Simple Pound

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I promised I would update the progress page once a month, so I’ve secretly done that yesterday already. Since I still don’t have a regular income (can’t wait till July!) nothing has changed with regards to savings, but I have paid off nearly 80% of the balance left on my credit card (told you it wasn’t that much!).

Looking at my Excel spreadsheet that I use to track all my expenses, I can proudly say it has been a good month in many regards. First of all, I’ve received more than twice as much interest in April than I did in March, which is mainly due to a bonus I got from Lloyds for signing up to their “Save the Change” program. And furthermore, I’ve spent less money on groceries, going out, DVDs, taxis, coffee (!!!) and cosmetics than in any other month this year.

Before you applaude I will have to make a concession - I’ve spent most days in the last month revising for my final exams, which explains the absence of a social life and thus opportunity to spend much money. This is not something I do either regularly or voluntarily ( ) and has thus not much to do with actual self-discipline… But I’m going to pretend it does!

By now I have also been blogging for a month and I’m really quite proud of my stats (I’ve been procrastinating a lot just staring at them). For those of you interested:

• overall visits: 362
• absolute unique visitors: 138
• returning visitors: 61.88%
• most visits in a day: Monday, 16th April with 26 visits
• countries (in decreasing frequency): UK, US, France, Germany, Japan, Portugal, Australia, Oman, New Zealand, Sweden

These figures will look ridiculous to any of the established bloggers, but I’m nevertheless very happy about them. Unfortunately, it’s now time for even more revision…

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The truth is, no matter how much you know about investing, it’s worth nothing if you don’t have any money at your disposal to invest… The only two ways you can deal with this problem is by either increasing your income or decreasing the amount of money you’re spending.

Since most of us will be facing some difficulties trying to increase our income in the short run, we’re ’stuck’ with the latter. There are numerous ways, and below is a list of links of get you started.

• 50 ways to save money
• 50 more ways to save money
• 101 ways to cut expenses

Bear in mind that the last one is based on American lifestyle and their available options (like IRAs…their retirement savings account), so while some of their tips won’t necessarily apply to British people (or anyone outside the US for that matter), many nevertheless do - it’s definitely worth a read.

Having said that, I don’t necessarily agree with all of the proposed options, but that is a matter of taste or attitude. In any case, you’re not expected to put all of these into practice at once. You would end up feeling deprived and unhappy, which is not the point of this exercise. Pick your favourites and stick to them for a little while before you feel comfortable making further adjustments (if you feel you have to…).

Let me know what your favourites are or whether there’s anything else you can recommend!

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I couldn’t have said it better. Except for, maybe, bourgeoisie… that’s a word not as commonly used anymore as it was back when Lenin was busy planning a revolution. But the same principles still apply - even if you manage to stash some money away and not spend it all in one go, you will have to beat tax and inflation for your money to actually increase in value over time.

Cliff @ Fool.co.uk has written an elaborate article with lots of examples on how taxes and inflation will affect your money. His conclusions: take advantage of tax-free returns by making full use of your ISA allowance or buying Index-linked Savings Certificates, which are guaranteed to beat the RPI-rate of inflation (currently 4.8%) over three to five years.

The RPI index is currently at its highest since 1991 and even though this might give some people mighty grief, other dramatic examples prove that we should be thankful to live in a stable and secure economy like the UK. Zimbabwe is currently suffering from the world’s highest inflation rate of 2,200%. Compare this to what we call a “scandalous” 3%… If you had put £10 under your mattress last year its buying power would be reduced to £9.71 now (assuming 3% inflation). If a farmer in Zimbabwe would ever be lucky enough to own the equivalent of £10 and he would have buried it in his backyard a year ago, the same money would now only be worth £0.43.

If you’re still worried about inflation in the UK, here is a calculator that let’s you determine exactly how much value your money’s lost over the years. Just promise you won’t be upset…

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And yet another new event in the history of “consumers vs. banks” and I think a hilarious one…

A woman from Bristol wanted to re-claim £655 in overdraft charges from her bank - a demand that was flatly refused. So after some correspondence back and forth, things went the usual way… claimant sues and a hearing is scheduled. But suddenly, the day before the court hearing the full amount appears in the women’s bank account.

At that point, Vivien Lloyd (the claimant) had already spent a substantial amount of her free time to research the law and prepare the case. Therefore she decided to complain to the Judge that the bank had been procrastinating for nearly a year before paying her and thus wasted a significant amount of her time.

The Judge agreed and awarded her £85.41 due to the bank “acting unreasonably”.

Now, this is surely not a large amount of money, but what really counts here is the fact that it was acknowledged that the bank’s behaviour was unacceptable. Even if there’s only little progress at a time, we seem to be moving in the right direction…

Read more about this case here.

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According to the BBC, 69% of no-notice savings accounts pay interest that isn’t even sufficient to cancel out current inflation rates. In March the Retail Price Index (RPI) was up 4.8% from March 2006 - which means, if your bank is paying anything less than those 4.8% your money gets effectively de-valued while sitting in your savings account.

That is certainly the case with my Lloyds Online Savings Account, which currently pays a monthly interest of 4.65% AER. This rate already includes a 0.6% bonus paid for one year from opening the account, so if I was going to stay with them in the long run, my gross interest would drop to 4.07% in July.

Well, 4.65% at the moment isn’t that bad you might think - but here’s another catch: tax. All the interest you’re earning is taxed at currently 20% - so the net interest that eventually ends up in your account is only 3.72% including the bonus. Oh and did I mention that these rates don’t apply for anything in the account from £0 - £250. No… for the first £250 I get a net interest of 0.08% - that’s an eighth of a percent!

So, what should this rant tell you? If you belong to one of those people who have an account that doesn’t even match inflation anymore, then switch. And do so right now because you’re losing free money!

I have been looking around for good rates for quite some time now (in anticipation of my sign-on bonus needing a home), but it wasn’t until a friend recommended his savings account that I came across Icesave.

Icesave is a subsidiary of the Icelandic bank Landsbanki Islands, which was established in 1866 and is (apparently) Iceland’s first and longest running financial institution. They have only recently appeared on the UK market, but have already established operations in 13 other countries. Why am I telling you this? Well, when it comes to the bottom line banks are institutions just like any other company and thus there’s always a risk of them going bust. This risk is greater, the smaller the institution - so I think it’s reassuring to know that there’s a larger apparatus in the back.

Anyway… facts now: Icesave offers you an online savings account with 5.7% AER (5.56% if paid monthly), which comes down to 4.56% net interest after 20% tax. Funnily enough that’s scarily close to what I currently get in gross interest with Lloyds - but only if you include a bonus! This is by far the best rate I’ve found on the web - and it comes with almost no strings attached. That means no penalties for withdrawing money, no notice periods, but there is a minimum investment of £250 (and a maximum sum of £1,000,000 in case that matters to you).

Reading through various forums online, people are usually concerned about the response time of online banks, because - after opening an account - you are send your User ID by post - which in one case apparently took 8 weeks (?). After that all communications with the bank will be handled through the Internet or a (0845) customer service hotline.

I tested Icesave’s responsiveness by sending an email to customer services asking about details regarding the calculation of interest (when, how often etc) yesterday afternoon. I got an automated response saying that due to high demand for their account a reply could take up to 5 business days. Grmph, I thought (or something very similar). But then I got a very lengthy and detailed reply this morning… It’s not an instantaneous response, but not bad either.

I am basically now running out of tricks to test them (I couldn’t think of many other questions after reading their FAQ’s online). Since I don’t have the money to open the account at the moment anyway, I’ll just keep watching them closely for now. But unless I come across some really concerning information in the meantime, I’m pretty sure I’ll be opening an account with them in June/July…

Please leave a comment if you’ve had any experience / know anything about Icesave and their online savings account (any other comments welcome too… ). People having to make decisions tend to look for information supporting their initial “gut feeling”, so throw all the bad news at me that you can find…

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Alliance & Leicester have responded to a customer’s complaint about bank charges of £2,035 by offering to reduce the charge for bounced cheques from £25 to just £4.50, which - according to a report by the BBC - would more accurately reflect the actual costs incurred.

Even though they repeatedly stress that “each case is considered on its own merits” and that “there is no blanket policy to offer to cut charges”, the response seems to break with the current policy of banks claiming their imposed charges are indeed fair and not unlawful.

While you could see this as a step towards banks admitting their mistakes, I’m inclined to see it as a cunning way of saving money. Why? Because at the moment the retail banks are still buying their way out of court by fully refunding their claimant’s demands. So A&L had to make a decision between losing £2,035 or £1,558 - the refund after taking into account all charges at £4.50 each. You don’t need an A in Maths to work out what to do…

Read the BBC’s full coverage here.

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