Please note: The order of credit card payments changed in January 2011 so all credit card companies must set repayments against the most expensive debts first.
The myth is that mortgage products with the lowest rate are always the best ones and that’s absolutely not the case, even though you might see them in best buy tables listed by the lowest rate. Always look at the rest of the product, look at the term, look at the fees – percentage fees can add an awful lot to a mortgage rate. So, speak to an independent advisor get some advice and make sure you look at the whole mortgage product and not just the headlines.
Credit card myth:
A common misunderstanding within the credit card market relates to how your repayments are actually made and whether it’s to the cheapest or most expensive debt first.
Look at it in two ways. The most expensive debt actually results in people taking cash out of an ATM, where you can actually be charged between 21% and 27% interest - compare that to 0% on purchases where you don’t get charged any interest in that time.
The main understanding is that when you make repayments on your credit cards that its actually applied to the most expensive debt. However, most - with the exception of two providers – actually charge it to the cheapest debt first.
The lime light for it is that the government announced changes to this, forcing the credit card lenders to actually allocate payment to the most expensive debt first, rather than the cheapest.
Current account myth:
Statistics show that here in the UK, very few people actually switch their bank account. In fact many people have got the same account – having worked for many years – that they did when they where a student.
Lets just think for one second that maybe people mistakenly think that all the bank accounts in the UK are the same. Let me tell you that they're not - there is lots of choice here in the UK so the first thing you should do is look at what you really want to get from your bank account. Whether you are fortunate enough to have money in it – so it’s the interest rate – whether it’s the overdraft that you’re interested in or whether you are prepared to pay a little bit more each month and have additional benefits.
There is lots of choice, make sure you look at your current account and if it’s not right for you there are options to switch.
I think events over the last couple of years have challenged that thinking, but lets not all suddenly run scared, in reality its highly unlikely that a bank will disappear from the face of the earth, particularly in terms of UK banks. But the one thing you should bear in mind when you are depositing your hard-earned cash, there are various compensation schemes in place here in the UK, the Financial Service Association have a compensation scheme that covers you for £50,000 as a single applicant or £100,000 for dual or a joint applicant.
However, with some of the overseas banks they have different compensation scheme limits. My advice would be to just check who you are putting your money with, what their UK authorisations are, subsequently their compensation scheme looks like and if you feel over exposed, then move your money around - you just need to be aware of the situation. And there is actually an article on our site called 'Who owns who', and that will give you an insight in terms of the level of protection you have got.
The headline rate isn’t always the rate you get on a personal loan. The rate to look for is what they call a typical rate - this is governed by the Consumer Credit Act and presently 66% of the customers have to get the rate there. So, don’t always just look at the headline rate.
What a lender will do however, they have some industry term called ‘Rate for Risk’ so if you don’t fit the headline rate – in their terms, the perfect criteria – they may offer you another rate, now this might could be down to something slightly erroneous on your credit record, it could be down to the fact that you haven’t had credit before, so they have no reason or no way of checking how you run that credit.
But, it isn’t all doom and gloom, sometimes they may – what they call – Rate for Risk you up to, lets say, 10.9% from 7.9%, immediately you think that’s a red alert, but actually the difference between a £7500 loan, over 5 years, is about £2.50 a week extra, which at the end of the day is the price of a coffee.
What I would say to make sure though, is have a look at your credit rating, go to one of the credit reference bureaus, have a look at your credit file and check that everything on there is about you and nothings wrong. If it's wrong, issue a notice of correction, then at least you have the best chance of getting that headline rate.
For years most of us have travelled away taking traveller’s cheques with us as the safest way to take our holiday cash abroad.
We have all queued up in banks and exchange bureaus, paid hefty commissions fees and got ripped off with the exchange rates only to find out that our holiday money probably didn’t go as far as we wanted it to.
Now, these days most people are moving over to prepaid cards, they are really replacing traveller’s cheques. They are really easy to use, you can get hold of them in Dollars, in Sterling and in Euros and rather then just having to go and exchange your cash you can use them in shops and restaurants to pay for bills – there are no commission charges at all – you can use chip and pin to do that or alternatively you can go to an ATM and withdraw the cash out, and the best cards on the market, not only are they free to obtain but there are no charges at all when you use them abroad.
So, cards are the way forward for traveller’s cheques, you still get the safety and security you have so that when you actually get hold of you holiday currency you haven’t got and worries or concerns.