Simple Pound

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How many old mobile phones have you hidden in the bottom drawer of your desk, top shelf of your wardrobe or in an old box under the bed? Honestly? I found two - and I wasn’t even looking properly. Chances are you’ll find at least one old phone knocking around somewhere, especially if are (or have been) on a phone contract that promises you a new handset every 18 months.

Have you ever thought what to do with the old one? At some point the option of “I can give it to my sister/Mum/Dad/brother-in-law (delete as appropriate)” doesn’t really work anymore and the old handset will soon be forgotten. Why not get some free cash for recycling your phone instead?

The website envirofone.com will help you with exactly that. Head over there now to see what your old phone could still be worth! It’s simple, fast and absolutely no hassle at all. When you register with them, you will automatically receive a “trade pack” consisting of a delivery card and a jiffy bag for you to send your phone in. Once you agree to trade your phone for either cash or an Argos voucher (whose value will be slightly higher than the cash value you’d receive otherwise), all there is left for you to do is to put your (old!) phone into the envelope and drop it in the nearest letter box.

The envirofone website has a “My Account” section that lets you monitor the status of your trades. Once the trade is agreed, it will show up under the “View Trades” tab where the status will say “Awaiting Receipt”. You agree to send the phone within a time frame of 10 days at most and once you have done so the trade status will soon change to “Received” indicating that the envirofone team has received your phone and is currently testing whether it is in full working order.

The quote you got when the trade was initially submitted assumes the phone is functioning properly, but you’re still encouraged to send your phone even if it is not as you might receive up to 90% of the originally quoted value. If a fault is detected by the envirofone people, you will be contacted with a new (lower) quote which you can choose to accept or refuse. If you refuse to trade for the specified amount, the phone will be returned to you. If you decide to accept the lower offer (what else are you going to do with a faulty phone??), you will receive your cheque or Argos voucher in the post within 7 days.

My old phone has been received as of this morning, so I’m waiting for my voucher as we speak. I’ll keep you posted on how long it actually takes, but their overall process seems pretty streamlined and I expect only the best So if you possess one of the 80 million mobile phones that have been forgotten about in the UK, then I think it’s time for you to act…

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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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I have recently come across the Zopa website, which claims to connect lenders and borrowers without involving banks - thus guaranteeing both parties better rates. The whole site is built around a community of people either willing to lend or people seeking to borrow money - from each other directly, rather than going to their local bank and thus making these institutions even richer than they already are.

And it seems to work as they are quoting quite competitive rates of 5.95% APR for a £5000 loan over 36 months, while promising lenders an average of 6.75% pa for their money (after bad debt and fee, before tax). Since I am not planning to take out a loan very soon, I was more interested in the lender aspect of this. It is essentially a bond based on an individual (and his credit rating) rather than a government or corporation - only with a much better return.

And here’s how it works: If you decide you have got some money left over that you wish to temporarily make available to someone else, you create an account with Zopa and transfer your money in, specifying which credit rating you will accept and for how long you want to lend the money. Their credit scores range from A* (very reliable) to C (still reliable, but less credit history - e.g. a student), which is based on an extensive identity-, credit- and risk-check. According to them, a person with a credit rating of “C” is still more creditworthy than the majority of the population. Well, that sounds good, but is obviously very difficult to prove…

The interest you get for your money depends upon the duration you’re intending to lend money and the people you’re happy to lend to. Since the website essentially functions like a market, the actual interest rate you are receiving will be based on supply and demand. So in order to get a decent return, you should put down your money for as long as possible (5 years) and ideally to C-rated people, because for these categories demand will potentially be highest. Obviously decisions like that depend upon you’re own risk attitude!

There is no lower limit for how much money you can put in the Zopa account - people start at sums of £10 or use Zopa as a regular savings account and make small monthly contributions. In most cases you won’t be lending to a single person, but your money will be spread across various people seeking a loan. This is an in-build protection mechanism based upon the wisdom that diversification limits risk. And if the conditions of your lending aren’t appealing to anyone in the market-place (for instance, your lending period is too short), you will still earn 4.5% interest on the money in the Zopa account - which is more than I am making with my savings at the moment!

As I said at the beginning, I’m beginning to really like this idea. Especially since you will know where your money is going and in most cases people also share what they are using the money for. In short this means that whenever you decide not to spend your money but put it in your Zopa account, you could potentially help fulfilling someone else’s dream!

Head over to their website for more information! And please, if you’ve had any experience with Zopa at all, leave a comment and have the rest of us benefit from your knowledge!

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We all remember that heart-breaking story about the ugly duckling not being accepted by the others in the pond only to later turn into the most beautiful swan, don’t we? What’s that got to do with finance though? Well, apparently a lot.

The article @ savingadvice.com tells you a neat little story about how people saving money aren’t really “cool” or sit in the pub together and discuss their latest achievements. But the numbers will still speak in their favour in the long run (i.e. the ugly duckling turns into the beautiful swan).

Here’s the example quoted in the article: Person A starts off with £10,000 and wants to make his money grow. But since he’s more keen to find out how to save (more) money than to learn how to maximise his return on the stock market, he chooses the easy option and puts the whole amount in an index fund tracking the (say) FTSE 100. By spending his spare time on finding ways to save money though, he is able to add another £100 a month to this fund.

Person B wants to be one of the cool guys and spents all his spare time learning about stock-picking, i.e. how to find shares that will give him an exceptional return and thus make his money work as hard as possible. He starts off investing the same £10,000 but since he doesn’t really care where his money ends up every day, there’s nothing left over to be added to his investments. All he has are the initial £10,000.

Now guess what? Assuming a steady 10% annual return from the FTSE, person A will end up with £47,555 after 10 years. If person B was good enough to beat the FTSE by 5% (a goal almost any ordinary investor would be more than happy to achieve), his £10,000 will have turned into £44,402 - more than £3,000 less than person A.

And the morale of the story? Leave the fancy shares to people who do this sort of thing professionally, look after your money and make the most of compound interest over the years. Ideally you want to save and beat the market in the long run, but very few investors actually manage to do that. Between you and me - 85% of mutual funds (who are actively managed by someone who understands the market and picks shares for a living!) underperform the market.

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Richard Jenkins @ MSN Money has written an interesting article on how to simplify budgeting. He basically argues that breaking a budget down into various categories (i.e. clothes, dining out etc.) is a waste of time, since in the end it doesn’t matter where you overspend - if you do. So to simplify his life, he’s adopted the 60:40 rule, where he immediately puts away 40% of his salary for retirement savings, long-term savings, short-term savings and “fun money” and pays all necessary bills from the remaining 60%.

While I agree that it doesn’t really matter on what items you overspend, I do believe that knowing exactly where your money ends up is definitely a good thing. Obviously, if you adjust your target level every month so that you’d technically never go over, then it’s a waste of time, but if you actually realise that you are wasting money on unnecessary things and set yourself a limit and stick to it, then having a budget can only be beneficial.

Having said that, while I do track my expenses at the moment, I don’t have a specific budget as such, since most of my expenses are still highly irregular. For example, at the beginning of the (academic) year I will have book expenses that I don’t even get close to later on. What I have realised though is that I’m wasting an amazing amount of money on coffee and lunch, which is definitely £40 I could save.

In any case I think that his 40% savings target (30% if you exclude the “fun money”) is maybe a little bit ambitious - reducing your annual salary by more than a third isn’t something that will go unnoticed. Especially after moving to London I will probably have to spend much of my money on the bare necessities like rent, tube and food. Nevertheless, I want to keep this figure in the back of my mind in order to compare my monthly savings to it - once I can actually put some money aside (i.e. not before July). Nothing wrong with aspiring to challenging goals…

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A few days ago, I read a blog entry @ The Simple Dollar reviewing an article on retirement benchmarks that appeared in the April issue of Money Magazine. According to this article, at the age of 35 you need at least 1.6 times your annual salary tucked away in savings in order to retire at the age of 60 and have the financial resources to pay yourself 80% of your last annual salary for the coming 35 years.

Obviously compound interest will work in your favour the sooner you start. That is why I decided to have a closer look into the pension contributions my (soon-to-be) employer is making on my behalf to establish whether or not I would need to worry about reaching this target. With a little bit of help from Excel I established that I don’t - assuming the pension fund has an average return of at least 6.6% over the next 14 years.

This interest rate / growth rate seems definitely feasible and not only compound interest is working in my favour, but also the fact that my employer will increase the pension contributions over time with my years of service and age. For instance, while they contribute 5% of my annual salary when I start, I will be up to 11% when I’m 32 - assuming I have been employed for the 10 years in between.

Feel free to use my template to establish whether you’ll beat the benchmark or not (all numbers in the template are in relative terms rather than absolute monetary values).

Random statistics: RPI inflation rose to 4.6% in February (from 4.2% in January) which effectively means that I’m not even beating inflation with my current savings account. As soon as I start getting a regular salary, I will have to find a savings account that will actually earn something over time.

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