‘Cash is king.’ I’m afraid I have to dis­agree

The Jewish Chronicle - - Business -

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.”

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.”

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.

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

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.

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.

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.

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.

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.

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.

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-to­day 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.

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