker Knight Frank Finance said: “For those in their seventies with property wealth of over £2 million, creating a debt against their main residence and then gifting that money can be an efficient way of reducing the potential tax bill their beneficiaries will eventually face.” Every estate gets a £325,000 IHT-free allowance, known as the nil-rate band. You get another £175,000 if you pass a main residence worth up to £2 million on to a direct descendant (child or grandchild). Everything you leave to a spouse or a civil partner is IHT-free and you can inherit their allowance too, so a couple have a total allowance of £1 million. You can give away money or assets IHT-free as long as you live for another seven years after making the gift. More and more people are expected to pay IHT on their estates thanks to rising property prices and a freeze in the allowances, which have not gone up with inflation. There were a record 689,189 £1 million properties in Great Britain at the end of last year, one in every 42 homes, according to the estate agent Savills. This is up 22 per cent since the end of 2020. HMRC took £6.1 billion from inheritance tax in 2021- 22, up from £5.1 billion in 2019-20, and is forecast to raise £8.3 billion by 2026-27.

George Nixon

What’s your

real bill with

Hargreaves

Lansdown?

FIVE THINGS YOU NEED TO KNOW ABOUT... SWAP RATES

THE

FIVER

5

1

Want to know why ten-year fixed-rate mortgages are becoming cheaper than two-year fixes? It’s all about swap rates.

2

What banks charge on a mortgage is in part determined by how much they have to pay out in interest to savers. Big banks have been paying very low rates of interest, so have been offering mortgages at very low rates too.

3

But mortgage rates are also determined by what it costs banks to borrow, be that from other banks or institutional investors such as hedge funds. When borrowing, banks often “swap” one type of loan for another, usually money earning a variable interest rate in return for money with a fixed rate of return for a fixed period. That’s where swap rate comes from.

4

The swap rate is the fixed interest rate one side demands for taking on the risk of paying the variable interest rate. It is based on where markets expect the Bank of England base rate to be in the future.

5

Normally, swap rates are higher for five and ten-year fixes because the borrower is locked into a predictable rate for longer. But that’s not the case right now. Swap rates have gone up rapidly in anticipation of a higher base rate in the next couple of years, thanks to soaring inflation. But longer-term swap rates are cheaper, because the expectation is that the base rate will fall later. The two-year swap rate is just over 2 per cent while the ten-year swap rate is 1.8 per cent.

George Nixon

CASH ISAS INSTANT ACCESS Provider Account name Min deposit Interest Transfers in Contact Cynergy Bank Online Isa Issue 22 £1 1.05% Yes cynergybank.co.uk Al Rayan Bank Instant Access Cash Isa (Issue 3)£50 1% Yes alrayanbank.co.uk FIXED RATE Provider Account name Term Min deposit Rate Transfers inContact United Bank UK 1 Year Fixed Rate Cash Isa1 year £2,000 1.5% Yes ubluk.com Hampshire Trust Bank2 Year Isa Bond (Issue 31)2 years £1 1.91% Yes htb.co.uk

Source: savingschampion.co.uk — 0808 178 5354

Best Buys

FOREIGN CURRENCY

Interbank rates at 5pm on Friday, which show where the market is trading. They are not indicative of the rate you could get.

EURO GBP>EUR

1.19

USA GBP>USD

1.25

SWITZERLAND GBP>CHF

1.22

AUSTRALIA GBP>AUD

1.77

ENERGY DEALS Supplier Average annual bill Rate Contact Ovo Energy £2,799 Fixed 0330 303 5063 Scottish Power £3,457 Fixed 0800 027 0072

*Phone numbers provided will call through to theenergyshop.com switch support team. Source: theenergyshop.com — 0800 448 0205

SAVINGS ACCOUNTS INSTANT ACCESS Provider Account name Min deposit Interest rate Contact Chase Chase Saver Account* £0 1.5% chase.co.uk Zopa Smart Saver £1 1.2% zopa.com Cynergy Bank Online Easy Access Account (Issue 50) £1 1.2% cynergybank.co.uk

NOTICE ACCOUNTS Provider Account name Notice period Min deposit Interest rate Contact OakNorth Bank 120 Day Notice Account Issue 15 120 days £1 1.53% oaknorth.co.uk Oxbury 120 Day Notice Personal Account Issue 7120 days £1,000 1.53% oxbury.com OakNorth Bank 120 Day Notice Account Issue 15 90 days £1 1.52% oaknorth.co.uk

FIXED-RATE BONDS Provider Account name Term Min deposit Interest rate Contact Flagstone 1 Year Fixed Bond (provided by Allica) 1 year £10,000 2.1% flagstoneim.com Atom Bank 2 Year Fixed Saver 2 years £50 2.4% atombank.com Raisin 3 Year Fixed deposit (provided by Charter)3 years £1,000 2.5% raisin.co.uk

DEALS ARE LISTED ONLY IF THEY ARE COVERED BY THE UK FINANCIAL SERVICES COMPENSATION SCHEME (FSCS) OR A EUROPEAN EQUIVALENT *MUST HOLD A CURRENT ACCOUNT WITH THE PROVIDER Source: savingschampion.co.uk — 0808 178 5354

CHILDREN’S ACCOUNTS Provider Account name Account type Min deposit Interest rate Contact Dudley BS Junior Easy Saver Regular Saver £10 3.5% dudleybuildingsociety.co.uk Saffron BS Children’s Regular Saver Issue 2Regular Saver £0 3.02% saffronbs.co.uk Santander^1 123 Mini Current Account Current Account £1,500 2.96% santander.co.uk

(^1) Interest paid on balances between £1,500 and £2,000 2 0.25% paid on balances above £3,000
JUNIOR ISAS
Provider Account name Min deposit Interest rate Rate Contact
The Family BS Cash Junior Isa (1) £3,000 2.4% Variable familybuildingsociety.co.uk
Coventry BS Junior Cash Isa (2) £1 2.35% Variable coventrybuildingsociety.co.uk
Tesco Bank Junior Cash Isa £1 2.25% Variable tescobank.com
Source: savingschampion.co.uk — 0808 178 5354
MORTGAGES
2-YEAR FIXED RATES
Lender Rate Scheme Deposit Fee Notes Contact
Allied irish 2.1% Fixed to 31.05.24 15% £0 L 02890 479 221
First Direct 2.49% Fixed for 2 years 10% £490 LV 0800 482 448
West Brom BS 2.84% Fixed to 31.08.24 5% £0 PV 0800 298 0008
3-YEAR FIXED RATES
HSBC 2.29% Fixed to 31.07.25 40% £999 RS 0800 494 999
Virgin 2.65% Fixed to 01.08.25 15% £0 R 0345 605 0500
Nationwide 2.44% Fixed for 3 years 10% £999 PV 0800 302 010
LONG-TERM FIXED RATES
First Direct 2.29% Fixed for 5 years 40% £490 LV 0800 482 448
NatWest 2.38% Fixed to 31.07.27 15% £995 PV 0800 400 999
NatWest 2.5% Fixed to 31.07.27 10% £995 PV 0800 400 999
Lloyds 2.23% Fixed to 31.08.32 40% £999 RS 0800 783 3534
TRACKERS / DISCOUNTS
Skipton BS 1.39% Tracker + 0.64% for 2 years 40% £995 ELV 0345 850 1755
Skipton BS 1.65% Tracker + 0.9% for 2 years 10% £995 ELV 0345 850 1755
Newbury BS 1.84% 2.26% discount for 5 years 25% £850 LV 01633 555 5777
First Direct 2.69% Tracker+1.94% for term 25% £490 ELV 0800 482 448
FIRST-TIME BUYER / LOW DEPOSIT
Nationwide 2.89% Fixed for 2 years 5% £0 FV 0800 302 010
Hinckley & Rugby BS3% Fixed for 5 years 5% £199 NV 0800 774 499
Leeds BS 2.44% Fixed to 31.07.27 25% £799 HV 0345 045 4049
BUY TO LET
Skipton BS 1.53% Tracker +0.78% for 2 years 40% £995 ELV 0345 850 1755
Leeds BS 2.15% Fixed to 31.07.24 40% £999 OV 0345 045 4049
HSBC 2.29% Fixed to 31.07.27 25% £1,999 RS 0800 494 999
Early repayment charge applies unless otherwise stated. Most deals track Bank of England base rate.
C = £500 cashback for purchases; E = No early repayment charge; F = £500 cashback for first-time buyers; H = Help to Buy;
L = Free legal work for remortgages; M = £300 cashback for purchases; N = £250 cash back for purchases; O = £250 cash back;
P = Purchases only; R - Free legal work and valuation for remortgages; S = Remortgage only; V = Free valuation
Source: landc.co.uk — 0800 373 300
CURRENT ACCOUNTS
CREDIT INTEREST
Provider Account name Account fee Reward Balance (for reward) Contact
Halifax Reward Current Account None £5 a month – 0345 720 3040
TSB Spend & Save None £5 a month – 0345 975 8758
Virgin Money M Plus Account None 2.02% AER Up to £1,000 0800 678 3654
OVERDRAFTS *
Provider Account name Account fee Interest rate^1 0% overdraft limit Contact
Starling Bank Current Account None 15% £0 starlingbank.com
First Direct 1st Account None 39.9% £250 0345 600 2424
Virgin Money M Plus Account None 19.9% £0 0800 678 3654
(^1) Equivalent annual rate.

Based on overdraft of £500 for 7 days a month.
Some accounts require minimum funding/direct debits to open or receive rates shown.
Source: moneyfacts.co.uk
Table shows the cheapest fixed tariff now available
from the cheapest suppliers. Excludes tariffs of less
than 12 months’ duration, tariffs that do not have
national coverage and tariffs where payments are
taken in advance of supply. Variable rate tariffs are
set by Ofgem’s price cap and may be lower.
There are strict rules
requiring firms to tell you
these before you invest.
The charges are normally
presented as an annual
percentage. You may also
be given an example, in
pounds and pence, of the
theoretical cost of investing
in a product over a certain
time. But the actual amount
you pay will differ because
there will be other fees such
as transaction charges
incurred by fund managers
investing on your behalf.
If you want to know what
you have paid and gained
over several years, you will
have to ask for a separate
calculation — but don’t expect
a quick reply.
Why should you care?
If you invested £20,000 and
assumed 5 per cent a year
growth, you would make
£1,000 a year, assuming no
charges. Ignoring tax and
trading costs and making no
further investments then over
30 years, you would generate
a profit of £66,439.
In the real world you have
to pay some fees to make an
investment. For the purposes
of this exercise, let’s start
with a scenario where you
pay an expert to do
everything, from picking the
investment products to the
platform you use. Britain’s
largest network of advisers,
St James’s Place (SJP), has
analysed the costs typically
applied by 20 of Britain’s
largest wealth managers.
These firms choose your
investments, decide how to
invest and charge an advice
fee all in one. It found the
highest fee was 3.8 per cent a
year and the lowest was
1.7 per cent. SJP charges
2.4 per cent.
Assuming 5 per cent
growth on £20,000, with a
3.8 per cent a year fee, your
first year profit would be
£240, and over 30 years it
would be £8,605 — you will
have lost 87 per cent of that
no fees profit of £66,439,
thanks to fees and lost
returns over three decades.
If you use SJP and pay
2.4 per cent, you get £520 in
the first year. Over 30 years,
your profit would be £23,197
— a drop of 65 per cent. The
cheapest service at 1.7 per
cent would give a first year
profit of £660, £32,971 over
30 years, but you would still
lose about half your gains.
If your investments lose
money, the platform would
still take its fees, as they apply
to the whole balance, not just
your profits.
How to keep more profit
There are normally three
elements to investing — the
platform fee, the products
themselves and the cost of
any advice. Some platforms,
like SJP, will offer all three.
Shopping around for each
can save you a fortune over
time. Say you use Hargreaves
Lansdown to invest in funds.
This will cost you up to
0.45 per cent a year.
Assuming fund charges of
0.6 per cent and 0.5 per cent
for an adviser to review your
portfolio once a year, your
annual fee would be 1.55 per
cent. On £20,000 you would
get about £690 profit in the
first year and £35,328 over 30
years, assuming 5 per cent a
year growth. If you cut out
the adviser, your annual cost
falls to 1.05 per cent, meaning
a profit of £790 in year one
and £43,939 in year 30.
More than three quarters
of Hargreaves Lansdown
customers pay for advice
when they need it, rather
than for annual reviews.
Another step is to lower
your platform charge. AJ Bell
charges up to 0.25 per cent.
With fund charges at 0.6 per
cent, and no adviser fee, the
total cost will be 0.85 per
cent, giving you a first year
profit of £830 and £47,734 in
year 30.
You can cut fees further by
using low-cost passive funds,
which use computers to track
an index like the S&P 500 or
FTSE 100 and charge a
fraction of the fees applied by
professional stock-pickers.
Say you paid 0.1 per cent
for a tracker and 0.25 per
cent for the AJ Bell platform
taking the total to 0.35 per
cent. The first year profit
would be £930 — £58,200
after 30 years.
If you invest more than
about £30,000 a year, it
makes sense to go for a
platform like Interactive
Investor which charges a flat
fee. Another option is the
Halifax trading service Iweb,
which charges £5 per trade
but no platform fee. Ignoring
tax and assuming that you
buy ten tracker funds costing
0.1 per cent, with no further
trades, you would have a
profit of £928 in year one and
£63,793 after 30 years,
meaning you keep up to
96 per cent of your returns.
87%
Of profits can be
eaten up by fees
over 30 years
T
he 1.6 million customers
of Britain’s largest
investment platform get
their annual statement
this month. It is the one
time of the year when they
find out exactly how much
they have paid in fees.
The Spring Investment
Report breaks down the
charges paid to the platform
— Hargreaves Lansdown — the
fees applied by the individual
investments and the cost of
any advice. You can
download it from your online
account from May 16 or get it
by post the following week.
Hargreaves also issues
quarterly statements giving
you an overall value and costs
that have applied to each of
your Isas and self-invested
personal pensions (Sipp).
However, these do not tell
you how much you have paid
for the individual products
you have invested in or the
amount you have paid for any
advice. These details are only
in the annual statement.
You can of course log in to
see what you have paid
Hargreaves each month and
the value of your overall
portfolio, but you will not get
details of any investment or
advice charges. This lack of
cost disclosure can frustrate
some customers. AJ Bell,
another investment platform,
also only discloses all the
costs once a year in a
downloadable document.
Interactive Investor
outlines charges for each
investment you make via its
service, also once a year.
Each product has its own
page. You have to add up the
figures for each product to
get the total annual cost. The
firm does not include its own
charges in this document
because, unlike most other
platforms, its charge is a flat
£9.99 monthly fee (or £12.99 a
month for a self-invested
personal pension).
Can you work out the
investment costs yourself?
You can try, but it’s not easy.
Details of fees can usually be
found online or in documents
provided by the platform,
fund manager or adviser
when you start investing.

The Sunday Times - UK (2022-05-01)

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