It's all gloom and doom on the financial pages at the moment
and experts across the UK predict difficult economic conditions for some time
to come. “The world of global financial services has faced increased
turbulence in recent times,” says Graeme Yorston, Chief Operating Officer
at Principality Building Society. "It’s not surprising that consumer
confidence is low.”
Who'd have thought we'd see people queuing round the block to take their savings
out of a bank? The collapse of Northern Rock showed just how important it is
to choose a financial institution that you can be sure will weather the current
storm and keep your savings safe and sound. “People’s savings are
very sacred to them,” explains Yorston. “We all want an excellent
return on our money but repercussions from the squeeze in the credit markets
have also caused people to be concerned with where they put their money – quite
clearly savers are looking for safety and are putting savings into more traditional
models.”
So where are people turning? It's perhaps not surprising that it's good old
traditional building society accounts that have seen increasingly high levels
of savings deposited into them. And that makes a good deal of sense. There's
far less likelihood of building societies experiencing the sort of meltdown
that Northern Rock, with its aggressive financing model that involved borrowing
large amounts to fund its lending business, went through. The borrowing principles
employed by building societies are far less risky. “At Principality,
our model is very simple,” says Yorston. “We use the money from
our savers to lend to our borrowers. We have been working by the same basic
principles for almost 150 years. Over three quarters of our mortgages are funded
by retail savings deposits from our members.”
The last few months have been pretty difficult for banks as their share prices
have plummeted amid fears about a downturn in the economy and falling house
prices. There's pressure from shareholders to continue to deliver value despite
these difficult market conditions. Some would argue that that means the banks
will tend to put shareholders’ needs ahead of those of their customers.
“
As mutual institutions, building societies are owned by and run for the people
who hold mortgages or savings with them," explains Yorston. "Without
shareholders, the building society model seeks to optimise rather than maximise
profit, by returning value to members through attractive savings and mortgage
products.”
“
No investor has lost money with a building society since at least 1945 and
probably a long time before that,” he adds. With interest rates on savings
accounts looking increasingly attractive, now has never been a better time
to save. But why save anyway? “Ultimately, saving is our ticket to financial
freedom and security,” says Yorston. “No matter how small the amount
you put away, saving frequently over time will build up a tidy sum. In a nutshell,
saving can help cushion you when times get tough and of course can be a great
guilt free way of splashing out on a few luxuries from time to time.”
Savings Tips
- Review your finances. Before you jump in think about any current debts you
have. It's always best to pay these off first - the interest you're paying
usually far exceeds the benefits savings will bring.
- Only save what you can afford! Don’t put yourself in financial difficulty
by committing to a savings amount you can’t afford to keep up.
- Do some research. There are a huge variety of savings accounts; think about
what best suits you.
- It’s all in the attitude! If you think of it as a sacrifice instead of
a means of achieving your financial goals and dreams, how long are you likely
to stick with it?
For advice or information about Principality Building Society call 0845 045 0006
or visit www.principality.co.uk
The opinions expressed are those of the author and are not held by RedHanded
unless specifically stated. The material is for general information only and
does not constitute investment, tax, legal or other form of advice. You should
not rely on this information to make (or refrain from making) any decisions.
Always obtain independent, professional advice for your own particular situation.
Future Perfect?
By the time most of you reading this hit old age, you won’t be entitled
to your state pension until you’re 68 years old, due to changes in legislation
that start in 2010. To add insult to injury, what you’ll receive will probably
be less than £100 a week. Scary isn’t it? So how are you going to
survive financially in your twilight years?
Well, getting your own pension is a good place to start. Problem is, most of
us put that off year after year because deciding what we need seems such a daunting
task. Sit down and take a deep breath because here’s the big news: it’s
not that hard.
Stakeholder and Personal Pensions are simply savings plans that happen to go
into insurance companies’ investment funds, and they’re easy enough
to understand without the assistance of an expensive financial advisor. Better
still the government gives you tax relief on pensions savings – effectively
adding more cash to your pension pot. You might need some help if you opt for
a SIPP (Self-Invested Personal Pension), because you make some of the choices
about how your pension savings are invested, but otherwise, this is just another
DIY job you can sort out in a weekend.
So where do you start? Well, first of all you need to figure out what kind of
pension you need and how much money you can afford to put in. The web is a great
place to start. Sites like www.moneysavingexpert.com run by financial whiz Martin
Lewis offer clear and straight-forward advice. The Banking And Saving section
is particularly useful. Another helpful one is the government’s consumer
site www.moneymadeclear.co.uk. Here you'll also find a really useful pension
calculator which shows you how much your pension will be worth when you retire
depending on how much you save each month. You might find it a tad concerning.
The trick is to start saving as early as possible. A few extra years of contributions
to your pension now will actually make a huge difference when you retire.
Once you figure out what sort of pension is right for you and how much you can
invest each month, it’s time to find the right company to go with. Again
the web offers lots of options. Cavendish Online is one provider that offers
useful tools for making comparisons. At www.cavendishonline.co.uk you'll find
a helpful table that compares the major pension providers’ charges and
fund choices.
See? Not that bad. Remember: the longer you wait, the less you’ll have
in your pension fund when it comes time to retire. So quit putting it off – you
ain’t getting any younger.
Rae Alexandra and Ian Williams
Ian Williams is MD of Cavendish Online
www.cavendishonline.co.uk
Saving isn’t just for rainy days
The feeling’s Mutual