Money Mensch: ‘Cash is king.’ I’m afraid I have to disagree
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Cash has advantages for budgeting and haggling but when it comes to spending or making savings safer, cash is not king — it comes a distant second. Here are my ten cash “need-to-knows.”
l Do not stash cash under the mattress — it is only covered for £750
A recent tweet from one of my Twitter followers says it all: “My grandad just passed away. Found £22,000 in his flat — £3,000 in various jacket pockets and drawers, £19,000 in a suitcase.”
Not only did his grandad lose interest, he was also poorly protected. Most home insurance policies only cover up to a maximum of £750 cash and require a receipt/bank statement as proof. And it is not just a financial issue — as fireman @ddukeofdarkness responded on Twitter: “Money under the mattress makes a nice accelerant in house fires for us to deal with.”
l Save in a UK bank and you are covered for up to £85,000
Put money in a UK-registered savings account or cash ISA rather than under the mattress and, if the bank collapses, the Government promises to pay out up to £85,000 per person, per financial institution. This excludes ING Direct, which is Dutch regulated and protected.
l New ISA year, save on TAX The 2012/13 tax year has just started, meaning everyone gets a brand new, tax-free cash ISA allowance. You can put up to £5,340 a year in, and interest is tax-free year after year after year. The top easy access deals pay about three per cent. See www.moneysavingexpert.com/cashISAs
l one pence on a credit card protects a £5,000 purchase
Here is another warning inspired by a twitter question: “My 86-year-old dad paid a £120 deposit on a restaurant (he doesn’t believe in plastic). It has gone into administration, what can he do?” Sadly, the answer is “not much.”
While many find it counterintuitive, paying by plastic is safer. Buy goods for £100-£30,000 on a credit card and under Section 75 laws, the card firm is jointly liable, so you can claim a refund from it if there is a problem.
The gobsmacking fact is that even if you pay just one pence by credit card for a £5,000 kitchen, the card company is liable for the whole amount. Though repay the card in full to avoid interest. If you don’t like credit cards, debit cards offer a lesser non-legal protection called chargeback, which is an okay last resort.
l Get PAID £100s to
spend on plastic
Capital One’s World Mastercard pays a huge five per cent back on all spending for the first three months, up to £100 cashback. Then it is a tiered rate up to 1.25 per cent.
Not only do you get Section 75 protection, but you get paid when you spend. Only do this if you set up a direct debit to repay in full each month, or the 19.9 per cent representative APR dwindles the gain.
l Beware if you opened savings over a year ago
Check your current rate. It is likely to be paltry, often less than one per cent, so ditch and switch.
If your ISA is used up, the top easy access accounts pay around three per cent. If you can lock money away for longer, four per cent is possible. Deals change regularly. See www.moneysavingexpert.com/topsavings.
l For safety and high returns, clear your debts
If you had £1,000 stashed in a top savings account paying three per cent and the same amount on a credit card charging you 18 per cent APR, by repaying the debt you would be £150 a year better off (more after tax).
If you are thinking: “But I need the cash in the bank for emergencies” (roof falls in, not need new a haircut), keep a credit card. Meanwhile, you save hugely on interest.
l Save large amounts in 100 per cent safety
If you have big savings, perhaps from a house sale, the highest totally safe return comes from spreading £85,000 chunks across top savings accounts at different UK-regulated institutions. See www.mse.me/safesavings for what counts as “different institutions” — it is complex.
Want it all in one place? The only route is NS&I’s Direct Saver but the rate is a low 1.5 per cent AER.
l Don’t store cash in current accounts
If you have £1,000s in a current account and it usually pays paltry interest, get a high-interest savings account instead.
l Shops dont need to accept your cash just because it is legal tender
You may be surprised that no bank notes are legal tender in Scotland. In England and Wales, only Bank of England notes are. Though frankly, legal tender is meaningless in day-to-day life.
Anyone can choose to accept or refuse any payment. Legal tender just means it can’t be refused as settlement of court-ordered debt.