The newspapers have discovered compound interest, or have they?.
The last few days have treated us all to faux outrage on investment charges. If you save over 30 years and the product provider charges you 2% of the fund per annum, you can calculate that about a third of everything you have put in plus investment growth has disappeared in charges. The banks and insurance companies are presented as the biggest rippers off.
My view is that if you’re saving for a pension with either, you want your head examined unless of course you are sitting on a fruity guaranteed annuity rate, in which case you would be certifiable to give it up anytime close to retiring.
You can do your own thing in a SIPP. Not least, you can mix active and passive funds to control risk and cost at the same time. If you want to find out whether it’s worth switching out of a pension policy, get a transfer value and calculate what return you have made on your investment so far. Compare that with what you would have made in a sensible Tracker fund. Fidelity has one with an annual charge of 0.30%. If your Bank or Life company is doing heaps better than the Index Fund, maybe it will be best to stay put. But if not?
Best of all, find a decent IFA. Do it now. It could save you a fortune.
On a completey different topic, I came upon a fancy black envelope in the ammo box outside the front door (we have no letter box) earlier this week. It was addressed to my wife, so I had to wait to find out what was in it. I am excited beyond words. NatWest are launching a credit card that will, among other things, do your ironing.
It costs £250 a year, has a minimum £15,000 credit limit, and an annual interest rate of just 12.42%. And it’ll book a hotel room at three in the morning, after it’s finished the ironing. It is however exclusive to customers with a minimum income of £75,000 a year.
Two things struck me. First, how on earth did they figure out that Mrs Laws earns £75,000a year. She doesn’t. She’s a pensioner, like me.
Secondly, my bank pays sweet fanny Adams interest on the few bob I keep there. I’ve checked and NatWest also pays sweet Fanny Adams. So they borrow at 0% or thereabouts, then lend at 12.42%, or much more for some credit cards.
Which only goes to demonstrate an eternal truth about banking: the genius of the business is that it convinces you that you are a customer. You aren’t, you’re a supplier.
Read this article at http://www.candidmoney.com/articles/article136.aspx
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