11th January 2015

An Article in the Sunday Times 

Sweat off the excess and pump up your finances

Develop strong habits to ensure the best for yourfinances in 2015 and beyond, writes Mark Channing JANUARY is a time for self-improvement — especially when it comes to your finances. From switching pro- viders to investing smarter, we give our top 10 tips for a financial detox.

SET GOALS Setting goals and plans to achieve them will be vital to get the most from your money, say experts.

David Quinn, managing director of Investwise, an adviser in Dublin, said: “Making a plan can be hard because it means looking at what you want from your finances for nextyear,orthenext20years. What do you want for your kids, retirement and how do you plan to clear your debts?” Oonagh Casey, a partner with adviser Fagan & Associates, said now is the time to get organised.

“Use this as an opportunity to review whereyou’re atfinancially,” she said. “Have your circumstances changed over the past year? Have yougotmarried,had a child or come into an inheritance?” START SAVING A survey by Bank of Ireland found 73% of people plan to save regularly in 2015.

Brian Vaughan, the bank’s head of savings and investments, said: “Establishing a discipline of saving is the best way to achieve a savings goal.”

Nationwide UK(Ireland) pays 4% interest on savings of €100-€1,000 a month. The rate drops to 1.05%, however, when the balance in the account exceeds €15,265.

KBC Bank pays 3.5% on savings of up to €1,000 a month, with a bonus of one percentage point paid until June for those who opena current account before the end of March. The maximum balance you can earn at these rates is €50,000.

Saving is less rewarding, however, because returns have fallen over the past decade (see chart) while deposit interest retention tax has doubled from 20% to 41%. BANISH BANK FEES Current account providers are changing their fees to encourage customers to pay by card rather than cash. KBC charges 30c for ATM withdrawals but nothing for debit card payments. Bank of Ireland will increase the cost of ATM withdrawals from 20c to 25c from February 23 but halve the cost of debit card payments to 10c.

Simon Moynihan of price comparison site Bonkers.ie said: “Banks have been gradually increasing fees and making free banking waivers harder to attain. They seem to have hit a ‘fee sweet spot’ as people still aren’t switching.”

Permanent TSB has the fewest conditions for free banking. Provided you lodge at least €1,500 a month, you can avoid transaction and account maintenance fees.

WRITE A WILL Only a third of Irish people have made a will according to charity group mylegacy.ie. Financial planning experts say an up-to-date will is a vital part of organising your finances. Failure to plan means people are falling into the inheritance tax net because property values are rising while the amount that can be inherited tax-free has been reduced. Casey said: “The decrease in tax-free thresholds along with the increase in property prices means you have to look at your will from a tax perspective. For some people it may be possible to plan now to minimise the tax liability.”

Most wills cost less than €100 plus VAT to draft, according to Brophy Solicitors in Dublin. TAKE CHARGE OF YOUR PENSION Patrick Connolly, at the financial adviser Chase de Vere in London, advises contributing as much as possible to a pension. “Although it may seemlike a long way off,the sooneryoustart saving, the easier it will be to give yourself a more comfortable lifestyle inretirement. Even if you cannot afford to save much initially, it is better to do something than nothing.”

If you start saving €100 a month at 35, your pension pot would be worth about €101,000 by 65, assuming investment growth of 6% a year after charges. Starting 10 years later would mean the pot would be worthjust €46,400.If you startedsaving 10years earlier, at 25, the pot would be worth €200,100.

Connolly also warns you should be aware of high charges, as these can seriously impact the size of your pension pot. For example, up to €120,000 of a €400,000 pension pot can be taken up by charges according to a report prepared for the Department of Social Protection by accountants PwC. TRACK THE MARKET Ditch under-performing fund managers for lower-cost tracker funds thatmimic anindex, suchas a stock market or the price of gold.

A managed fund typically costs 0.75% a year, compared with 0.5% or less on a tracker. Research shows that paying for active fund managementis unlikely to get you a better return than the index, although active managers disagree (Don’t try beating the markets — unless you’re Warren Buffett, John Looby, p13).

According to analysis by Psigma Investment Management for The Sunday Times only six of 111 British- managed funds that invest in American equities beat the S&P500index in the US last year. Quinn at Investwise said: “All the statistics show that only a tiny minority of fund managers actually beat the index and trying to predict who they will be is next to impossible. You’re better off going with a tracker and saving on the fees.”

CUT THE COST OF INVESTING Miniscule returns on bank deposits are forcing more savers to invest in stocks and shares. Last year the Central Bank issued a warning to savers to understand the risks and costs associated with investing, and the impact they can have on returns. Experts warn you should also consider what your adviser charges. Quinn said: “For your average investor the fund management fee is not the most important component. What you might pay your broker can be much higher.”

It is vital to ask your adviser the right questions from the beginning to make sure you don’t overpay. “Are you going to be charged a flat fixed fee or is it percentage of assets?” Quinn said. “Find out what the investment costs if the broker wasn’t getting paid and then ask yourself: is the advice worth it?” IMPROVE YOUR CREDIT RATING Mortgage lending is set to get tougher as the Central Bank prepares to implement new rules aimed at curbing riskier lending.

Your credit rating is used by lenders to assess what risk you might present based on the size of your debts and your track record in making the payments on time.

You can check your credit report by paying €6 to the Irish Credit Bureau (ICB), which maintains a register of people’s credit histories. The ICB records allthe credit that is available to people, in the form of cards and loans, as well as any missed or defaulted payments.

The Irish Mortgage Holders Organisation, a debt charity, said: “If any errors are present in your report you can request that the record be amended. However your lender must requestthatthe change is made, you can’t do it yourself.”

SAVE ON UTILITIES The fall in the price of oil and gas has resulted in new deals from energy suppliers that can save you money.

Moynihan of Bonkers.ie said: “The reductions are only being passed on to active customers. If you don’t do anything, you’re not going to get any benefit. Standard prices are not going to come down.”

Energia offers the cheapest dual fuel deal where you get electricity and gas from a single supplier.

The deal expires January 31 and switchers must pay by direct debit. According to Bonkers.ie, the cheapest electricity-only deal is Electric Ireland’s ValueSaver tariff, which saves the average household €156 a year. The cheapest gas-only supplier is Flogas, saving the average household €158 a year. SWITCH INSURANCE Drivers are facing double-digit increases in car insurance premiums in2015 according to experts. Jonathan Hehir, managing director of Coverinaclick.ie, a broker, said: “I predict premiums will go up by 10% to 20% on average but some drivers might see their premiums go up by 30%.” Hehir said the price hikes make shopping around even more important. “If your premium goes up you don’t have to take it. If you make a few phone calls you are guaranteed to get a better price than what your insurance company is quoting.”

This is because insurers have better quotes to attract new business than for existing customers who are renewing cover. Experts also advise homeowners to switch mortgage protection insurance, a form of cover required by lenders that pays off your debt if you were to die. Peter O’Reilly managing director of Low.ie, a broker, said: “There are sizeable savings to be gained.The average saving of our clients works out atjust over €1,850 over the lifetime of the policy.”