Credit Cards' Journal

Subject:	Balance transfer market continues to heat up
Time:	3:26 pm.

Brits may be struggling to find good rates paid on fixed rate bonds and other savings accounts, but on the other side of the finance market, the credit card is thriving.

All credit cards come with some kind of incentive, whether it's a 0% deal on balance transfers – allowing consumers to move debt over and pay no interest for the interest free duration; 0% purchase deal – allowing card holders to make purchases using the card while paying the balance off over a long period of time; or other benefits such as rewards.

With competition always rising, providers need to stay on op of their offers, constantly pushing for the most attractive deals.

With this natural competition has come some of the longest ever 0% deals that keep on breaking records.

Last year saw the longest 0% balance transfer deal ever, pushing to 18 months. Shortly after, this was pushed further to 20 months, which means that consumers can now stretch out the repayments of current debt to almost 2 years.

This is great news for anyone looking to pay off balances from other cards, as it allows them to do so without further adding to this debt.

These credit cards do some with a transfer fee which is usually around 3% of the total transferred balance, but this is far lower than standard credit card rates, so could save you some serious money that you would have otherwise paid in interest. Read more about credit cards at the credit card blog

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Subject:	Bank predicts bumper Christmas spend
Time:	4:00 pm.

This Christmas is expected to see record spending levels, despite the freezing weather that hit the UK earlier in the month

According to Barclays, the nation is expected to spend a record £48.9 billion on Christmas this year – up 8% on last years figures.

It is likely that some towns and cities will be abnormally busy after many had to postpone shopping trips due to treacherous weather conditions.

December 23rd is predicted to be the busiest day for debit and credit card spending, with estimations exceeding £1 billion.

Meanwhile, ATMs will be busiest on Christmas eve as people raid their savings accounts and fixed rate bonds to fund Christmas, peaking between 11am and 12pm with customers withdrawing around £88 million at a rate of more than £24,000 every second.

According to the figures, a record £30 billion will be spent on debit cards throughout December. Despite the freezing weather conditions earlier in the month and further cold spells to come, most transactions will still take place on the high street, with online shopping making up just over a quarter of the total debit card spend.

The majority of debit card spending (£6.4 billion), is predicted to take place in supermarkets, as people prepare for the festive period. Fuel stations will make up £1.6 billion in debit transactions as people travel to be with friends and families, while £18 billion is expected to come from withdrawals from the UK's ATM's and banks this month.

For obvious reasons London will see the highest spending levels in the UK, with the likes of Oxford Street and Westfield seeing more than £5 billion of spending this month alone.

Dan Wass, Director of Current Accounts at Barclays said: “The early snow falls this month meant that the start of December was a little quieter on the high street than expected. This is likely to put even greater pressure on retailers as we draw to the end of the Christmas countdown, with customers being forced to do their shopping at the last minute.

We urge customers to stay safe in busy areas and encourage them to use their debit cards rather than carrying large amounts of cash. Nearly all shops, restaurants, bars and online companies accept debit cards so it is the easiest way to get your Christmas spending done quickly and securely. We would remind customers to take care of their card and their PIN, especially when using their PIN in crowded places.

Budgeting is also essential - customers can use Barclays mobile banking to keep track of their balance whilst they are out shopping. They can also sign up to weekly text alerts for a mini-statement of their bank account.” Read more about credit cards at the credit card blog

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Subject:	Interest rates low - Spend or save?
Time:	4:53 pm.
Mood:	blank.

This is the dilemma that many consumers face when savings accounts rates are low.

The deputy governor of the Bank of England says that low interest rates should encourage savers to go out and spend their money in order to help kick-start the economy.

Charlie Bean, a member of the committee that determine the Bank rate, advised savers to "eat into" the capital they have built up throughout periods of low rates - now being as good a time as any, as the Bank rate has been at a record low of 0.5% since March 2009.

He commented to Channel 4 news: "What we are trying to do by our policy is encourage more spending, ideally we would like to see that in the form of more business spending".

"But part of the mechanism that might encourage that is having more household spending so in the short term we want to see households not saving more but spending more."

He added that savers benefited from significantly higher rates in the past and could now eat into some of their capital while rates remain low.

But is this good advice? Take a look at two opposing views.

Spend Spend Spend:

Vicky Redwood, senior UK economist at Capital Economics, says:

"Charlie Bean has been criticised for suggesting that consumers may need to dip into their savings in order to spend more.

"But that is exactly what lower interest rates and looser monetary policy is designed to encourage. Lower interest rates reduce the returns on saving and hence increase the incentive to spend - with higher consumer spending then boosting overall economic activity.

"Indeed, data released this week by the Office for National Statistics showed that without a sharp drop in household saving in the second quarter, the drop in households' incomes would have fed directly through to a sharp drop in their spending - and potentially prompted the economy to slip back into recession.

"Of course, in the longer-run, households need to save more and borrow less - as I am sure Charlie Bean would agree.

"But right now, with the recovery faltering, what the economy needs is for people to get out and spend."

Save Save Save:

Brian Johnson, insolvency partner at HW Fisher chartered accountants, says:

"You can see the Bank's logic, as more people spending will act as a stimulus to the economy.

"However, by urging people to spend the Bank of England is asking the British public to take a real leap of faith, especially when faced with considerable uncertainty in the form of public sector cuts and fiscal tightening.

"The British public will also be baffled by the mixed messages it is receiving. On the one hand we have the government saying that our country needs to massively cut its debt, and as soon as possible, on the other hand we have the Bank of England telling us to spend, spend, spend.

"Charlie Bean's message also completely contradicts what people have been urged to do over the past few years, namely pay down their debts and prepare themselves for the age of austerity.

"A paradox of thrift it may be but for the Bank of England to openly encourage the public to spend in such an uncertain climate is a dangerous strategy that may well backfire."

While rates may not be as high as they were in the boom times before the credit crunch, savers are still able to get some reasonable rates on some savings accounts, Isas and fixed rate bonds.

Alternatively, those looking to secure higher returns may wish to consider stocks & shares ISAs, allowing them to invest in shares but without having to pay income tax on their returns.

Read more about credit cards at the credit card blog

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Time:

11:15 am.

The new tax year is approaching, and with it comes a new top rate income tax, meaning that those fortunate enough to be earning over £150,000 will be required to pay 50% income tax on anything above this amount.

In addition, higher rate on dividends will move from 32.5% to 42.5% of the grossed up income (equivalent to 36.11% of the net dividend) for taxable income above £150,000.

As a result of the changes to become effective from 6 April, private banks and wealth managers have been advising those who will be affected to act now in order to protect their income. Many are taking steps to bring forward earnings to this tax year, or plan their finances in an attempt to lower the impact.

Below are some tips outlined by Which4U that higher earners should consider:

1. Make full use of all your tax allowances Many of us complain about how much tax we pay, but forget to take advantage of tax free breaks. The truth is, many of us could be missing a trick when it comes to tax relief.Always ensure you have used up your allowances by the end of every tax year. A popular tax free savings incentive is your first port of call, in the form of individual savings accounts (Isas), with an annual allowance of £10,200 (or £7,200 for those under 50 until April 6th), as well as tax-free National Savings & Investments products. No income tax is required to be paid for any interest or capital gains earned using Isas, so make sure you shop around to find the best Isa rates, or alternatively if you wish to invest in a stocks and shares Isa, do some research into the market.

Transfer investments that provide an income to your spouse, if he or she does not work or has earnings that fall in a lower tax band. This now not only applies to spouses on the basic rate tax but also those paying 40%, if the other spouse currently earns above £150,000 per year.

2. Close your bank account According to advisers at Deloitte, those that have a savings account paying interest on an annual basis that is due to be paid after April, should consider closing the account before the new tax rules kick-in in, allowing the interest payment to be subject to a lower rate of income tax. After, you can simply open a new bank account.

3. Donate to charity in the new tax year After 6 April, high earners making donations using the Gift Aid scheme will qualify for higher tax relief, which means that more money will be given to the charity. However, you should think about the potential impact delaying your regular donations could have on the charity, especially in the current financial climate.

4. Accelerate your income Some employers have chosen to pay employees their salaries early to avoid the higher tax. Consider asking your employer if this is a possibility. This may be easier for those in entrepreneurial or family businesses.You can also make use of any share options you currently hold, as these attract income tax so you will pay the lower rate. Those already getting pension income are able to opt to receive annual payouts as a lump sum before the changeover date in April.

5. Add more to your pension fund in the new tax yearIt has become apparent that pensions are looking more of an unattractive option to higher earners, with tax relief cut to 20% on some contributions.However, if you do fall into this category, you may want to act fast.

In the 2010/2011 tax year, those earning more than £150,000 will be eligible to put in at least £20,000 and up to £30,000 with 50% tax relief, before the new restrictions come into play in 2011.Advisers at Deloitte have suggested that people earning between £100,000 and £113,000 – who will effectively be paying 60% tax from April as a result of their personal allowance also being eroded – should also add to their pensions.

6. Consider venture capital trusts (VCTs) Although these start-up investment schemes can be quite risky, they are being labelled as an alternative to a pension fund for higher earners because contributions attract 30% tax on the way in.

7. Move your assets into an offshore bondOffshore bonds are investment bonds that are operated by life insurance companies and also have some life insurance attached to them. This enables you to avoid paying any tax until you encash the bond.

The idea is that by the time you come to encash the bond, you may be subject to a lower rate of income tax, for example when you’re retired – or if you have become an expat or a non-dom, you may not have to pay any UK tax whatsoever. Many well known financial advisers are using this approach for clients.

8. Change from income investments to Capital Gains Tax In 2008, capital gains tax was lowered to 18%, and investors have since been looking to acquire returns that are taxed as capital gains rather than income.

According to advisers, the 50% income tax band has sped-up this switch. Over the past year, demand for products such as zero dividend preference shares has significantly risen, as well as funds that work on a total return basis instead of generating income, such as absolute return funds.

9. Consider leaving the countryThis may seem like a rather extreme measure – but advisers at Cazenove and Schroders Private Bank have said that many of their clients are considering this option in response to the substantial tax demands.

Read more about credit cards at the credit card blog

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