for savings & investmentsMoneymanualIt has become increasingly evident over recent years that difficultsituations in life can crop up at any time. Whether it is redundancy,sickness or the need for a new household appliance, having somemoney saved up can help tackle these situations head-on and thusavoid the pain of debt and financial difficulties.

As a result, it is crucially importantthat you start saving to avoid financialworries now and in the future.

Savings and Investments is apractical and easy-to-follow manualthat offers clear advice and guidanceon a range of issues to do with savingand investments, including:

• How do I start saving?• When should I save?• What saving options are there?• What is the difference between investments and savings?• How do pensions work?

If you find yourself dependent on expensive credit to fund your lifestyle thenthis booklet can help you. Included is a pull-out budget sheet that you canuse and re-use to help you get your finances back on track and start saving.

So, start saving now and you can say goodbye to money stress, and say helloto a brighter financial future!

“With savings behind them, people can cope far better with the eventsthat life throws at them. This welcome guide does a great job ofencouraging people to start saving and guiding them through the mazeof different savings and investment options.” Mark Lyonette

Chief Executive, Association of British Credit Unions Ltd (ABCUL)

Lynton House, 7-12 Tavistock Square, London WC1H 9LT Tel: 0207 380 3390office@creditaction.org.uk www.creditaction.org.uk www.moneybasics.co.uk

Registered Charity No.1106941

Includespull-out budget

sheetProduction of this booklet sponsored by

PARADIGM NORTON are delighted to be partnering with

Credit Action in order to raise the awareness of wise money

management.

The 2010 Savings and Investments Moneymanual is a wonderful tool

for those seeking to make good financial decisions. Having worked

for over 20 years with the challenges that individuals face when

thinking through their finances, we have realised that there are a

small number of basic financial principles which, if followed, help

avoid the growing debt problems which many people find

themselves in.

The Credit Action Savings and Investments Moneymanual very clearly

sets out these timeless principles. PARADIGM NORTON are

delighted to play our part in the creation of this helpful guide.

Savings and Investments

Eoin Hamill

PARADIGM NORTON are delighted to be partnering with

Credit Action in order to raise the awareness of wise money

management.

The 2010 Savings and Investments Moneymanual is a wonderful tool

for those seeking to make good financial decisions. Having worked

for over 20 years with the challenges that individuals face when

thinking through their finances, we have realised that there are a

small number of basic financial principles which, if followed, help

avoid the growing debt problems which many people find

themselves in.

The Credit Action Savings and Investments Moneymanual very clearly

sets out these timeless principles. PARADIGM NORTON are

delighted to play our part in the creation of this helpful guide.

Savings and Investments

Eoin Hamill

© 2010 Credit Action

Published by

Credit Action

Lynton House

7-12 Tavistock Square

London

WC1H 9LT

Tel 0207 380 3390

office@creditaction.org.uk

www.creditaction.org.uk

www.moneybasics.co.uk

Credit Action is a registered charity no. 1106941 and a company limited by guarantee, registered in England

and Wales no. 5244075

Helpline 0800 138 1111 (operated by the Consumer Credit Counselling Service)

First Published 2010

Written by Eoin Hamill, Research and Policy Officer, Credit Action

Edited by Keith Tondeur, President, Credit Action

We are also very grateful to Chris Sheldon, Director and Deputy Chief Executive, Kingdom Bank Ltd. for his

many constructive comments and helpful input.

Design and production by stephen lown graphic designer

Credit Action is a national money education charity dedicated to helping educate individuals and families in all

aspects of money management. Credit Action works in partnership with another charity, Consumer Credit

Counselling Service (CCCS), who answer all our helpline calls. CCCS is a charity dedicated to providing

confidential, free counselling and money management assistance to financially distressed families and

individuals.

This book is only a guide to managing money and we have had to simplify some issues and make general

comments. Dealing with personal finance is often extremely complicated and so you cannot hold us responsible

for any action you take, or do not take, based only on what is written in this book.

If you have serious problems with your personal finances, you should get expert advice immediately.

Contents

Introduction 2

Why should I save? 4

It pays to save 6

How do I start saving? 8

When should I save? 13

Exploring savings options 14

Investment 19

Tax on savings and investments 25

Pensions 26

Wills 29

Conclusion 30

Jargon buster 31

Useful organisations 35

Notes 37

© 2010 Credit Action

Published by

Credit Action

Lynton House

7-12 Tavistock Square

London

WC1H 9LT

Tel 0207 380 3390

office@creditaction.org.uk

www.creditaction.org.uk

www.moneybasics.co.uk

Credit Action is a registered charity no. 1106941 and a company limited by guarantee, registered in England

and Wales no. 5244075

Helpline 0800 138 1111 (operated by the Consumer Credit Counselling Service)

First Published 2010

Written by Eoin Hamill, Research and Policy Officer, Credit Action

Edited by Keith Tondeur, President, Credit Action

We are also very grateful to Chris Sheldon, Director and Deputy Chief Executive, Kingdom Bank Ltd. for his

many constructive comments and helpful input.

Design and production by stephen lown graphic designer

Credit Action is a national money education charity dedicated to helping educate individuals and families in all

aspects of money management. Credit Action works in partnership with another charity, Consumer Credit

Counselling Service (CCCS), who answer all our helpline calls. CCCS is a charity dedicated to providing

confidential, free counselling and money management assistance to financially distressed families and

individuals.

This book is only a guide to managing money and we have had to simplify some issues and make general

comments. Dealing with personal finance is often extremely complicated and so you cannot hold us responsible

for any action you take, or do not take, based only on what is written in this book.

If you have serious problems with your personal finances, you should get expert advice immediately.

Contents

Introduction 2

Why should I save? 4

It pays to save 6

How do I start saving? 8

When should I save? 13

Exploring savings options 14

Investment 19

Tax on savings and investments 25

Pensions 26

Wills 29

Conclusion 30

Jargon buster 31

Useful organisations 35

Notes 37

Until very recently, saving money had

become increasingly unfashionable for

individuals and households due to the

ease of accessing credit from banks and other

lenders. Instead of saving to buy that new car or to help oneself cope

with unexpected redundancy or sickness, many of us were content to

borrow and pay back later.

However, as the repercussions of the global financial crisis have unfolded,

and it remains difficult to access credit, it is painfully obvious that many

individuals who have been made redundant will simply not have enough

money to prevent them slipping into considerable financial difficulties.

Indeed, a survey from TNS Omnibus found that 32% of people made

redundant would fail to meet their current living expenses in the first month,

with one in six defaulting immediately. Just under half (43%) of working

adults questioned had sufficient funds in place to survive more than three

months.

This is why we are beginning to see people increasingly thinking about

savings so that they have some cushion to protect themselves if the worst

happens.

If you have not done so already, now is the time to take control of your

finances and start planning for the future by beginning to save.

This Moneymanual will endeavour to answer your questions about savings

and investments.

Below are some common questions people ask.

• Why is it a good idea to save?

• How do I start saving?

• Where should I put my savings?

• Why don’t I just use a credit card or other instant credit?

• If I have some spare money, how do I go about investing some money in

the stock market?

This guide aims to give clear information on how to take control of your

finances and start saving for the future.

Introduction

2 3

Until very recently, saving money had

become increasingly unfashionable for

individuals and households due to the

ease of accessing credit from banks and other

lenders. Instead of saving to buy that new car or to help oneself cope

with unexpected redundancy or sickness, many of us were content to

borrow and pay back later.

However, as the repercussions of the global financial crisis have unfolded,

and it remains difficult to access credit, it is painfully obvious that many

individuals who have been made redundant will simply not have enough

money to prevent them slipping into considerable financial difficulties.

Indeed, a survey from TNS Omnibus found that 32% of people made

redundant would fail to meet their current living expenses in the first month,

with one in six defaulting immediately. Just under half (43%) of working

adults questioned had sufficient funds in place to survive more than three

months.

This is why we are beginning to see people increasingly thinking about

savings so that they have some cushion to protect themselves if the worst

happens.

If you have not done so already, now is the time to take control of your

finances and start planning for the future by beginning to save.

This Moneymanual will endeavour to answer your questions about savings

and investments.

Below are some common questions people ask.

• Why is it a good idea to save?

• How do I start saving?

• Where should I put my savings?

• Why don’t I just use a credit card or other instant credit?

• If I have some spare money, how do I go about investing some money in

the stock market?

This guide aims to give clear information on how to take control of your

finances and start saving for the future.

Introduction

2 3

Short term goals (0-2 yrs)

• Have enough money coming in to pay for my basic needs and some left over

for leisure

• Holiday

• Pay off all of my credit cards and loans (including student loans)

• Get married

• Enjoy a new hobby or get more qualifications

• Buy things for myself or my family (such as a new appliance, furniture, TV, clothing)

• Give some money to charity

• Help out my family members

Medium term goals (2-5 yrs)

• Save for a new car

• Buy a home

• Start a family

• Decorate your house

• Change jobs

Long term goals (5 yrs+)

• Start my own business

• Pay off my mortgage

• Build my retirement savings

• Leave some money or property to

family members

5

It has become increasingly evident over the

last few years that there is a tendency for

certain situations in life to crop up when you

least expect them. As a result, it is crucially important

that you start saving now to avoid financial difficulties in the

future. Furthermore, by saving now you are giving yourself options in the future.

A good starting point is to have between 3 and 6 months’ worth of expenses (rent, bills,

food etc) saved up. If you are made redundant, which is sadly increasingly common in

the current economic environment, these savings should help you keep your head

above water until you manage to regain employment.

Once you have managed to generate a fund to cover yourself for emergencies, it would

be a good idea to start thinking about your short, medium and long term goals. Many of

these goals will only be achieved through saving, so it is a good idea to set out which

goals you want to achieve and start

saving towards them now.

Opposite are some examples of

goals you may want to achieve.

4

Why shouldI save?

Short term goals (0-2 yrs)

• Have enough money coming in to pay for my basic needs and some left over

for leisure

• Holiday

• Pay off all of my credit cards and loans (including student loans)

• Get married

• Enjoy a new hobby or get more qualifications

• Buy things for myself or my family (such as a new appliance, furniture, TV, clothing)

• Give some money to charity

• Help out my family members

Medium term goals (2-5 yrs)

• Save for a new car

• Buy a home

• Start a family

• Decorate your house

• Change jobs

Long term goals (5 yrs+)

• Start my own business

• Pay off my mortgage

• Build my retirement savings

• Leave some money or property to

family members

5

It has become increasingly evident over the

last few years that there is a tendency for

certain situations in life to crop up when you

least expect them. As a result, it is crucially important

that you start saving now to avoid financial difficulties in the

future. Furthermore, by saving now you are giving yourself options in the future.

A good starting point is to have between 3 and 6 months’ worth of expenses (rent, bills,

food etc) saved up. If you are made redundant, which is sadly increasingly common in

the current economic environment, these savings should help you keep your head

above water until you manage to regain employment.

Once you have managed to generate a fund to cover yourself for emergencies, it would

be a good idea to start thinking about your short, medium and long term goals. Many of

these goals will only be achieved through saving, so it is a good idea to set out which

goals you want to achieve and start

saving towards them now.

Opposite are some examples of

goals you may want to achieve.

4

Why shouldI save?

7

Supertele 32” LCD TV

Let’s say you wanted to purchase a ‘Supertele’ 32” LCD TV; you have the following options:

High Street / online best price £593.98

Bought using credit card (17.9%) £653.16 (£54.43 a month for 12 months)

Payday loan (173.7%) £750.00 (payable in 1 month)

Doorstep credit (189.2%) £1015.75 (£17.83 per week)

Hire purchase (29.9% without cover) £1104.48 (£7.08 per week for 156 weeks)

Hire purchase (29.9% with cover) £1698.84 (£13.29 per week for 156 weeks)

As is clear from the figures above, buying the TV outright is by far the cheapest option.

It is so much cheaper to save first than to buy on credit. In order to take advantage of

this saving, you need to start saving now! Even if you cannot save the full amount,

saving a proportion of the cost will greatly decrease the amount you have to

borrow and pay back with interest.

How much would I save if…?

Have a look at this table to see how much savings you could generate by saving as little

as £10 per month.

Monthly Year 1 Year 5 Year 10 Year 20 Contribution£ £ £ £ £

10 123 683 1,559 4,127

20 247 1,366 3,119 8,255

30 370 2,049 4,678 12,382

40 493 2,732 6,237 16,510

50 617 3,414 7,796 20,637

60 740 4,097 9,356 24,765

70 863 4,780 10,915 28,892

80 986 5,463 12,474 33,020

90 1,110 6,146 14,034 37,147

100 1,233 6,829 15,593 41,275

This table assumes the money is placed in a savings account that pays 5% AER

interest. Figures have been rounded to the nearest pound.

Have a look through the goals on the previous page and write down which of these, if

any, you wish to achieve in the future. It is natural to have your sights set on several

goals, so if you have some spare money, assign a proportion of this money to each goal

every month. The proportion you put away for each goal will depend on your individual

priorities. It may be worth separating your savings for each goal into different types of

savings accounts to reflect the different time horizons of each goal (i.e. long term goal

could go into a fixed term bond).

Another important thing to remember is that

every bit of money you put into a savings

account will generate you more income in

the form of savings interest. In the current

economic climate the Bank of England

base rate is at a record low, and savings

rates are not as high as in the past, yet

there are still accounts out there which will

make your money grow. Visit the Consumer

Financial Education Body (CFEB) website

www.moneymadeclear.org.uk and use

the comparative tables to help you select

a savings account that offers you the

best returns.

It pays to saveWhat happens if yousave each month?

Over the last few years, we consumers have become increasingly reliant on credit to

fund our lifestyles. This dependence on credit (overdrafts, credit cards, personal loans)

has contributed significantly to the financial crisis that we have seen unfold over the past

two years. Not only this, it has also led to many of us paying far more for our products

than we would have done if we had saved up the money in the first place.

To see how you can benefit by saving up for products have a look at the following

example.

6

7

Supertele 32” LCD TV

Let’s say you wanted to purchase a ‘Supertele’ 32” LCD TV; you have the following options:

High Street / online best price £593.98

Bought using credit card (17.9%) £653.16 (£54.43 a month for 12 months)

Payday loan (173.7%) £750.00 (payable in 1 month)

Doorstep credit (189.2%) £1015.75 (£17.83 per week)

Hire purchase (29.9% without cover) £1104.48 (£7.08 per week for 156 weeks)

Hire purchase (29.9% with cover) £1698.84 (£13.29 per week for 156 weeks)

As is clear from the figures above, buying the TV outright is by far the cheapest option.

It is so much cheaper to save first than to buy on credit. In order to take advantage of

this saving, you need to start saving now! Even if you cannot save the full amount,

saving a proportion of the cost will greatly decrease the amount you have to

borrow and pay back with interest.

How much would I save if…?

Have a look at this table to see how much savings you could generate by saving as little

as £10 per month.

Monthly Year 1 Year 5 Year 10 Year 20 Contribution£ £ £ £ £

10 123 683 1,559 4,127

20 247 1,366 3,119 8,255

30 370 2,049 4,678 12,382

40 493 2,732 6,237 16,510

50 617 3,414 7,796 20,637

60 740 4,097 9,356 24,765

70 863 4,780 10,915 28,892

80 986 5,463 12,474 33,020

90 1,110 6,146 14,034 37,147

100 1,233 6,829 15,593 41,275

This table assumes the money is placed in a savings account that pays 5% AER

interest. Figures have been rounded to the nearest pound.

Have a look through the goals on the previous page and write down which of these, if

any, you wish to achieve in the future. It is natural to have your sights set on several

goals, so if you have some spare money, assign a proportion of this money to each goal

every month. The proportion you put away for each goal will depend on your individual

priorities. It may be worth separating your savings for each goal into different types of

savings accounts to reflect the different time horizons of each goal (i.e. long term goal

could go into a fixed term bond).

Another important thing to remember is that

every bit of money you put into a savings

account will generate you more income in

the form of savings interest. In the current

economic climate the Bank of England

base rate is at a record low, and savings

rates are not as high as in the past, yet

there are still accounts out there which will

make your money grow. Visit the Consumer

Financial Education Body (CFEB) website

www.moneymadeclear.org.uk and use

the comparative tables to help you select

a savings account that offers you the

best returns.

It pays to saveWhat happens if yousave each month?

Over the last few years, we consumers have become increasingly reliant on credit to

fund our lifestyles. This dependence on credit (overdrafts, credit cards, personal loans)

has contributed significantly to the financial crisis that we have seen unfold over the past

two years. Not only this, it has also led to many of us paying far more for our products

than we would have done if we had saved up the money in the first place.

To see how you can benefit by saving up for products have a look at the following

example.

6

Creating a budget

Use the sample budget form and follow the steps below to create your budget. Also

included in this manual is a pull-out budget sheet for you to photocopy and use, and re-

use every month!

1. Work out your income (including any benefits you may receive). Make sure you are

taking your net income; that is, your income after tax and National Insurance have

been taken off. The example on the form shows you the type of areas your income

could come from.

2. List your regular commitments. This includes things like Council Tax, mortgage, rent,

heating, insurance and so on.

3. Add up what you are spending on normal day-to-day living expenses – this includes

things like shopping for food, clothes, transport, entertainment and so on.

4. Record what you spend on occasional items – such as birthday and Christmas

presents, repairs or decorations to your house or flat, holidays and so on. You don’t

buy these items regularly but it is helpful to put an amount to one side for them every

month.

5. Make sure that you work out your income and spending for the same period. For

example, if the income is a monthly figure, the spending should be a monthly figure

as well.

6. Add up your income and then add up your spending. If the spending is more than the

income, it may mean that you need help with your finances. It is important to review

your budget every month and adjust it as your income and expenses change.

Once you have created a budget,

have a look to see in which areas

you can reduce your spending,

or, additionally, how you can

identify ways of boosting

your income.

How do I start saving?In order to start saving you first have to take control of your finances. A good way of

doing this is to create a budget. A budget is a plan that helps you to identify your regular

income, expenses and savings. It can also help you identify the level and importance of

your expenses and help you to see exactly where your money goes.

Why budget?

Making a budget helps you to:

• Get rid of stress by planning and monitoring

your spending habits

• Know whether or not you are in control of

your finances

• Know how much money you have coming in

each week or month, and how much to spend

• Cut back any unnecessary spending

• SAVE MONEY!

How to create a budget

Budgeting is not difficult, although it may take some

concentration and a bit of work. You do not need to be a

financial wizard or a maths genius to do it!

The following tips will help create an accurate budget that you can really use to gain

control of your finances.

• Be honest. Don’t try to skip certain items or underestimate your spending.

• Be consistent and accurate. Making a budget involves keeping regular records of

what you are spending. The little things that you buy can soon add up – you probably

are spending more than you think. A sure-fire way to comprehensively keep track of

your spending is to use the new Moneybasics Spendometer.

You can download the Moneybasics Spendometer for free from the Credit Action

website at www.creditaction.org.uk By doing so you can immediately start to budget

and easily keep track of your finances on your mobile phone, wherever you are.

8 9

Creating a budget

Use the sample budget form and follow the steps below to create your budget. Also

included in this manual is a pull-out budget sheet for you to photocopy and use, and re-

use every month!

1. Work out your income (including any benefits you may receive). Make sure you are

taking your net income; that is, your income after tax and National Insurance have

been taken off. The example on the form shows you the type of areas your income

could come from.

2. List your regular commitments. This includes things like Council Tax, mortgage, rent,

heating, insurance and so on.

3. Add up what you are spending on normal day-to-day living expenses – this includes

things like shopping for food, clothes, transport, entertainment and so on.

4. Record what you spend on occasional items – such as birthday and Christmas

presents, repairs or decorations to your house or flat, holidays and so on. You don’t

buy these items regularly but it is helpful to put an amount to one side for them every

month.

5. Make sure that you work out your income and spending for the same period. For

example, if the income is a monthly figure, the spending should be a monthly figure

as well.

6. Add up your income and then add up your spending. If the spending is more than the

income, it may mean that you need help with your finances. It is important to review

your budget every month and adjust it as your income and expenses change.

Once you have created a budget,

have a look to see in which areas

you can reduce your spending,

or, additionally, how you can

identify ways of boosting

your income.

How do I start saving?In order to start saving you first have to take control of your finances. A good way of

doing this is to create a budget. A budget is a plan that helps you to identify your regular

income, expenses and savings. It can also help you identify the level and importance of

your expenses and help you to see exactly where your money goes.

Why budget?

Making a budget helps you to:

• Get rid of stress by planning and monitoring

your spending habits

• Know whether or not you are in control of

your finances

• Know how much money you have coming in

each week or month, and how much to spend

• Cut back any unnecessary spending

• SAVE MONEY!

How to create a budget

Budgeting is not difficult, although it may take some

concentration and a bit of work. You do not need to be a

financial wizard or a maths genius to do it!

The following tips will help create an accurate budget that you can really use to gain

control of your finances.

• Be honest. Don’t try to skip certain items or underestimate your spending.

• Be consistent and accurate. Making a budget involves keeping regular records of

what you are spending. The little things that you buy can soon add up – you probably

are spending more than you think. A sure-fire way to comprehensively keep track of

your spending is to use the new Moneybasics Spendometer.

You can download the Moneybasics Spendometer for free from the Credit Action

website at www.creditaction.org.uk By doing so you can immediately start to budget

and easily keep track of your finances on your mobile phone, wherever you are.

8 9

Make budgeting part of your lifestyle“Having been assisted by Credit Action in the past I now regularly use their resources

and moneymanuals. The importance and value of budgeting cannot be stressed enough

and itʼs vital to make it a regular part of your lifestyle. I also explain to my students why

savings, no matter how small, can be built into budgeting. Wise financial management

now can save so much unnecessary heartache in the future.”

Tope Teniola

Financial Capability Trainer

Remember there is a pull-out budget

sheet that you can use and re-use in the

centre of this booklet!

10

BUDGET SHEETDate prepared

Name

Address

Number of adults in household Number of children in household

INCOME weekly/monthly

You Partner Total

Wages (take-home pay)

Partner’s wages

Working Tax Credit/Child Tax Credit

Part-time job

Child Benefit

Job Seeker’s Allowance

Disability and Sickness Benefit

Pension

Child Maintenance paid to you

Rent or money from lodgers

Other benefits

Other

Total Household Income

EXPENDITURE weekly/monthly

Priorities Amount spent

Mortgage/Rent/Board

2nd Mortgage/Secured Loan

Endowment Policy

Child Maintenance paid by you

Council Tax

Water Charges

Electricity

Gas

Service Charges/Ground Rent

Court Fines/County Court Judgments

Vehicle Finance/Hire Purchase

Television Licence

Self Employed

Income Tax

National Insurance

VAT

LIVING COSTS Amount spent

Food and Housekeeping

School Meals/Meals at Work

Clothing/Footwear

Vehicle Running Costs (Tax, MOT, Insurance, etc.)

Petrol/Diesel

Fares (Bus, Train, etc.)

Telephone and Mobile

Rentals (TV, Video, etc.)

Prescriptions/Dentist/Optician

Childminder/Nursery

School Costs

Cigarettes/Alcohol

Life Insurance/Pension/Investments

Building/Contents Insurance

Other

TOTAL HOUSEHOLD COSTS (1)

TOTAL HOUSEHOLD INCOME (2)

TOTAL LEFT AFTER TAKING (1) FROM (2)

11

Make budgeting part of your lifestyle“Having been assisted by Credit Action in the past I now regularly use their resources

and moneymanuals. The importance and value of budgeting cannot be stressed enough

and itʼs vital to make it a regular part of your lifestyle. I also explain to my students why

savings, no matter how small, can be built into budgeting. Wise financial management

now can save so much unnecessary heartache in the future.”

Tope Teniola

Financial Capability Trainer

Remember there is a pull-out budget

sheet that you can use and re-use in the

centre of this booklet!

10

BUDGET SHEETDate prepared

Name

Address

Number of adults in household Number of children in household

INCOME weekly/monthly

You Partner Total

Wages (take-home pay)

Partner’s wages

Working Tax Credit/Child Tax Credit

Part-time job

Child Benefit

Job Seeker’s Allowance

Disability and Sickness Benefit

Pension

Child Maintenance paid to you

Rent or money from lodgers

Other benefits

Other

Total Household Income

EXPENDITURE weekly/monthly

Priorities Amount spent

Mortgage/Rent/Board

2nd Mortgage/Secured Loan

Endowment Policy

Child Maintenance paid by you

Council Tax

Water Charges

Electricity

Gas

Service Charges/Ground Rent

Court Fines/County Court Judgments

Vehicle Finance/Hire Purchase

Television Licence

Self Employed

Income Tax

National Insurance

VAT

LIVING COSTS Amount spent

Food and Housekeeping

School Meals/Meals at Work

Clothing/Footwear

Vehicle Running Costs (Tax, MOT, Insurance, etc.)

Petrol/Diesel

Fares (Bus, Train, etc.)

Telephone and Mobile

Rentals (TV, Video, etc.)

Prescriptions/Dentist/Optician

Childminder/Nursery

School Costs

Cigarettes/Alcohol

Life Insurance/Pension/Investments

Building/Contents Insurance

Other

TOTAL HOUSEHOLD COSTS (1)

TOTAL HOUSEHOLD INCOME (2)

TOTAL LEFT AFTER TAKING (1) FROM (2)

11

When should I save?Once you have assessed your financial situation by creating a budget, it is a good idea

to look at the following general rules about saving.

1. Do you have any debts? If you have debts, especially expensive debts such as credit

cards, it is usually better to pay off these first before saving, because the interest you

pay on borrowed money is typically much higher than the interest rates you get on a

savings account. This is especially true at the moment with savings rates at a record

low and interest rates on credit card balances and overdrafts on the up.

2. Do you have any insurance? If you do not have any insurance to cover things like

redundancy, illness or even death it is worth doing so to protect yourself and your

family.

3. Do you have any emergency funds? As life has the tendency to throw surprises at

us, it is a good idea to have a certain amount of money stored away for any

unforeseen expenses that you have not planned for. A guideline amount would be to

have between 3 and 6 months’ worth of expenses (rent, bills, food etc) saved up. It

would be a good idea to keep this money in an easy access account in order to

ensure that this can be dipped into in an emergency.

12

Money-saving ideas

1. Grocery shopping

a. Before going grocery shopping make a shopping list to resist the temptation to

pick up stuff you don’t actually need.

b. Always look out for special offers and, where possible, buy in bulk items that will

not go off.

c. Buying ‘own brand’ products is normally cheaper.

d. Try to avoid convenience food (such as prepared meals) as it usually costs much

more than the cost of you making it.

2. Often switching energy supplier will help save you money. It is also worth checking

your energy bills when they come through, as many energy firms estimate your

usage, so it is worth checking whether this is correct or not.

3. Do you pay your bills with cash? If you do, set up your bills on Direct Debit or

Standing Order as you are often charged when you pay bills with cash or in store to

cover the processing costs.

4. Change your phone, TV and internet provider. It is always worth keeping an eye on

the latest telecommunications deals out there, as you may find there are some great

deals to be had. If you have packages with Sky or Virgin Media you may want to think

about downgrading the package you’re on in order to save some money.

5. See whether you can cut your insurance costs by visiting www.moneymadeclear.

org.uk to compare the cost from different insurance providers.

6. See if your local area has a freecycle group – www.uk.freecycle.org

Money-making ideas

1. Do you have a spare room? If so, why not rent it out to generate some extra income?

2. Do you have any old mobiles around your house? If so, why not try and recycle them

for cash?

3. Sell off any junk, old CDs/ DVDs or furniture you have just sitting around your house.

4. Do you have a parking space that you don’t use? Why not see whether anyone wants

to buy it off you?

13

When should I save?Once you have assessed your financial situation by creating a budget, it is a good idea

to look at the following general rules about saving.

1. Do you have any debts? If you have debts, especially expensive debts such as credit

cards, it is usually better to pay off these first before saving, because the interest you

pay on borrowed money is typically much higher than the interest rates you get on a

savings account. This is especially true at the moment with savings rates at a record

low and interest rates on credit card balances and overdrafts on the up.

2. Do you have any insurance? If you do not have any insurance to cover things like

redundancy, illness or even death it is worth doing so to protect yourself and your

family.

3. Do you have any emergency funds? As life has the tendency to throw surprises at

us, it is a good idea to have a certain amount of money stored away for any

unforeseen expenses that you have not planned for. A guideline amount would be to

have between 3 and 6 months’ worth of expenses (rent, bills, food etc) saved up. It

would be a good idea to keep this money in an easy access account in order to

ensure that this can be dipped into in an emergency.

12

Money-saving ideas

1. Grocery shopping

a. Before going grocery shopping make a shopping list to resist the temptation to

pick up stuff you don’t actually need.

b. Always look out for special offers and, where possible, buy in bulk items that will

not go off.

c. Buying ‘own brand’ products is normally cheaper.

d. Try to avoid convenience food (such as prepared meals) as it usually costs much

more than the cost of you making it.

2. Often switching energy supplier will help save you money. It is also worth checking

your energy bills when they come through, as many energy firms estimate your

usage, so it is worth checking whether this is correct or not.

3. Do you pay your bills with cash? If you do, set up your bills on Direct Debit or

Standing Order as you are often charged when you pay bills with cash or in store to

cover the processing costs.

4. Change your phone, TV and internet provider. It is always worth keeping an eye on

the latest telecommunications deals out there, as you may find there are some great

deals to be had. If you have packages with Sky or Virgin Media you may want to think

about downgrading the package you’re on in order to save some money.

5. See whether you can cut your insurance costs by visiting www.moneymadeclear.

org.uk to compare the cost from different insurance providers.

6. See if your local area has a freecycle group – www.uk.freecycle.org

Money-making ideas

1. Do you have a spare room? If so, why not rent it out to generate some extra income?

2. Do you have any old mobiles around your house? If so, why not try and recycle them

for cash?

3. Sell off any junk, old CDs/ DVDs or furniture you have just sitting around your house.

4. Do you have a parking space that you don’t use? Why not see whether anyone wants

to buy it off you?

13

Types of saving accounts There are lots of different savings accounts available, but some will suit your specific

needs better than others. Below are details about some of the different savings

accounts available in most, if not all, mainstream banks, building societies and your

local Post Office. Read through them and work out which account is best for you.

Easy access accounts

It is advisable to keep some money in an easy access account in order to cover any

unforeseen or emergency costs you may have to incur. Easy access accounts can

typically be opened with as little as £1.

Some easy access accounts provide you with a card that enables you to withdraw money

from your savings 24/7. As a result of the instant availability of your savings, easy access

accounts typically offer lower interest rates than some other savings accounts and the

rates tend to be variable as they are linked to the Bank of England base rate.

Some of the best instant access accounts are with internet-only banks, which allow you

access to your savings by transferring from a nominated current account. Transfers can

take between 3-7 working days.

Notice accounts

Notice accounts tend to offer a higher a rate of interest than easy access accounts, but

are less flexible. With notice accounts, you are required to give notice of your intention

to withdraw. The length of this period usually ranges between 30 to 60 days. If you

withdraw money from your account before the notice period has passed, you will

typically be penalised in the form of a loss of interest on the

sum withdrawn for the length of notice required on the

individual account.

Having a notice period on your savings is

advantageous in that it prevents you from just

dipping in and out of your

savings; however, it does

mean that your money is

tied up, making it hard to

get hold of in case of

emergency.

Once you have addressed your current financial

situation, you may now be in a position to

consider further savings and investments.

What to look for whenselecting a savings account

Interest rates: Some savings accounts will offer higher interest rates for an initial period

which can then drop. Others have fixed rates or rates that go up depending on the

amount deposited.

Tax: The Government encourages us to save by giving certain tax-free incentives to do

so. This is currently being done through Individual Savings Accounts (ISAs). Make sure

you take full advantage of such options and do not end up paying unnecessary tax.

Most savings accounts automatically have tax taken off the interest when you receive

it. If you don’t pay tax you can arrange to stop this happening by speaking to your bank

or building society.

Notice periods: Some accounts require you to give a certain notice period for

withdrawal of funds. These typically range from between 30-90 days.

Time period: Certain accounts will require you to leave your savings in

the account for a specified period in order to reap higher interest rates.

How interest is paid: Different savings accounts will pay interest

differently. Interest is typically paid monthly or annually.

Minimum deposits: Some accounts require you to

make a specified minimum deposit, and may also

require you to make a certain number of deposits

in a given time period.

Additional bonuses: Some accounts will offer

certain bonuses either to open the account, or if

you satisfy some other criteria. It is important that you read the

small print and understand what is required to receive the

benefit – and be ready to switch the money when any bonus

period comes to an end.

Exploringsavingsoptions

14 15

Types of saving accounts There are lots of different savings accounts available, but some will suit your specific

needs better than others. Below are details about some of the different savings

accounts available in most, if not all, mainstream banks, building societies and your

local Post Office. Read through them and work out which account is best for you.

Easy access accounts

It is advisable to keep some money in an easy access account in order to cover any

unforeseen or emergency costs you may have to incur. Easy access accounts can

typically be opened with as little as £1.

Some easy access accounts provide you with a card that enables you to withdraw money

from your savings 24/7. As a result of the instant availability of your savings, easy access

accounts typically offer lower interest rates than some other savings accounts and the

rates tend to be variable as they are linked to the Bank of England base rate.

Some of the best instant access accounts are with internet-only banks, which allow you

access to your savings by transferring from a nominated current account. Transfers can

take between 3-7 working days.

Notice accounts

Notice accounts tend to offer a higher a rate of interest than easy access accounts, but

are less flexible. With notice accounts, you are required to give notice of your intention

to withdraw. The length of this period usually ranges between 30 to 60 days. If you

withdraw money from your account before the notice period has passed, you will

typically be penalised in the form of a loss of interest on the

sum withdrawn for the length of notice required on the

individual account.

Having a notice period on your savings is

advantageous in that it prevents you from just

dipping in and out of your

savings; however, it does

mean that your money is

tied up, making it hard to

get hold of in case of

emergency.

Once you have addressed your current financial

situation, you may now be in a position to

consider further savings and investments.

What to look for whenselecting a savings account

Interest rates: Some savings accounts will offer higher interest rates for an initial period

which can then drop. Others have fixed rates or rates that go up depending on the

amount deposited.

Tax: The Government encourages us to save by giving certain tax-free incentives to do

so. This is currently being done through Individual Savings Accounts (ISAs). Make sure

you take full advantage of such options and do not end up paying unnecessary tax.

Most savings accounts automatically have tax taken off the interest when you receive

it. If you don’t pay tax you can arrange to stop this happening by speaking to your bank

or building society.

Notice periods: Some accounts require you to give a certain notice period for

withdrawal of funds. These typically range from between 30-90 days.

Time period: Certain accounts will require you to leave your savings in

the account for a specified period in order to reap higher interest rates.

How interest is paid: Different savings accounts will pay interest

differently. Interest is typically paid monthly or annually.

Minimum deposits: Some accounts require you to

make a specified minimum deposit, and may also

require you to make a certain number of deposits

in a given time period.

Additional bonuses: Some accounts will offer

certain bonuses either to open the account, or if

you satisfy some other criteria. It is important that you read the

small print and understand what is required to receive the

benefit – and be ready to switch the money when any bonus

period comes to an end.

Exploringsavingsoptions

14 15

Other saving mechanisms National Savings and Investments

National Savings and Investments (NS&I) are operated by the Government and offer a

range of accounts, bonds and certificates.

All products are capital secure, so investors receive their money back, whatever the

circumstances. They have a range of accounts that meet people’s different requirements.

Some offer tax-free savings, others pay interest gross which savers will have to declare

on their annual tax returns, while fixed rate savings bonds pay interest after the

deduction of 20% tax (cannot be reclaimed).

If security is a priority, NS&I are a good choice. Many of these products are also

available in your local Post Office.

Individual Savings Accounts (ISAs)

Tax free savings accounts such as ISAs are a useful way to save as all the income you

receive from these accounts is tax free. This can increase your income by a fifth (20%)

if you are a basic rate tax payer. There are two types of ISA accounts which are very

different: a Cash ISA where the amount you deposit stays in cash and earns interest;

and a Stocks and Share ISA which is an investment which can go up and down in value

as well as paying an income.

In return for the Government allowing you to receive the income from your ISA tax free,

you must keep to some simple rules. The main ones are that: you are only allowed to

contribute a maximum of £10,200 each tax year into the account, of which only £5,100

may be in a Cash ISA. You may withdraw your money whenever you wish, but once you

have paid in the maximum amount, you must wait until the next tax year before paying

in more.

You may have one Cash ISA and one Stocks and Shares ISA each tax year and you

can have them with different financial institutions or the same one. These limits do get

changed quite regularly but the other rules have not changed for some time. In this

section we will deal with Cash ISAs while we explain Stock and Share ISAs in our

helpful jargon buster section.

17

Fixed rate bonds

This type of account offers higher interest rates, but it involves you tying up your money

for a fixed amount of time. Generally the longer the money is locked in, the higher the

interest. These accounts are recommended for those who have spare money that they

can afford to lock away for a fixed period of time.

Once you have placed your initial payment, most account providers will not allow you to

add any additional funds to your bond. The interest rate will be fixed from the date the

account is opened until the maturity date. As a result, any increases or falls in the Bank

of England base rate will not be reflected in your interest rate. You are not normally able

to withdraw any money from these accounts during the fixed time period. If for some

reason this is unavoidable, you will be penalised.

Regular savings accounts

Regular savings accounts are designed for people who want to make regular deposits,

usually of a set amount, into the account each month. These are useful accounts for

people who are trying to budget. Banks typically offer high interest rates on these

accounts, with some offering additional incentives for customers

who already hold current accounts with the bank.

Most regular savings accounts are variable, so interest rates

will be increased or decreased within 30 days of the Bank

of England base rate changes. But, obviously, this

means savings rates will also go down if the base rate

goes down.

Regular savings accounts typically have lots of

restrictions attached to them which, if broken, will result

in a loss of interest. These restrictions may include: limits

on the number of withdrawals per year; no lump sum

deposits accepted; and maximum and minimum limits

on your deposits each month.

A regular savings account can be opened with as

little as £5 per month.

16

Other saving mechanisms National Savings and Investments

National Savings and Investments (NS&I) are operated by the Government and offer a

range of accounts, bonds and certificates.

All products are capital secure, so investors receive their money back, whatever the

circumstances. They have a range of accounts that meet people’s different requirements.

Some offer tax-free savings, others pay interest gross which savers will have to declare

on their annual tax returns, while fixed rate savings bonds pay interest after the

deduction of 20% tax (cannot be reclaimed).

If security is a priority, NS&I are a good choice. Many of these products are also

available in your local Post Office.

Individual Savings Accounts (ISAs)

Tax free savings accounts such as ISAs are a useful way to save as all the income you

receive from these accounts is tax free. This can increase your income by a fifth (20%)

if you are a basic rate tax payer. There are two types of ISA accounts which are very

different: a Cash ISA where the amount you deposit stays in cash and earns interest;

and a Stocks and Share ISA which is an investment which can go up and down in value

as well as paying an income.

In return for the Government allowing you to receive the income from your ISA tax free,

you must keep to some simple rules. The main ones are that: you are only allowed to

contribute a maximum of £10,200 each tax year into the account, of which only £5,100

may be in a Cash ISA. You may withdraw your money whenever you wish, but once you

have paid in the maximum amount, you must wait until the next tax year before paying

in more.

You may have one Cash ISA and one Stocks and Shares ISA each tax year and you

can have them with different financial institutions or the same one. These limits do get

changed quite regularly but the other rules have not changed for some time. In this

section we will deal with Cash ISAs while we explain Stock and Share ISAs in our

helpful jargon buster section.

17

Fixed rate bonds

This type of account offers higher interest rates, but it involves you tying up your money

for a fixed amount of time. Generally the longer the money is locked in, the higher the

interest. These accounts are recommended for those who have spare money that they

can afford to lock away for a fixed period of time.

Once you have placed your initial payment, most account providers will not allow you to

add any additional funds to your bond. The interest rate will be fixed from the date the

account is opened until the maturity date. As a result, any increases or falls in the Bank

of England base rate will not be reflected in your interest rate. You are not normally able

to withdraw any money from these accounts during the fixed time period. If for some

reason this is unavoidable, you will be penalised.

Regular savings accounts

Regular savings accounts are designed for people who want to make regular deposits,

usually of a set amount, into the account each month. These are useful accounts for

people who are trying to budget. Banks typically offer high interest rates on these

accounts, with some offering additional incentives for customers

who already hold current accounts with the bank.

Most regular savings accounts are variable, so interest rates

will be increased or decreased within 30 days of the Bank

of England base rate changes. But, obviously, this

means savings rates will also go down if the base rate

goes down.

Regular savings accounts typically have lots of

restrictions attached to them which, if broken, will result

in a loss of interest. These restrictions may include: limits

on the number of withdrawals per year; no lump sum

deposits accepted; and maximum and minimum limits

on your deposits each month.

A regular savings account can be opened with as

little as £5 per month.

16

A cash ISA is really just an ordinary savings account where you receive interest but,

because you keep to the rules, the government allows your interest to be tax free.

Unless you want to use your ISA allowance for an investment it is probably a good idea

to make an ISA your first savings account.

There are many financial institutions that provide ISAs and some of them do add some

extra rules such as notice periods to withdraw, or minimum deposits, but some start

from just a £1 deposit. Make sure you check the terms before you apply, but don’t be

put off as they are very easy to use.

Credit Union savings

With a Credit Union, you can save as much or as little as you like; weekly, monthly or

as often as you wish. Money can be deposited into your account in various different

collection points, or directly from your wages.

Credit Unions aim to pay a dividend on savings once a year to all their members

depending on how profitable the Credit Union has been. These dividends typically range

between 2% and 3% of your balance.

Some Credit Unions also offer savings products

such as Christmas savings accounts where you

have to give notice if you want to take your money

out before November each year. This may be a

good way of saving for Christmas as you may be

less tempted to take out your money than with

an ordinary savings account.

For more information on saving with a Credit

Union visit the About Credit Unions section on the

ABCUL website www.abcul.org

How safe are my savings?Having seen a significant number of banks and building societies fall into trouble over

the last year or two, it is important that your savings are kept secure.

Thanks to the Financial Services Compensation Scheme (FSCS), UK deposits in banks

or building societies currently regulated by the FSA are covered. Since 30 June 2009,

the deposit compensation limit is £50,000.

Further information on financial services compensation can be found at the FSCS

website www.fscs.org.uk

What is the differencebetween savings and investments?Savings are usually defined as accounts where you deposit money and the financial

institution (bank or building society) pays you interest for your

money. An investment, on the other hand, is where you buy

a stake in a business or group of businesses, in return for

which they will give you a share of their profits.

Often, the value of your investment will go up and

down, just as your income does, depending on the

success of the business. For most investors, they don’t

invest directly into a business, like the TV Dragons’ Den,

but use a financial institution to package and

manage the process.

Please visit the jargon buster at the back of this guide for clear

and simple explanations of some of the investment terms

discussed in this section.

18

Investment

19

A cash ISA is really just an ordinary savings account where you receive interest but,

because you keep to the rules, the government allows your interest to be tax free.

Unless you want to use your ISA allowance for an investment it is probably a good idea

to make an ISA your first savings account.

There are many financial institutions that provide ISAs and some of them do add some

extra rules such as notice periods to withdraw, or minimum deposits, but some start

from just a £1 deposit. Make sure you check the terms before you apply, but don’t be

put off as they are very easy to use.

Credit Union savings

With a Credit Union, you can save as much or as little as you like; weekly, monthly or

as often as you wish. Money can be deposited into your account in various different

collection points, or directly from your wages.

Credit Unions aim to pay a dividend on savings once a year to all their members

depending on how profitable the Credit Union has been. These dividends typically range

between 2% and 3% of your balance.

Some Credit Unions also offer savings products

such as Christmas savings accounts where you

have to give notice if you want to take your money

out before November each year. This may be a

good way of saving for Christmas as you may be

less tempted to take out your money than with

an ordinary savings account.

For more information on saving with a Credit

Union visit the About Credit Unions section on the

ABCUL website www.abcul.org

How safe are my savings?Having seen a significant number of banks and building societies fall into trouble over

the last year or two, it is important that your savings are kept secure.

Thanks to the Financial Services Compensation Scheme (FSCS), UK deposits in banks

or building societies currently regulated by the FSA are covered. Since 30 June 2009,

the deposit compensation limit is £50,000.

Further information on financial services compensation can be found at the FSCS

website www.fscs.org.uk

What is the differencebetween savings and investments?Savings are usually defined as accounts where you deposit money and the financial

institution (bank or building society) pays you interest for your

money. An investment, on the other hand, is where you buy

a stake in a business or group of businesses, in return for

which they will give you a share of their profits.

Often, the value of your investment will go up and

down, just as your income does, depending on the

success of the business. For most investors, they don’t

invest directly into a business, like the TV Dragons’ Den,

but use a financial institution to package and

manage the process.

Please visit the jargon buster at the back of this guide for clear

and simple explanations of some of the investment terms

discussed in this section.

18

Investment

19

Why should I invest?As with savings, by deciding to invest you are making positive steps to secure your

future income. So why is it so hard for us to do it? Often, people are put off from investing

as they see it as more complicated than simply putting your money in a savings

account. However, as we hope this guide will show, investing doesn’t have to be overly

complicated and can be a really good way of making your money work for you.

This section aims to provide clear and understandable information about some of the

investment jargon used, and where to go to find information to help you make the right

decision about your money.

Real rate of returnThis concept is often a difficult one to grasp. £1 in 1990 is not worth the same as £1

today, due to inflation. Simplified, inflation means the value of your money will decrease

over time as the price of goods and services rise. It therefore does not make sense to

leave a big portion of our savings in no or low-interest bank accounts that don’t beat

inflation. By choosing to invest some of your money, it may help you to stretch your

savings further than simply keeping it in a savings account.

Investment scenariosThe main reason that people make investments rather than put all their money into

savings accounts is that the amount that you get back over a long period of time is

usually much greater. This is because, in

general, as well as receiving a dividend

every year the value of your investment

will increase (capital growth). This can

only really be relied upon when an

investment is made over a longer

period of time to smooth out the

ups and downs of the value of your

investment.

For example if you put £10,000 in a savings account in December 1959 and left it for 15

years based on the average interest rate you would have £15,250 in the account at the

end of the period, i.e. your original investment of £10,000 plus £5,250 interest.

However, if you had invested £10,000 in the stock market over the same period you

would on average have received dividends of approximately £5,000 and your

investment would also have grown by £8,000, i.e. your account would be worth a total

of £23,000.

This shows that if you are putting money aside for a long time then an investment could

be a good choice. So if you are saving for your retirement over say, 30 or 40 years, then

investing will most likely be better for you. Also, if you want to put a sum of money aside

for your child’s wedding or university fees, an investment may be suitable.

The important aspect to think about is how long the money will be invested for and

whether you are likely to need access to it quickly. If the value of your investment has

gone down when you need to draw it out, it may be better to wait for it to go back up in

value.

Investment horizon and risk/returnWhen you are investing, you ought to consider what your investment horizon is. Your

investment horizon is the length of time your money is to be invested for. With life

expectancy creeping up, you should try to take a long term view when you are investing

your money. Furthermore, having a long term view can make short term swings in your

investment portfolio irrelevant, and you therefore have no need to constantly look up the

last quote of your investments.

There is no such thing as a no-risk investment and, in many cases, your capital (or the

amount you initially invest) may not be guaranteed. The higher the perceived risk, the

higher the potential return is. Conversely the lower the risk, the lower the potential

return. As mentioned previously, when investing in stocks and shares it is important to

take a long term view as these markets can often be volatile in the short term. Although

there is no guarantee, short term losses are often ironed out in the long term as markets

recover or grow.

2120

Why should I invest?As with savings, by deciding to invest you are making positive steps to secure your

future income. So why is it so hard for us to do it? Often, people are put off from investing

as they see it as more complicated than simply putting your money in a savings

account. However, as we hope this guide will show, investing doesn’t have to be overly

complicated and can be a really good way of making your money work for you.

This section aims to provide clear and understandable information about some of the

investment jargon used, and where to go to find information to help you make the right

decision about your money.

Real rate of returnThis concept is often a difficult one to grasp. £1 in 1990 is not worth the same as £1

today, due to inflation. Simplified, inflation means the value of your money will decrease

over time as the price of goods and services rise. It therefore does not make sense to

leave a big portion of our savings in no or low-interest bank accounts that don’t beat

inflation. By choosing to invest some of your money, it may help you to stretch your

savings further than simply keeping it in a savings account.

Investment scenariosThe main reason that people make investments rather than put all their money into

savings accounts is that the amount that you get back over a long period of time is

usually much greater. This is because, in

general, as well as receiving a dividend

every year the value of your investment

will increase (capital growth). This can

only really be relied upon when an

investment is made over a longer

period of time to smooth out the

ups and downs of the value of your

investment.

For example if you put £10,000 in a savings account in December 1959 and left it for 15

years based on the average interest rate you would have £15,250 in the account at the

end of the period, i.e. your original investment of £10,000 plus £5,250 interest.

However, if you had invested £10,000 in the stock market over the same period you

would on average have received dividends of approximately £5,000 and your

investment would also have grown by £8,000, i.e. your account would be worth a total

of £23,000.

This shows that if you are putting money aside for a long time then an investment could

be a good choice. So if you are saving for your retirement over say, 30 or 40 years, then

investing will most likely be better for you. Also, if you want to put a sum of money aside

for your child’s wedding or university fees, an investment may be suitable.

The important aspect to think about is how long the money will be invested for and

whether you are likely to need access to it quickly. If the value of your investment has

gone down when you need to draw it out, it may be better to wait for it to go back up in

value.

Investment horizon and risk/returnWhen you are investing, you ought to consider what your investment horizon is. Your

investment horizon is the length of time your money is to be invested for. With life

expectancy creeping up, you should try to take a long term view when you are investing

your money. Furthermore, having a long term view can make short term swings in your

investment portfolio irrelevant, and you therefore have no need to constantly look up the

last quote of your investments.

There is no such thing as a no-risk investment and, in many cases, your capital (or the

amount you initially invest) may not be guaranteed. The higher the perceived risk, the

higher the potential return is. Conversely the lower the risk, the lower the potential

return. As mentioned previously, when investing in stocks and shares it is important to

take a long term view as these markets can often be volatile in the short term. Although

there is no guarantee, short term losses are often ironed out in the long term as markets

recover or grow.

2120

There are lots of financial institutions who will be very pleased to sell you an investment.

There are also financial advisers who will be keen to arrange it for you. It is important

to remember that their job is to sell to you, but they are required by law to provide certain

information to help you make a decision.

If you go to a bank or building society, they will usually only be able to sell you

investments from their own company and the same applies to a tied financial adviser

who works for a particular financial institution.

In both these situations, the advice that you receive should be of a good quality, but the

investment that you will be offered will be restricted to the one company. To obtain

advice and the opportunity to choose between the best performing investments, you will

need to speak to an Independent Financial Adviser (IFA).

As investing can often require a certain amount of risk-taking you may want to ask

yourself the following question to help you understand what level of risk you are

prepared to take.

Which statement best describes your attitude to investing your money?

1. I could not accept that my investment may go down in

value, even in the short term.

2. I could accept some movement up and down

in the value of my investment over time.

3. I could accept that I could potentially lose all

or most of my invested capital.

These statements can be seen to broadly

represent the three categories of low-risk,

medium-risk and high-risk respectively. Whatever

category you find yourself in, it will help to give an

indication of how much risk you are prepared to take

with your investments. Whatever your answer, you should be sure that

your investment decisions reflect these priorities or goals.

How do I make an investment?The best way to invest is via a discount stockbroker with low

transaction fees so that you can maximise your returns. You

can ask a financial adviser or investment manager to buy or sell shares for you, but they

will still go through a stockbroker. Generally, you should to aim pay less than 2% of your

overall investment in fees.

To get an idea of how markets operate and function, it may be useful to do your own

primary research – for example, you could consult the money and business sections in

daily newspapers such as the Financial Times to get an overview of the sector.

Increasing your understanding about investments will ultimately help you choose the

right investments for your situation and goals. Indeed, with a greater comprehension,

you could eventually start to invest yourself directly. This allows you to take bigger risks

and maybe make greater returns, but you have to know what you’re doing, and be aware

that you can lose as well as win.

22

It is important to speak to qualified and independent financial

advisers when considering any investments, and it can be a

good idea to speak to more than one adviser. However, to

seek specialised advice

you may have to pay for it.

To find an independent

financial adviser, visit the

Association of Independent

Financial Advisers (AIFA) website at

http://www.aifa.net/consumer-area/

23

There are lots of financial institutions who will be very pleased to sell you an investment.

There are also financial advisers who will be keen to arrange it for you. It is important

to remember that their job is to sell to you, but they are required by law to provide certain

information to help you make a decision.

If you go to a bank or building society, they will usually only be able to sell you

investments from their own company and the same applies to a tied financial adviser

who works for a particular financial institution.

In both these situations, the advice that you receive should be of a good quality, but the

investment that you will be offered will be restricted to the one company. To obtain

advice and the opportunity to choose between the best performing investments, you will

need to speak to an Independent Financial Adviser (IFA).

As investing can often require a certain amount of risk-taking you may want to ask

yourself the following question to help you understand what level of risk you are

prepared to take.

Which statement best describes your attitude to investing your money?

1. I could not accept that my investment may go down in

value, even in the short term.

2. I could accept some movement up and down

in the value of my investment over time.

3. I could accept that I could potentially lose all

or most of my invested capital.

These statements can be seen to broadly

represent the three categories of low-risk,

medium-risk and high-risk respectively. Whatever

category you find yourself in, it will help to give an

indication of how much risk you are prepared to take

with your investments. Whatever your answer, you should be sure that

your investment decisions reflect these priorities or goals.

How do I make an investment?The best way to invest is via a discount stockbroker with low

transaction fees so that you can maximise your returns. You

can ask a financial adviser or investment manager to buy or sell shares for you, but they

will still go through a stockbroker. Generally, you should to aim pay less than 2% of your

overall investment in fees.

To get an idea of how markets operate and function, it may be useful to do your own

primary research – for example, you could consult the money and business sections in

daily newspapers such as the Financial Times to get an overview of the sector.

Increasing your understanding about investments will ultimately help you choose the

right investments for your situation and goals. Indeed, with a greater comprehension,

you could eventually start to invest yourself directly. This allows you to take bigger risks

and maybe make greater returns, but you have to know what you’re doing, and be aware

that you can lose as well as win.

22

It is important to speak to qualified and independent financial

advisers when considering any investments, and it can be a

good idea to speak to more than one adviser. However, to

seek specialised advice

you may have to pay for it.

To find an independent

financial adviser, visit the

Association of Independent

Financial Advisers (AIFA) website at

http://www.aifa.net/consumer-area/

23

Investment optionsThere are a couple of alternatives out there, but here we will only mention the most

relevant ones – stocks and shares, and managed funds.

Stocks and shares: Usually the same, these are investments directly into a business,

literally a share of the business. You can often buy and sell them quite easily, particularly

if they are listed on a stock market. There are two ways of earning an income: price

accumulation and dividends. The aim is for the value of your shares to grow over time

as the value of the company increases in line with its profitability and growth.

Managed fund: An investment fund, often a Unit Trust, OEIC or ISA, is where the

stocks and shares that the fund invests in are managed by a professional investment

manager. The fund will be managed to achieve certain goals and targets which will be

clearly highlighted; for example, as much income as possible.

Again, your independent financial adviser will be able to talk you through various

investment options so that you can decide what is best for you and your priorities.

How much should I invest?The first aspect to remember is that investments are long term

and you should always make sure that you have some

money that you can get hold of in an emergency. Most

advisers would suggest that you should try to keep

between 3 and 6 months’ worth of expenses

(rent, bills, food etc) in a savings account with

some of it available immediately and some

perhaps on a month’s notice to get a higher

interest rate.

You then may wish to think about why you are investing. If it

is for something specific, like university fees, you may want

to calculate how much you need to invest each month to

ensure you will have enough. Financial advisers can help you

by providing forecasts, but you will probably need to review

how much you are investing regularly to ensure that it

reaches your target.

SavingsIncome you earn from savings is generally subject to

income tax. The main accounts which are exempt from

tax are ISAs, and some National Savings and Investment

accounts.

Savings interest normally has tax taken off at 20 per

cent before you receive it. This is confirmed by the

entry ‘net interest’ on your bank or building society statement. If you’re a higher rate

taxpayer, you owe tax on the difference. If you have a low income you may be able to

claim tax back.

Savings income is added to your other sources of income and taxed after your tax free

allowances have been taken into account. The following tax structure applies:

• All income of less than £2,440 [including income from savings] will be taxed at 10%

• Income that is above £2,440, but less than the £37,400 basic rate Income Tax band,

is taxed at 20%

• Income that is above the £37,400 but less than the £150,000 Income Tax band will

be taxed at 40%

• Income that is above the £150,000 Income Tax band will be

taxed at 50%

All of the above figures apply to the

2010-2011 tax year.

Beware!!If you are contacted ‘out of the blue’ by somebody inviting you to invest in

shares, beware – these may be share scams, also known as boiler room scams.

Never agree to anything unless you have done plenty of research on a company

or spoken to an independent financial adviser. Contact Moneymadeclear on 0300

500 5000 to find out more about a specific company or to report a bogus firm.

Tax on savings andinvestments

24 25

Investment optionsThere are a couple of alternatives out there, but here we will only mention the most

relevant ones – stocks and shares, and managed funds.

Stocks and shares: Usually the same, these are investments directly into a business,

literally a share of the business. You can often buy and sell them quite easily, particularly

if they are listed on a stock market. There are two ways of earning an income: price

accumulation and dividends. The aim is for the value of your shares to grow over time

as the value of the company increases in line with its profitability and growth.

Managed fund: An investment fund, often a Unit Trust, OEIC or ISA, is where the

stocks and shares that the fund invests in are managed by a professional investment

manager. The fund will be managed to achieve certain goals and targets which will be

clearly highlighted; for example, as much income as possible.

Again, your independent financial adviser will be able to talk you through various

investment options so that you can decide what is best for you and your priorities.

How much should I invest?The first aspect to remember is that investments are long term

and you should always make sure that you have some

money that you can get hold of in an emergency. Most

advisers would suggest that you should try to keep

between 3 and 6 months’ worth of expenses

(rent, bills, food etc) in a savings account with

some of it available immediately and some

perhaps on a month’s notice to get a higher

interest rate.

You then may wish to think about why you are investing. If it

is for something specific, like university fees, you may want

to calculate how much you need to invest each month to

ensure you will have enough. Financial advisers can help you

by providing forecasts, but you will probably need to review

how much you are investing regularly to ensure that it

reaches your target.

SavingsIncome you earn from savings is generally subject to

income tax. The main accounts which are exempt from

tax are ISAs, and some National Savings and Investment

accounts.

Savings interest normally has tax taken off at 20 per

cent before you receive it. This is confirmed by the

entry ‘net interest’ on your bank or building society statement. If you’re a higher rate

taxpayer, you owe tax on the difference. If you have a low income you may be able to

claim tax back.

Savings income is added to your other sources of income and taxed after your tax free

allowances have been taken into account. The following tax structure applies:

• All income of less than £2,440 [including income from savings] will be taxed at 10%

• Income that is above £2,440, but less than the £37,400 basic rate Income Tax band,

is taxed at 20%

• Income that is above the £37,400 but less than the £150,000 Income Tax band will

be taxed at 40%

• Income that is above the £150,000 Income Tax band will be

taxed at 50%

All of the above figures apply to the

2010-2011 tax year.

Beware!!If you are contacted ‘out of the blue’ by somebody inviting you to invest in

shares, beware – these may be share scams, also known as boiler room scams.

Never agree to anything unless you have done plenty of research on a company

or spoken to an independent financial adviser. Contact Moneymadeclear on 0300

500 5000 to find out more about a specific company or to report a bogus firm.

Tax on savings andinvestments

24 25

27

If you do not pay income tax, you will need to fill in an R85 form, and receive your

interest gross (without tax being taken off). You can get the form from your bank or

building society.

You may find that your savings interest pushes you from

one tax band to another. You must bear this in mind as you

will not earn quite as much as you may have expected or

you may receive an unexpected tax bill.

InvestmentsAny income that you make from investments

will be taxable. Tax on investments can be

quite complex so you should seek further

explanatory information on investments tax.

For more information on savings and investments tax

visit the Tax on Savings and Investments section of

the Directgov website www.direct.gov.uk or

speak to an independent financial adviser.

A pension is a long-term investment that

provides you with an income when you retire,

called an annuity. What happens when you

reach retirement age is that you will have a

pension ‘pot’ with a certain value. You are able

to take 25% of this as a cash lump sum. With the

balance you buy an annuity which gives you a certain sum

of money each year. You do not have to buy this from the same provider you had

your pension with and because you have various options (such as having payments

linked to inflation) it is best to seek advice. Most heavyweight newspapers regularly

carry “Best Annuity Rate Tables” in their personal finance sections.

All money that you invest into your pension is exempt of tax. As a result investing £100

into your pension will only cost you £80 after tax if you are a basic rate tax payer. In most

cases the money you have invested cannot be touched until you have reached 50 – and

this is likely to rise higher in the next few years.

Most people who have worked in the UK will be eligible for a basic State Pension. This

is based on National Insurance contributions you have paid throughout your time in

work. If you have certain contribution gaps in your record, it may be possible to fill them

in order to get a better State Pension.

To check whether you have any

gaps in your contribution record,

visit www.direct.gov.uk and

search for a State Pension forecast.

For those who are on a low income

when at retirement age, you may be

entitled to a Pension Credit. The full

basic State Pension is £95.25 per week

in 2010/11 but this figure changes

annually so it is always sensible to check

what the current figures are.

The State Pension age is currently at 65

for men and 60 for women. The State

Pension age for women born on or after 6 April 1950 but before 6 April 1955 is rising

from 60 to 65 between 2010 and 2020. The State Pension age for women born on or

after 6 April 1955 but before 6 April 1959 is 65. State Pension age will increase for both

men and women from age 65 to 68 between 2024 and 2046.

The additional State Pension, or State Second Pension, is paid in addition to the basic

State Pension and is earnings related. You can start getting any additional State

Pension when you claim your basic State Pension. Your entitlement to additional State

Pension is calculated when you claim the basic State Pension. The Pension Service will

normally send you the relevant forms and invite you to make a claim about four months

before you reach State Pension age. If you don’t receive a letter inviting you to claim

your pension, get in touch with the Pensions Service or visit www.direct.gov.uk

Further information on the State Pension, the State Second Pension, and your

entitlements can be located in the Pensions and Retirement Planning section of

the Directgov website www.direct.gov.uk, while general information on pensions

can be found at www.moneymadeclear.org.uk

26

Pensions

27

If you do not pay income tax, you will need to fill in an R85 form, and receive your

interest gross (without tax being taken off). You can get the form from your bank or

building society.

You may find that your savings interest pushes you from

one tax band to another. You must bear this in mind as you

will not earn quite as much as you may have expected or

you may receive an unexpected tax bill.

InvestmentsAny income that you make from investments

will be taxable. Tax on investments can be

quite complex so you should seek further

explanatory information on investments tax.

For more information on savings and investments tax

visit the Tax on Savings and Investments section of

the Directgov website www.direct.gov.uk or

speak to an independent financial adviser.

A pension is a long-term investment that

provides you with an income when you retire,

called an annuity. What happens when you

reach retirement age is that you will have a

pension ‘pot’ with a certain value. You are able

to take 25% of this as a cash lump sum. With the

balance you buy an annuity which gives you a certain sum

of money each year. You do not have to buy this from the same provider you had

your pension with and because you have various options (such as having payments

linked to inflation) it is best to seek advice. Most heavyweight newspapers regularly

carry “Best Annuity Rate Tables” in their personal finance sections.

All money that you invest into your pension is exempt of tax. As a result investing £100

into your pension will only cost you £80 after tax if you are a basic rate tax payer. In most

cases the money you have invested cannot be touched until you have reached 50 – and

this is likely to rise higher in the next few years.

Most people who have worked in the UK will be eligible for a basic State Pension. This

is based on National Insurance contributions you have paid throughout your time in

work. If you have certain contribution gaps in your record, it may be possible to fill them

in order to get a better State Pension.

To check whether you have any

gaps in your contribution record,

visit www.direct.gov.uk and

search for a State Pension forecast.

For those who are on a low income

when at retirement age, you may be

entitled to a Pension Credit. The full

basic State Pension is £95.25 per week

in 2010/11 but this figure changes

annually so it is always sensible to check

what the current figures are.

The State Pension age is currently at 65

for men and 60 for women. The State

Pension age for women born on or after 6 April 1950 but before 6 April 1955 is rising

from 60 to 65 between 2010 and 2020. The State Pension age for women born on or

after 6 April 1955 but before 6 April 1959 is 65. State Pension age will increase for both

men and women from age 65 to 68 between 2024 and 2046.

The additional State Pension, or State Second Pension, is paid in addition to the basic

State Pension and is earnings related. You can start getting any additional State

Pension when you claim your basic State Pension. Your entitlement to additional State

Pension is calculated when you claim the basic State Pension. The Pension Service will

normally send you the relevant forms and invite you to make a claim about four months

before you reach State Pension age. If you don’t receive a letter inviting you to claim

your pension, get in touch with the Pensions Service or visit www.direct.gov.uk

Further information on the State Pension, the State Second Pension, and your

entitlements can be located in the Pensions and Retirement Planning section of

the Directgov website www.direct.gov.uk, while general information on pensions

can be found at www.moneymadeclear.org.uk

26

Pensions

There is a range of personal and stakeholder

pensions available to individuals. For more

information on the products available visit

the CFEB’s Moneymadeclear website –

www.moneymadeclear.org.uk

There are other options available to you in retirement. You

may choose to use investments to fund your retirement,

or sell off insurance policies or investments, or sell

off your house and downsize. You must

bear all these in mind when considering

what steps to take.

There is a lot of free information on your different options in retirement, but if you want

to seek specialised advice, you may have to pay to see an authorised financial adviser.

Making a Will is important for everybody yet millions of

people in the UK die with no Will or an out of date one.

It is not just about money and possessions, though

these are important, it is also about who will look after

any children you have and what sor t of funeral

arrangements you want. If you really want to make sure

you know where your money and possessions will go

after you die you must make a Will!

Unless your Will is going to be very simple it is advisable to consult a solicitor, especially

if you intend to leave significant sums to people other than those who might expect to

inherit, e.g. husband, wife or children. A solicitor may be prepared to visit you in your

own home, care home or hospital. The cost of making a Will varies according to its

complexity. Ask at the outset what the cost will be.

Making a Will can seem expensive. But remember that the legal costs of sorting out the

mess and muddle after you die can be much more than the price of a properly drawn

up Will.

Look out for a ‘Free Wills Week’ in your area where you can make an appointment to

see one of many solicitors across the country who will draft you a Will at no charge

provided you’re over 55, and instead will ask for a donation to one of 10 charities.

29

Despite getting some provision by the government through the State Pension, it is

usually a good idea to also sign up for a pension scheme at work because your

employer may also make contributions to your pension fund, and you often get other

benefits as well. This may be provided by your employer or it could be a private scheme

such as a stakeholder pension.

If you are not already enrolled in a workplace pension scheme, speak to your employer

as soon as possible. The tax benefits and needs in old age make it important to take out

a pension plan if at all possible. If you work for a small business with fewer than five

employees, your employer is not legally obliged to offer a pension scheme, but it is

worth checking to see whether a pension scheme is offered. By 2012 the government

plans to introduce an obligatory pension scheme for all employers.

Personal Accounts

The personal accounts scheme is being created by the government to provide

a low-cost, independent, workplace pension scheme that any employer can

use. It aims to provide access to workplace pension saving to millions of

people – typically those on low to middle incomes who don’t currently

participate in a workplace pension scheme. The Government is placing a duty

on employers to automatically enrol eligible workers into a pension scheme

that meets certain criteria and to make a contribution into the scheme.

Key Facts – Personal Accounts are:

• a trust-based occupational pension scheme regulated by The Pensions

Regulator

• run in the interests of its members by a not-for-profit trustee corporation

• easy and low-cost for employers to administer

and with low charges for members

• ready for the onset of employer duties in 2012

For more information on Personal Accounts

please visit

http://www.padeliveryauthority.org.uk/

personal-accounts.asp

28

Wills

There is a range of personal and stakeholder

pensions available to individuals. For more

information on the products available visit

the CFEB’s Moneymadeclear website –

www.moneymadeclear.org.uk

There are other options available to you in retirement. You

may choose to use investments to fund your retirement,

or sell off insurance policies or investments, or sell

off your house and downsize. You must

bear all these in mind when considering

what steps to take.

There is a lot of free information on your different options in retirement, but if you want

to seek specialised advice, you may have to pay to see an authorised financial adviser.

Making a Will is important for everybody yet millions of

people in the UK die with no Will or an out of date one.

It is not just about money and possessions, though

these are important, it is also about who will look after

any children you have and what sor t of funeral

arrangements you want. If you really want to make sure

you know where your money and possessions will go

after you die you must make a Will!

Unless your Will is going to be very simple it is advisable to consult a solicitor, especially

if you intend to leave significant sums to people other than those who might expect to

inherit, e.g. husband, wife or children. A solicitor may be prepared to visit you in your

own home, care home or hospital. The cost of making a Will varies according to its

complexity. Ask at the outset what the cost will be.

Making a Will can seem expensive. But remember that the legal costs of sorting out the

mess and muddle after you die can be much more than the price of a properly drawn

up Will.

Look out for a ‘Free Wills Week’ in your area where you can make an appointment to

see one of many solicitors across the country who will draft you a Will at no charge

provided you’re over 55, and instead will ask for a donation to one of 10 charities.

29

Despite getting some provision by the government through the State Pension, it is

usually a good idea to also sign up for a pension scheme at work because your

employer may also make contributions to your pension fund, and you often get other

benefits as well. This may be provided by your employer or it could be a private scheme

such as a stakeholder pension.

If you are not already enrolled in a workplace pension scheme, speak to your employer

as soon as possible. The tax benefits and needs in old age make it important to take out

a pension plan if at all possible. If you work for a small business with fewer than five

employees, your employer is not legally obliged to offer a pension scheme, but it is

worth checking to see whether a pension scheme is offered. By 2012 the government

plans to introduce an obligatory pension scheme for all employers.

Personal Accounts

The personal accounts scheme is being created by the government to provide

a low-cost, independent, workplace pension scheme that any employer can

use. It aims to provide access to workplace pension saving to millions of

people – typically those on low to middle incomes who don’t currently

participate in a workplace pension scheme. The Government is placing a duty

on employers to automatically enrol eligible workers into a pension scheme

that meets certain criteria and to make a contribution into the scheme.

Key Facts – Personal Accounts are:

• a trust-based occupational pension scheme regulated by The Pensions

Regulator

• run in the interests of its members by a not-for-profit trustee corporation

• easy and low-cost for employers to administer

and with low charges for members

• ready for the onset of employer duties in 2012

For more information on Personal Accounts

please visit

http://www.padeliveryauthority.org.uk/

personal-accounts.asp

28

Wills

Annual Equivalent Rate (AER) The interest you

would earn in a year if you left all your monthly interest

in your savings account and you earn interest on the

interest added during the year. Usually, the higher the rate,

the better.

Annual Percentage Rate (APR) The actual yearly

cost of a loan, including interest and charges. Usually,

the lower the rate, the better.

Assets Things that are owned such as cars, property and money.

Base rate The base interest rate determined usually by a country’s central bank (such

as the Bank of England) upon which other lending or savings interest rates are based.

Bonds Bonds are essentially agreements to tie up your money for a certain period of

time. These are issued by governments, companies and banks and are for a fixed

period. They can offer either fixed or variable rates of interest.

Capital The total of a person’s or a business’s assets, less the liabilities.

Capital growth The increase in value of your investment from when you buy to when

you sell. If the value were to decrease this would be capital loss.

Compound interest Compound interest is interest earned on interest and makes a

huge difference to the value of long term savings. Say you’ve invested £100, which is

earning 10% interest each year:

Year 1 – you earn 10% on £100 = £110

Year 2 – instead of earning another 10% on your £100, you earn 10% on £110 = £121

Year 3 – you earn 10% on £121 = £133.10

And so on, so the longer you leave it, the more you benefit from compounding.

Consumer Financial Education Body (CFEB) CFEB is an independent body,

established by the Financial Services Authority in 2010, which aims to help consumers

understand financial matters and manage their finances better. They provide free,

impartial information, education and guidance to consumers through their dedicated

website www.moneymadeclear.org.uk

Deposit account An account with a bank or building society, which pays a variable rate

of interest. Higher rates are often available if you are willing to give notice before

withdrawing your money.

Before you start to consider savings or

investments, it is imperative that you have

your finances in order – if you have any

outstanding debts then you should pay these off

first, and then make sure you have between 3-6 months

worth of monthly expenses saved up, in case of any unexpected events.

Creating and sticking to a budget will help you organise your personal finances and

allow you to figure out how much you can put aside each month for saving. Use the free

Moneybasics Spendometer to help you to keep track of your daily finances, wherever

you are – www.creditaction.org.uk

When it comes to saving for the future there are many choices available. It will therefore

be important that you choose the option that suits you best depending on what you are

saving for (short/medium or long-term goals).

Visit www.moneymadeclear.org.uk and use the comparison tables to help you choose

the best option out there. If you are interested in investing, then seek impartial advice

from an independent financial adviser to help you make the best choice for your

needs.

Finally, always keep sight of what you are saving for and remember the benefits it will

bring. By saving now, you can buy products and services at a much cheaper price than

if you used credit, and you can protect yourself in the event

of redundancy or other unexpected life events.

Whether you are saving for a new car, your child’s

education or a summer holiday, by saving you

can say goodbye to worrying about credit

card bills and other loan repayments and

hello to a brighter financial future!

30

Conclusion

31

Jargonbuster

Annual Equivalent Rate (AER) The interest you

would earn in a year if you left all your monthly interest

in your savings account and you earn interest on the

interest added during the year. Usually, the higher the rate,

the better.

Annual Percentage Rate (APR) The actual yearly

cost of a loan, including interest and charges. Usually,

the lower the rate, the better.

Assets Things that are owned such as cars, property and money.

Base rate The base interest rate determined usually by a country’s central bank (such

as the Bank of England) upon which other lending or savings interest rates are based.

Bonds Bonds are essentially agreements to tie up your money for a certain period of

time. These are issued by governments, companies and banks and are for a fixed

period. They can offer either fixed or variable rates of interest.

Capital The total of a person’s or a business’s assets, less the liabilities.

Capital growth The increase in value of your investment from when you buy to when

you sell. If the value were to decrease this would be capital loss.

Compound interest Compound interest is interest earned on interest and makes a

huge difference to the value of long term savings. Say you’ve invested £100, which is

earning 10% interest each year:

Year 1 – you earn 10% on £100 = £110

Year 2 – instead of earning another 10% on your £100, you earn 10% on £110 = £121

Year 3 – you earn 10% on £121 = £133.10

And so on, so the longer you leave it, the more you benefit from compounding.

Consumer Financial Education Body (CFEB) CFEB is an independent body,

established by the Financial Services Authority in 2010, which aims to help consumers

understand financial matters and manage their finances better. They provide free,

impartial information, education and guidance to consumers through their dedicated

website www.moneymadeclear.org.uk

Deposit account An account with a bank or building society, which pays a variable rate

of interest. Higher rates are often available if you are willing to give notice before

withdrawing your money.

Before you start to consider savings or

investments, it is imperative that you have

your finances in order – if you have any

outstanding debts then you should pay these off

first, and then make sure you have between 3-6 months

worth of monthly expenses saved up, in case of any unexpected events.

Creating and sticking to a budget will help you organise your personal finances and

allow you to figure out how much you can put aside each month for saving. Use the free

Moneybasics Spendometer to help you to keep track of your daily finances, wherever

you are – www.creditaction.org.uk

When it comes to saving for the future there are many choices available. It will therefore

be important that you choose the option that suits you best depending on what you are

saving for (short/medium or long-term goals).

Visit www.moneymadeclear.org.uk and use the comparison tables to help you choose

the best option out there. If you are interested in investing, then seek impartial advice

from an independent financial adviser to help you make the best choice for your

needs.

Finally, always keep sight of what you are saving for and remember the benefits it will

bring. By saving now, you can buy products and services at a much cheaper price than

if you used credit, and you can protect yourself in the event

of redundancy or other unexpected life events.

Whether you are saving for a new car, your child’s

education or a summer holiday, by saving you

can say goodbye to worrying about credit

card bills and other loan repayments and

hello to a brighter financial future!

30

Conclusion

31

Jargonbuster

Independent Financial Adviser (IFA) A qualified professional authorised to advise on

savings, investment and pension products. It is usually best to seek advice from an

adviser who is not tied to just one company but can recommend from the full range of

products available.

Investment income The portion of a company’s or an individual’s income which is

derived from its investments, including interest and dividends on stocks and bonds.

Investment fund A fund set up by financial institutions to invest in certain types of

businesses, perhaps by location of the business or type of industry. Instead of buying

shares in the businesses directly investors buy a share in the fund. They receive income

on the performance of the whole fund and can buy and sell

depending of the value of the whole fund.

Managed fund An investment fund, often a Unit Trust, OEIC or

ISA, where the stocks and shares that the fund invests in are

managed by a professional investment manager. The

fund will be managed to achieve certain

goals and targets which will be clearly

highlighted; for example, as much

income as possible.

Maturity date The date on which a payment becomes due at

the end of the term of an endowment policy or a fixed term bond

or loan.

Maturity value The amount payable to the insured at the

maturity date of an endowment policy.

Net income Income gained through savings or investments are

subject to tax. See above for details of taxation on savings and

investment income. Wherever you see a gross income figure

quoted, it means that no tax has been deducted (e.g. as with an

ISA investment).

Net interest Savings accounts from banks and building societies

pay interest after the tax is taken off. This is called ‘net’ interest.

Distribution The payments of any investment income generated by a fund, usually

made either half-yearly or quarterly. You can choose to have each distribution paid to

you or to reinvest it in the fund for greater capital growth.

Dividend The income received on a share which will normally be based on the profits

of the business. Some investments may have a fixed dividend.

Earnings per share The return on equity investments. Any figure quoted represents

the total amount of a company’s earnings (after deductions) divided by the number of

ordinary shares it has issued.

Equity

• A shareholding in a limited company. By extension, ‘equities’ is generally used to

mean the whole range of shares traded on a Stock Exchange

• The amount by which the value of a house exceeds the total of the loans secured by

mortgage(s) thereon

Ethical investments Shares or similar investments (for example, holdings in unit

trusts) in companies who have committed to conform to a particular set of moral or

ethical principles.

Financial Services Authority (FSA) The FSA currently regulates most financial

services markets, exchanges and firms in the UK and, together with HM Treasury and

the Bank of England, they assist in supporting the overall financial stability of the

economy. However, the Bank of England is expected to assume control of the FSA’s

regulatory functions in the near future.

FT-SE There are various indices based on companies quoted in the Financial Times.

The purpose of these is to provide a benchmark of the performance of the stock market

as a whole. This benchmark is often used to measure the effectiveness of a fund

manager.

Fund manager A fund manager is employed to invest money for (amongst other

things) unit trusts and investment trusts.

Gross interest Interest paid to you before tax is taken off is ‘gross’ interest. If you are

a non-taxpayer you can register to have the interest paid gross – ask the bank or

building society for Form R85.

Hedging A strategy used to offset investment risk. Usually makes use of futures or

options.

32 33

Independent Financial Adviser (IFA) A qualified professional authorised to advise on

savings, investment and pension products. It is usually best to seek advice from an

adviser who is not tied to just one company but can recommend from the full range of

products available.

Investment income The portion of a company’s or an individual’s income which is

derived from its investments, including interest and dividends on stocks and bonds.

Investment fund A fund set up by financial institutions to invest in certain types of

businesses, perhaps by location of the business or type of industry. Instead of buying

shares in the businesses directly investors buy a share in the fund. They receive income

on the performance of the whole fund and can buy and sell

depending of the value of the whole fund.

Managed fund An investment fund, often a Unit Trust, OEIC or

ISA, where the stocks and shares that the fund invests in are

managed by a professional investment manager. The

fund will be managed to achieve certain

goals and targets which will be clearly

highlighted; for example, as much

income as possible.

Maturity date The date on which a payment becomes due at

the end of the term of an endowment policy or a fixed term bond

or loan.

Maturity value The amount payable to the insured at the

maturity date of an endowment policy.

Net income Income gained through savings or investments are

subject to tax. See above for details of taxation on savings and

investment income. Wherever you see a gross income figure

quoted, it means that no tax has been deducted (e.g. as with an

ISA investment).

Net interest Savings accounts from banks and building societies

pay interest after the tax is taken off. This is called ‘net’ interest.

Distribution The payments of any investment income generated by a fund, usually

made either half-yearly or quarterly. You can choose to have each distribution paid to

you or to reinvest it in the fund for greater capital growth.

Dividend The income received on a share which will normally be based on the profits

of the business. Some investments may have a fixed dividend.

Earnings per share The return on equity investments. Any figure quoted represents

the total amount of a company’s earnings (after deductions) divided by the number of

ordinary shares it has issued.

Equity

• A shareholding in a limited company. By extension, ‘equities’ is generally used to

mean the whole range of shares traded on a Stock Exchange

• The amount by which the value of a house exceeds the total of the loans secured by

mortgage(s) thereon

Ethical investments Shares or similar investments (for example, holdings in unit

trusts) in companies who have committed to conform to a particular set of moral or

ethical principles.

Financial Services Authority (FSA) The FSA currently regulates most financial

services markets, exchanges and firms in the UK and, together with HM Treasury and

the Bank of England, they assist in supporting the overall financial stability of the

economy. However, the Bank of England is expected to assume control of the FSA’s

regulatory functions in the near future.

FT-SE There are various indices based on companies quoted in the Financial Times.

The purpose of these is to provide a benchmark of the performance of the stock market

as a whole. This benchmark is often used to measure the effectiveness of a fund

manager.

Fund manager A fund manager is employed to invest money for (amongst other

things) unit trusts and investment trusts.

Gross interest Interest paid to you before tax is taken off is ‘gross’ interest. If you are

a non-taxpayer you can register to have the interest paid gross – ask the bank or

building society for Form R85.

Hedging A strategy used to offset investment risk. Usually makes use of futures or

options.

32 33

Unit Trust A fund set up by financial institutions to invest in certain types of businesses,

perhaps by location of the business or type of industry. Instead of buying shares, the

investor buys a unit in the fund. They receive income on the performance of the whole

fund and can buy and sell, depending on the value of the whole fund.

Variable interest Most current accounts pay variable interest, which means the

interest rate goes up or down. From time to time you should check whether you could

get a higher interest rate from a different account and, if so, be prepared to switch. All

quality newspapers have such tables featured regularly in the personal finance or

business sections.

Yield The amount of income an investment delivers after deduction of charges (but not

tax) expressed as a percentage of the amount invested. Usually expressed as an

annual figure – e.g. “the fund’s estimated gross yield is 5.9% p.a.”

ABCUL

The Association of British Credit Unions Limited (ABCUL)

is the main trade association for Credit Unions in Britain.

They provide information and resources and can help you

find your nearest Credit Union.

0161 832 3694

www.abcul.org

AIFA

The Association of Independent

Financial Advisers (AIFA) is the

voice of the independent financial

advisers profession and can help

you find an independent adviser

in your area.

020 7628 1287

www.aifa.net

Consumer Credit Counselling Service (CCCS)

As the leading debt-counselling charity, CCCS provides free,

independent and confidential advice on debt issues.

0800 138 1111 (freephone)

www.cccs.co.uk

Notice period You have to notify the bank or building society a set number of days

before you make a withdrawal – 30, 60 or 90 days are common notice periods. You can

usually get your money out earlier, but if you do, you lose 30, 60 or 90 days’ interest,

depending on the notice period.

OEIC Open Ended Investment Company – very similar to an investment fund.

Pooled investment fund A vehicle for bringing together the investments of many

people or organisations and using the combined funds to obtain economies of scale and

investment management skills – which would only be available to individuals at

significantly higher cost.

Sharesave A Sharesave scheme (Savings Related Share Option Scheme), was first

introduced by the government in 1980. It is a tax advantageous savings scheme

combined with a share option designed to encourage employees to take a direct stake

in their company enabling them to participate in its future.

Stocks and shares Usually the same, these are investments directly into a business,

literally a share of the business. You can often buy and sell them quite easily, particularly

if they are listed on a stock market. There are two ways of earning an income, price

accumulation and dividends. The aim is for the value of your shares to grow over time

as the value of the company increases in line with its profitability and growth.

Stocks and shares ISA An investment fund, OIEC or unit trust which complies with

government rules allowing income from the investment to be paid tax free. The

maximum annual contribution is £10,200 (see also Cash ISA within the savings section

on page 17).

Stock market/exchange A place, virtual or actual, where people buy and sell stocks

and shares. Businesses must meet certain rules as to size etc. to have their shares

traded in such a market The London Stock Exchange is the main stock exchange in the

United Kingdom.

Term The period of time for which a policy or bond is issued.

Term account Term accounts last for a set period – two years, say. You may not be

able to get your money out early.

Tracker Fund An investment fund which tracks a particular reference such as a Stock

Market index like the FTSE100 or a published rate such as the Bank of England Base

Rate.

34

Usefulorganisations

35

Unit Trust A fund set up by financial institutions to invest in certain types of businesses,

perhaps by location of the business or type of industry. Instead of buying shares, the

investor buys a unit in the fund. They receive income on the performance of the whole

fund and can buy and sell, depending on the value of the whole fund.

Variable interest Most current accounts pay variable interest, which means the

interest rate goes up or down. From time to time you should check whether you could

get a higher interest rate from a different account and, if so, be prepared to switch. All

quality newspapers have such tables featured regularly in the personal finance or

business sections.

Yield The amount of income an investment delivers after deduction of charges (but not

tax) expressed as a percentage of the amount invested. Usually expressed as an

annual figure – e.g. “the fund’s estimated gross yield is 5.9% p.a.”

ABCUL

The Association of British Credit Unions Limited (ABCUL)

is the main trade association for Credit Unions in Britain.

They provide information and resources and can help you

find your nearest Credit Union.

0161 832 3694

www.abcul.org

AIFA

The Association of Independent

Financial Advisers (AIFA) is the

voice of the independent financial

advisers profession and can help

you find an independent adviser

in your area.

020 7628 1287

www.aifa.net

Consumer Credit Counselling Service (CCCS)

As the leading debt-counselling charity, CCCS provides free,

independent and confidential advice on debt issues.

0800 138 1111 (freephone)

www.cccs.co.uk

Notice period You have to notify the bank or building society a set number of days

before you make a withdrawal – 30, 60 or 90 days are common notice periods. You can

usually get your money out earlier, but if you do, you lose 30, 60 or 90 days’ interest,

depending on the notice period.

OEIC Open Ended Investment Company – very similar to an investment fund.

Pooled investment fund A vehicle for bringing together the investments of many

people or organisations and using the combined funds to obtain economies of scale and

investment management skills – which would only be available to individuals at

significantly higher cost.

Sharesave A Sharesave scheme (Savings Related Share Option Scheme), was first

introduced by the government in 1980. It is a tax advantageous savings scheme

combined with a share option designed to encourage employees to take a direct stake

in their company enabling them to participate in its future.

Stocks and shares Usually the same, these are investments directly into a business,

literally a share of the business. You can often buy and sell them quite easily, particularly

if they are listed on a stock market. There are two ways of earning an income, price

accumulation and dividends. The aim is for the value of your shares to grow over time

as the value of the company increases in line with its profitability and growth.

Stocks and shares ISA An investment fund, OIEC or unit trust which complies with

government rules allowing income from the investment to be paid tax free. The

maximum annual contribution is £10,200 (see also Cash ISA within the savings section

on page 17).

Stock market/exchange A place, virtual or actual, where people buy and sell stocks

and shares. Businesses must meet certain rules as to size etc. to have their shares

traded in such a market The London Stock Exchange is the main stock exchange in the

United Kingdom.

Term The period of time for which a policy or bond is issued.

Term account Term accounts last for a set period – two years, say. You may not be

able to get your money out early.

Tracker Fund An investment fund which tracks a particular reference such as a Stock

Market index like the FTSE100 or a published rate such as the Bank of England Base

Rate.

34

Usefulorganisations

35

37

CFEB

The Consumer Financial Education Body is an independent body that provides free,

impartial information, education and guidance to consumers through their dedicated

website www.moneymadeclear.org.uk

Credit Action

We are the national money education charity promoting better thinking about money.

We have a range of useful publications, Moneymanuals and budgeting tools to help

people achieve this.

0207 380 3390

www.creditaction.org.uk

Directgov

Directgov is the website of the UK government for its citizens, providing information and

online services for the public all in one place.

www.direct.gov.uk

Money Saving Expert

For up to date information on ways you can save money and to compare savings

accounts.

www.moneysavingexpert.com

PADA

The Personal Accounts Delivery Authority (PADA) is the authority set up to deliver

‘Personal Accounts’ throughout the UK and help people save for retirement.

www.padeliveryauthority.org.uk

36

Notes

We at Credit Action are always seeking to improve our service to you. If you

have any comments about this booklet (good or bad!) we would love to hear

from you. Please email office@creditaction.org.uk or call 0207 380 33 90

with your feedback.

37

CFEB

The Consumer Financial Education Body is an independent body that provides free,

impartial information, education and guidance to consumers through their dedicated

website www.moneymadeclear.org.uk

Credit Action

We are the national money education charity promoting better thinking about money.

We have a range of useful publications, Moneymanuals and budgeting tools to help

people achieve this.

0207 380 3390

www.creditaction.org.uk

Directgov

Directgov is the website of the UK government for its citizens, providing information and

online services for the public all in one place.

www.direct.gov.uk

Money Saving Expert

For up to date information on ways you can save money and to compare savings

accounts.

www.moneysavingexpert.com

PADA

The Personal Accounts Delivery Authority (PADA) is the authority set up to deliver

‘Personal Accounts’ throughout the UK and help people save for retirement.

www.padeliveryauthority.org.uk

36

Notes

We at Credit Action are always seeking to improve our service to you. If you

have any comments about this booklet (good or bad!) we would love to hear

from you. Please email office@creditaction.org.uk or call 0207 380 33 90

with your feedback.

for savings & investmentsMoneymanualIt has become increasingly evident over recent years that difficultsituations in life can crop up at any time. Whether it is redundancy,sickness or the need for a new household appliance, having somemoney saved up can help tackle these situations head-on and thusavoid the pain of debt and financial difficulties.

As a result, it is crucially importantthat you start saving to avoid financialworries now and in the future.

Savings and Investments is apractical and easy-to-follow manualthat offers clear advice and guidanceon a range of issues to do with savingand investments, including:

• How do I start saving?• When should I save?• What saving options are there?• What is the difference between investments and savings?• How do pensions work?

If you find yourself dependent on expensive credit to fund your lifestyle thenthis booklet can help you. Included is a pull-out budget sheet that you canuse and re-use to help you get your finances back on track and start saving.

So, start saving now and you can say goodbye to money stress, and say helloto a brighter financial future!

“With savings behind them, people can cope far better with the eventsthat life throws at them. This welcome guide does a great job ofencouraging people to start saving and guiding them through the mazeof different savings and investment options.” Mark Lyonette

Chief Executive, Association of British Credit Unions Ltd (ABCUL)

Lynton House, 7-12 Tavistock Square, London WC1H 9LT Tel: 0207 380 3390office@creditaction.org.uk www.creditaction.org.uk www.moneybasics.co.uk

Registered Charity No.1106941

Includespull-out budget

sheetProduction of this booklet sponsored by