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Get Out Of Debt ::

Saving is becoming a necessity instead of just being a luxury. The Government is more and more putting the onus on the individual to fund education, to provide an adequate pension, and to provide long term care. Even single parent families are being encouraged to become self-sufficient. Historically low inflation rates are helping savers to achieve more lasting value from their money but that benefit risks being undone by low interest rates.

Low clearing bank base rates are bringing a flood of new offers intended to appeal to the country's 19 million savers.  But there is widespread concern that many will now opt for riskier investments to supplement their income.

Tougher rules on the advertising of savings products have come into effect. For the first time, customers have been able to compare the real value of competing savings products. The revised Advertising Code, which came into force on January 1, 1999, ensured that every advertisement quoting a rate must use a new, universally comparable rate: the annual equivalent rate (AER). The new code also tightened the naming and definition of accounts and should enjoy tough enforcement with responsibility moving to an independent review body.

Building society accounts
  • Share accounts - Building society terminology for a simple savings account useful for small lump sums or regular saving. With a share account you get membership of the society.
  • Deposit accounts - Similar to share accounts but you do not get membership of the society. Check the interest rate paid against the share accounts.
  • Notice accounts - Come in a variety of 7-day, 90-day minimum notice periods for withdrawal. You should earn a higher rate of interest for locking your money up for longer.
  • Term accounts - If you agree to deposit your money for up to five years you get an even higher rate of interest.
  • Save as you earn - Building societies will accept regular monthly income from you. The scheme was introduced by Roy Jenkins in 1969.
  • Cheque book account - A building society will let you have a cheque book and will normally pay a little bit of interest as well.
  • Postal accounts - Because of reduced costs in their running these should pay a higher rate of interest. 

    Bank accounts
  • Deposit account - At a bank this is normally a seven-day notice account. Interest is usually paid every six months.
  • High interest cheque account - Best of both worlds, you get a decent rate of interest and a cheque book. The drawback is that the minimum investment is high, usually at least 1,000.
  • Term account - A lump sum invested over a fixed term at a fixed rate.
  • Currency account - You pay sterling in, but your money is converted to a currency of your choice.
  • Football affinity accounts - 'Affinity accounts' offer football fans the chance to boost clubs' coffers but not their own. 
  • Financial advisers: how they work

    Knowing where to go for financial advice is half the battle when trying to sort out your financial affairs. Over the years the appearance of the financial services industry has grown more confusing with banks, building societies, insurance companies, fund managers, stockbrokers and independent financial advisers (IFAs) all vying with each other to serve the public and take your hard-earned cash.

    Fortunately, they can all be divided into two neat groups. Anybody offering financial advice to the public must either be "tied" to their employer - in which case they can advise only on that company's products, or they must be "independent", in which case they have to consider all available products.

    The point of this sharp distinction - known as "polarisation" - is to ensure that investors understand the motives and status of the person they are dealing with.
    Although both tied agents and IFAs are required by law to give customers "best advice", the former have far less room for manoeuvre.

    Tied agents are effectively salesmen operating on behalf of one company. They are employed by insurance companies and banks to sell their investment, pension and insurance policies to the public, either by visiting people in their homes or by arranging for them to come into their branch office to discuss their financial affairs.

    Like any salesmen tied agents are mostly paid in commission. This means the more they sell the more they earn. Companies that employ salesforces frequently set targets and incentives to push particular products.

    IFAs, however, are required to compare all policies and to select the best. Most big IFA firms do this by using modern software to construct "best buy" panels that regularly change their selection of companies.

    You should remember, however, that financial advice costs and most IFAs receive commission payments from insurance and pension companies in much the same way as tied agents do. Many investors do not mind this as it means they do not have to dip into their pockets to get the advice.

    However, insurance and pension companies frequently vary the fees they pay to IFAs depending on how much of or what kind of product they have sold. This has led to accusations that IFAs are just as biased as tied agents. Nevertheless, the I in IFA does mean something. Although investors should be on their guard, as a general rule they will get better service from an IFA than from a company salesman.

    Checking which camp your adviser belongs to is important but can be tricky. Many companies employ both IFAs and salesmen. You can make sure by asking at the outset of a consultation whether he or she is tied or independent. Check their business card if you are unsure.

    To ensure complete objectivity there are a growing number of IFAs who do not take commission but who charge an hourly fee. For details ring the Money Management helpline on 0117-976 9444.

    Help - For details of other IFAs contact IFA Promotion on 0117-971 1177.

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