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Money mistakes you shouldn't make in 2013

Money is stretched tight for most households which is why you should take the time to make the most of the savings you do have next year.

 

by Michelle McGagh on Dec 30, 2012 at 07:01

Money mistakes you shouldn't make in 2013

Savings rates are perpetually low so it’s even more important that you make the most of your cash in 2013, and don’t repeat the same old money mistakes that many of us have made this year.

Being better with money, saving more and spending less usually creeps on to the New Year’s resolutions list and by following these rules from rate checking service savingschampion.co.uk you can ensure that you stay one step ahead of the banks and make your money work for you in 2013.

Anna Bowes, director of savingschampion.co.uk, which has an online rate tracker that helps you see if your accounts are the best on offer, said making one mistake may not make a big difference, but making all of them could have a huge impact on your finances.

‘These savings mistakes may seem inconsequential but if you add them all up, you could be wasting a packet. It’s easy to carry on doing things the way you’ve always done it – but why not try something new.’

Swap accounts

Savings rates have fallen consistently over the past year so chances are that your money is sitting in an uncompetitive account having its value eroded by inflation. Unless you are reviewing and switching your savings accounts regularly, you are throwing away money.

Savingschampion.co.uk estimated that someone with £50,000 in savings would miss out on £1,125 a year in interest by failing to switch to the best paying easy access account from the worst account.

Unfortunately there are no easy access accounts that beat inflation on offer. The Post Office is offering the highest rate at 2.35% on its Online Saver (Issue 8).

Use your allowances

Even if you don’t fancy investing your money in a stocks and shares ISA, you can still save £5,760 in a cash ISA in 2013. Unlike savings accounts, you don’t pay tax on any interest accrued in either a cash or stocks and shares ISA so you should make sure your ISA is maxed out before you invest your money in another savings wrapper.

Coventry Building Society is offering the best deals on cash ISAs at the moment. You can earn 3.1% on its 60 Day Notice ISA, but as the name suggests you have to give 60 days’ notice if you want to access your money.

Keep track of maturity dates

If you have money in a fixed term bond that matures next year, make sure you know when the maturity rate is and make plans for the money. If you don’t plan to move your money it will automatically get rolled over into a new issue of the bond which will more than likely be paying a lower rate than you’re getting now. And if you try and take the money out after it’s been placed in a new bond you’ll pay a high penalty.

If you’re willing to lock your money away for five years you can make 3.5% on the Union Bank Fixed Term Deposit account. The same bank offers 3.25% on money locked away for three years into a fixed term bond.

Keep track of bonus periods

Many ISAs and savings accounts offer a higher bonus rate for a certain period of time but make sure you know when the bonus ends because after this you’re more than likely to see your rate drop. Introductory bonuses are pretty standard these days so make sure you know when it’s up and move your money to a higher paying account.

Don’t be loyal

Consumers are surprisingly loyal to banks and building societies but these organisations never reciprocate this loyalty. The best rates for savings, the best current accounts and preferential deals are always offered to new customers so make sure you change your current account to get the best deal – which may include cash incentives to move.

For example, Santander is offering interest rates up to 3% on its 123 Current Account for balances between £3,000 and £20,000, although there is a monthly fee for the account that needs to be taken into consideration.

21 comments so far. Why not have your say?

Donald Chan

Dec 30, 2012 at 09:15

I'm usually more interested in readers' comments but I liked the comment here: banks never 'reciprocate this loyalty'.

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Tony Peterson

Dec 30, 2012 at 10:27

Any investment that does not at least match inflation is simply throwing away the value of your money. Money is a system of depreciating tokens.

Fortunately, there are plenty of sound, safe, big companies with global outreach paying dividends that beat inflation, and which dividends are rising at a rate that beats inflation.

Of course there is a slight risk. But a better chance that the volatility of equities will act in your favour.

Buy defensive, inflation busting shares while prices are still lower than 2000. Or be a guaranteed loser.

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brian douglas

Dec 30, 2012 at 11:17

Its the junior Isa that concerns me in that children who were placed in the position of the last governments investment for youngsters are being excluded from investing in its successor fund, and whilst many subscribers to the financial pages comment nothing seems to be done to correct this anomaly. Why Not?

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Howard via mobile

Dec 30, 2012 at 11:19

I think there's more than a "slight risk" with shares especially bearing in mind how much they have increased this year against all sense.

Buy defensive stocks with good dividends that then drop in value and you could be locking your capital away for a long time to wait for it to regain. Which it may not of course.

Finally, inflation. Unless you are aware of your personal inflation rate a savings account of 3% may not be throwing your money away at all. I don't believe many of us know ours individually do why put faith in the government calculations?

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Donald Chan

Dec 30, 2012 at 11:53

Personal inflation may well be in excess of 3%. The government keeps its official rates low for good reason.The key element of money as a store of value is being undermined.

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Dividend Income investor.com

Dec 30, 2012 at 13:05

Await 2013, and further out, a number of bubbles to deflate in the UK . . . like the bond bubble, property bubble, private debt bubble, pound sterling bubble, stocks and shares bubble (not necessarily in this order). Once all this come together a gold price at approx $1700 will look like an absolute steal. Not that you will be able to secure gold at that price then.

The next few years is going to be very interesting, many people will lose lots of money, making the wrong choices or are just plain too late to get out, while other people will set themselves up to secure fortunes. I aim to be in the second category.

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Tony Peterson

Dec 30, 2012 at 13:34

The CPI is a fudge. Personal inflation for most people is way over 3%. Mine is 9%. Fortunately my portfolio delivers more than this with dividends reinvested in bargains and profits taken.

People seem unwilling to learn from history. Year on year inflation, through my lifetime,has only 1% of its real value left. The erosion is certain to continue.

Investing has to be in income producing assets with some chance of real growth.

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Dividend Income investor.com

Dec 30, 2012 at 14:02

I completely agree Tony!

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Maverick

Dec 30, 2012 at 18:46

You lot patting yourselves on the back - don't lose sight of the fact that if you buy shares in a solid company with a good dividend record you could still be losing money. For example, Vodafone - dividend 6.1%, share price drop over last year 13%, Pennon Group dividend 4.8%, share price drop 12%, Morrisons dividend 4.9%, share price drop 19%, Tesco, Morgan Sindall, etc etc.

If you define "risk" as "losing your capital", then those shares are among the most risky.

You do it your way, I'll do it my way.

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Tony Peterson

Dec 30, 2012 at 18:57

Maverick

You only lose your capital if you sell at a loss. For example I bought my first Vodafone shares in Jan 09 at 144p. I regard the present dip as a buying opportunity.

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busy bee

Dec 30, 2012 at 21:09

Changing banks - remember Santander is useless - rock bottom - at customer service. I wouldn't change to them for love or money !

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Anonymous 1 needed this 'off the record'

Dec 30, 2012 at 21:39

@busy bee. Ive been working for Santander on contract work and I have had to visit numerous branches all over the south east and without exception the customer service has been really good! Maybe the call centres had a bad reputation.

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charlie1

Dec 30, 2012 at 22:24

Tony - agree with you in principle but a few years ago things like Lloyds, HBOS and RBS all looked good with divis at circa 6%... Supposedly safe investment in these companies cost a lot of people a lot of money...

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rich banker

Dec 30, 2012 at 23:24

BUY Blue Chips with good divis in the FTSE Top 20. when they are cheaper, say like now as the Yanks are about to go over the self inflicted "financial cliff".

Make over inflation and sleep at nights, if you are young re-invest the divis and be amazed how they roll up or if a pensioner like me then spend, spend spend them on little luxuries. No point being the richest guy in the graveyard.

Remember,"You are not really rich until you can live on the income from your income!"

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Maverick

Dec 31, 2012 at 00:29

What if the blue chips in the FTSE Top 20 are all miners who are having a torrid time at present?

Oh, I know, buy on the dips!

(And cross your fingers like mad that they don't fall any further. I can prove with incontrovertible maths that the easiest way to lose money is to buy when a share is dropping and continues to drop.)

I'd just rather earn 50% in a year from Micro Focus than minus 7% in a year from Vodafone (one of your FTSE Top 20).

Are dividend pounds really worth more than capital gains pounds?

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Rob Walker

Dec 31, 2012 at 10:40

Michelle, please be more accurate with your information. I think "you can still save £5,760 in a cash ISA in 2013' applies to the new tax year ie 2013/14. Anyone investing cash up to April can only invest £5640. It is also worth mentioning in 'Money mistakes' that if you already hold inflation-linked savings certificates that are maturing it may be worth taking advantage of the roll-over inflation-linked offer that is not available to new applicants and is also tax free (and also free of any Financial Services 'spin').

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Keith Cobby

Dec 31, 2012 at 14:51

I am a 'long only' equity investor and agree with the comments here about rolling up dividends until you need to take an income.

I haven't invested in individual stocks for a long time because I have recognised that the situation with BP, Lloyds, RBS etc could harm your income flow.

Instead, I invest only in dividend paying investment companies,

eg City of London, Edinburgh, Perpetual, Finsbury for the UK

Murray International, Scottish Mortgage for global

Aberdeen Asian Income, Henderson Far East Income, Schroder Oriental for asian income.

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Sinic

Jan 01, 2013 at 08:52

An investment portfolio is by definition a mix of investments; some will rise, some will fall. The aim is to get the balance right across individual assets and across different sectors. So sure Vodaphone shares in 2012 have made made a return of -6.1%, but Diageo shares have returned +30.1%. Despite my lack of return on Vodaphone and others I have still made an overall return onrelatively cautiously invested investment portfolio of 12.6% in 2012. I would rather my money was invested across a range of stocks with the chances of a decent if not stellar return each year than some high risk 'ten bagger'.

You can not with any credibility judge an investment strategy on the short term strength or weakness of an individual stock.

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Sinic

Jan 01, 2013 at 09:01

So Maverick, miners are having a torrid time of it! Just so!

However that didn't stop Rio Tinto returning 16% in 2012 and BHP Billiton 17.4%, both sizeable holdings in my portfolio. BHP has been in my portfolio for a number of years in different quantities and has to date produced an annual return of 46.4%. Thank heaven for miners!

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rtrader

Jan 02, 2013 at 09:47

first posting on this board lots of good points.stick to the dividends for good returns....can anyone beat FTO for returns.

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YoungMoney

Feb 07, 2013 at 14:45

Yawwwn. Everyone commenting is just regurgitating the whole argument of inflation risk vs. capital risk vs. income risk. Yes, there are different types of risk. Yes, understand them and apply them to your own risk personality. At the end of the day, the 'average' person should have a portfolio diversified across lots of mediums. But there is no such thing as 'average' so tailor your investments to yourself. Understand your investments, research them and then either sit on the sidelines or go for a potential higher return. There is no right or wrong.

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