Don’t miss out on this valuable tax benefit!

This week sees inflation jump from 1.9% to 2.9% meaning that a standard rate tax payer now has to earn at least 3.63% to break even, while a higher rate tax payer has to earn at least 4.81%. A level that for the first time ever, no variable rate account on the market can beat and one only a few fixed rate deals can achieve.

The only positive news for savers this week is that the 2010 ISA season has really started to gather pace with a number of provider launching new deals. In contrast to other types of savings account where rates are now falling, ISAs rates are slowly increasing as providers look to attract savers’ tax free allowance.

For the first time since their launch in 1999, the best buy ISA rate is below that offered on standard savings accounts.

The majority of the new ISA deals being launched are fixed rate deals requiring between a one and three year commitment. This is a trend that is likely to continue in the weeks ahead as providers look to tie savers money in by attracting them with more competitive rates than those available on easy access ISAs.

Also of course Equity based ISA’s are available for those willing to invest for the longer term, the markets have improved somewhat since the turbulence of the last couple of years.

At Premier Plus we have 10 portfolios of funds designed to match your risk profile which we monitor on a quarterly basis, these range from Defensive to Adventurous. If you are fed up with the poor returns on cash and feel you can invest for 5 years or more please call us and we can arrange an appointment to discuss your needs.

We offer ISA advice to anyone but we work mainly in these areas.  Cambridge, Ely, St neots, Peterborough, Huntingdon
, Bedford, Stamford, St ives, Thrapston, Kettering, Corby, Newmarket, March, Chatteris

In the August edition of Moneywise Rebecca Atkinson has recently mused on the subject of low inflation, I felt it may be an interesting read for Premier Plus clients.

You can subscribe to Moneywise by visiting www.moneywise.co.uk This article is reproduced for your information only and does not necessarily reflect the opinion of Premier Plus Ltd and should not be construed as advice.

Five ways to benefit from low inflation

“Inflation has a bigger impact on our finances than many people realise. For a start, the Bank of England’s Monetary Policy Committee (MPC) sets the base rate each month with a view to meet its 2% inflation target.

Secondly, it measures the price we pay for goods and services, from food and petrol to hotel rooms and gym membership. Significantly, it also impacts wage growth.

The Consumer Prices Index (CPI) - the official measure of inflation in the UK - is currently just 1.8%, having fallen from a peak of 5.2% in September last year.

Where it heads next is a hotly debated subject. Some economists believe the economic downturn, which has already prompted the sharp fall in inflation, will continue to push this down.

Vicky Redwood, UK economist at Capital Economics, says the fact that inflation didn’t fall during July is not a sign that the UK is about to see a rise in the cost of living.

She still believes that inflation is set to remain low for some time, and also warns there remains a “serious risk” that CPI could turn negative down the line.

“We still think that inflation will fall below 1% later this year and could drop to very low, or even negative, levels in 2010 and 2011,” says Redwood. “Overall, then, these figures do little to alter our view that deflation remains a serious risk.”

Others, however, argue that the measures such as quantitative easing (the creation of new money) will prompt a sharp increase in inflation either this year or the next. The fact that VAT will return to a rate of 17.5% from January, plus the recovering cost of crude oil, could also push up inflation.

Economists from Barclays Capital Research say July’s CPI figure reinforces the view that the recession might not be as disinflationary as predicted. They also warn that, as a result, the MPC might increase the base rate sooner than previously expected.

And David Page, economist at Investec Securities, is predicting a fall to below 1% over the next two months, before inflation rises back to 2%. In terms of the impact of this on the base rate, he says: “The MPC will try to look trough this temporary volatility. We envisage a subdued inflation background over the coming years. But we also expect the MPC to start tightening policy [i.e. increasing the base rate] from early next year.”

But what does this all mean for you - and what steps can you take now to make the most of low inflation?

1. Pay off your debts

Paying off your debts is good financial advice in most scenarios, but in a period of low inflation, it makes even more sense.

For a start, clearing your debts will leave you better off and will have a positive impact on your credit ratings. Secondly, you’re probably paying a higher interest rate on your credit card, personal loan or mortgage than you could earn in a savings account at the moment.

Increasing your monthly repayments can cut the overall amount you owe and reduce the amount of time it takes to clear this. For example, a borrower with a £1,000 balance on a credit card at 16.9% APR who pays the minimum repayment of 2% for 12 months, will rack up £151.74 in interest - and only bring the total debt down to £920.60 - according to research by moneysupermarket.com.

But the same customer could slash their overall balance by nearly £400 and pay nearly £30 less in interest by increasing their repayments to 5% (£50) per month. Paying 10% per month (£100) would enable the borrower to clear their debt in 12 months and only pay £79.16 in interest.

2. Start saving

Likewise, starting or increasing the amount you save is always a good idea. If possible, you should aim to have a savings pot equivalent to at least three months’ income just in case the worst happens and you lose your job or just need the cash for an emergency.

For savers, the current situation is a mixed blessing. Low inflation in this case also means low interest rates; the Bank of England base rate is currently just 0.5%, and as a result savings rates are well below the levels seen last year.

However, the gap between the base rate and best-buy savings accounts has widened. The average fixed-rate account paid 3.03% in July - that’s 2.53% above the base rate. In comparison, the average fixed-rate account paid 6.06% in July last year, which was just 1% above base. The previous July, both the base rate and the average fixed rate were 5.75%.

An instant access ISA is probably the best home for your ’savings buffer’ as providers will allow you access to your money and it will grow tax-free. You can save up to £7,200 in an ISA each tax year, of which £3,600 can be held in a cash account. From 6 October, the ISA allowance increases to £10,200 for the over 50s, of which £5,100 can be held in cash. This new ISA allowance will apply to younger savers from April next year.

Alternatively, an instant access savings account will do the job, if you’ve already used your ISA allowance.

Once you have built up an emergency pot, you can consider different methods of saving. A fixed-rate deal is ideal if you want to lock away a set amount of money for a pre-agreed period of time. If you haven’t used your ISA allowance, then you can opt for a fixed-rate tax-free account to lock away your cash in. However, withdrawals will not be permitted and you may not be able to make further deposits either.

A regular savings deal is also a good way to build up a savings pot.

3. Overpay your mortgage

The CPI is the official measure of inflation in the UK, but it doesn’t include housing and mortgage costs. This is actually measured by the Retail Prices Index (RPI), which currently stands at -1.4%. This reflects the impact of house price falls.

You can, however, beat the falling value of property by making overpayments on your mortgage - especially if you’re on your lender’s standard variable rate (SVR), have a tracker loan or have benefited from cheaper rates on new fixed-rate deals.

Other than the fact this will reduce your overall mortgage term and the total amount of interest you pay on the loan, overpayments makes sense in a weak housing market. The larger amount of equity you have in your property, the higher the potential that you will be offered a better value mortgage when you next come to remortgage.

Bear in mind, though, that unless you are on an SVR you might not be allowed to make overpayments. Check with your lender to find out how much you are allowed to overpay before you are hit with a penalty.

4. Cash in on falling prices

The falling rate of inflation reflects the fact that some costs are falling, or at least not rising by as much as they were last year. If you have a big purchase to make, then buying it now might just make sense.

European holidays, white goods and TVs, furniture and homeware have all fallen in cost in 2009, although items such as digital cameras, clothing and computer games have risen.

In addition, now could present a greater opportunity for haggling on price. Asking for a discount isn’t just a technique you reserve for when shopping abroad. Haggling over prices is becoming more common in the UK, as people increasingly get up the courage to be a little bit cheeky.

People tend to have their own style of haggling, but generally speaking being polite but firm is a good way to win a discount. Don’t try and push the price down too far - work out a price you’d be happy to pay and then suggest something a little lower. If the retailer doesn’t want to play ball then there is no obligation to buy and you can just walk away.

Remember, the worst thing that could happen is they say “no”. You have nothing to lose by asking.

5.  Renovate your home

Whether your plans to move up the property ladder have been thwarted by the credit crunch, or you simply have the money to make some improvements to your home, then 2009 could be the year to renovate. Not only can improving your property potentially increase its value, but it is also an alternative to moving.

And in a period of deflation, the cost of renovating could become cheaper. Builders and other contractors - including architects - could be more open to price negotiations.

Call round several firms in your area and get some quotes. With many businesses suffering during the recession, you may find they are desperate for your business - the fact that the cost of raw materials has also fallen in the past 12 months will also help your case.

As with shopping, don’t be afraid to ask for a cheaper price but, equally, try and be polite about it. Bullying your builder probably isn’t the best way to go about renovating your home.

Before you consider renovating your home, make sure you find out whether you need planning permission. For more details about planning applications and costs, visit www.planningportal.gov.uk

You should also contact your insurer before you start work to make sure you are covered.”

We are experts in personal finance, and can help with Life Assurance, Critical Illness cover, Income Protection, Pensions, and Savings and Investments.

We are also Independent Mortgage Brokers equipped to help you buy your home effectively, or release capital if required for improvements. Of course, you may just wish to re-mortgage to get a better deal! However, we can also deal with your business needs, from Stakeholder pensions to Keyman protection.