Consumer rights: Credit cards are the route to a soft landing
You can't rely on travel cover if an airline goes bust, leaving you stranded. But if you paid by plastic, you may have more financial protection than you think
Sunday 05 October 2008
I was a Zoom customer coming back from Canada. We were on the tarmac waiting to take off when the plug was pulled on the budget airline. We got the tickets with a credit card so the cancelled flight is covered (about £1,000), but I'm now trying to chase up the cost of the new flights we had to book (a mind-boggling £5,000).
I had travel insurance – it's part of a current account package with HSBC that costs £12.95 a month. But the bank didn't want to know when I asked if I could claim on the policy. Instead, it referred me to Norwich Union, which underwrote the insurance. NU says I'm not covered.
This is likely to be a widespread problem as bankruptcies in the travel industry become common and travellers find themselves stranded in far-flung corners of the globe. Very few travel insurance policies cover the bankruptcy of airlines and the insurance offered through HSBC's Plus package, underwritten by NU, is no exception.
Some policies (a little late, you might argue) are now advertising that they include international passenger protection, which covers you for bankruptcies. It is another one of those insurance wrinkles where you end up paying extra for something you would have thought was included as a matter of course.
However, there is hope, according to Peter McCarthy, a senior lawyer at Which? Legal Service, who says you should be able to get more money from your credit card company than the £1,000. "If you have paid on a card, the bank is jointly liable for any breach of contract. Failure to provide the flight is clearly a breach of contract.
"Any compensation should put you in the position you would have been in had the contract not been breached. Your loss is not the £1,000 you paid for your flight, but the £5,000 it cost to get back home, so the credit card company is liable for the full amount, not just the cost of the original flights.
Mr McCarthy continues: "If you have no luck with the card provider on this issue, you can take it to the financial ombudsman. After that, your recourse is the small claims court."
The key message for anyone booking a holiday is to ensure they pay on a credit card. Ultimately, you may find it offers more protection if disaster hits than some travel insurance policies.
I've just been made god-father to my friend's daughter. I want to set up some kind of investment plan for her.
Her parents are financially astute and will almost certainly have set up school fees plans and that sort of thing, so it might be good to do something different. Should I go for "children-friendly" products or are they a waste of time?
As her parents are focused on getting her through school and university, you can provide the racier stuff that she can save or squander when she hits 18. Danny Cox, from independent financial adviser Hargreaves Lansdown, says the main questions to ask are when you want your god-daughter to benefit, and how much risk you want to take.
He continues: "If you don't like the idea of stock markets, National Savings premium bonds are a fun way of investing with the chance of a prize. If you have average luck, the return on your investment will be 3.4 per cent tax-free, but it could be higher or lower. The alternative cash- based solutions, such as the children's accounts and children's bonus bonds, will provide less risk but also less potential for returns.
"If you are happy for her to receive her investment at the age of 18, and feel that going into the stock markets would be beneficial, you could invest in a unit trust, with your goddaughter as an account designate. This creates a simple "bare trust" under which she is absolutely entitled to the proceeds at 18.
"Unit trusts can invest in cash, fixed interest, property or equities – and over the longer term, shares tend to provide the best returns," adds Mr Cox. "As long as you are happy with the risk, equity income works well in this situation as the sector tends to be less volatile than other markets.
"My favourites are Invesco Perpetual Income and PSigma Income. You can save regularly from £50 per month or as a lump sum of £500, or a combination of the two."
With rising household bills, my pension no longer meets my outgoings every month. I had always hoped I'd be able to do a bit more in retirement and am keen to look at ways to top up my income. Equity release seems a good idea but I have read some horror stories.
Equity release has taken a pounding in the media. And until quite recently, that poor image was largely deserved. These schemes – under which homeowners sell part of their property to unlock income – were unregulated and attracted a number of sharks.
However, equity release has now been brought under the remit of City regulator the Financial Services Authority and also has its own trade body, Safe Home Income Plans (Ship). It is altogether more respectable and well managed.
But using equity release is still not a decision to be taken lightly. Philip Spiers, author of Care Options in Retirement, an advice book from consumer group Which?, has this to say: "Equity release schemes are much fairer today than ever before, having competitive interest rates and 'no negative equity' guarantees. But you should always consider the alternatives, such as borrowing from family, using existing savings, checking for any benefit or grant entitlement, taking in a lodger or moving to a smaller property.
"If equity release really is the only solution, only borrow what you need. There are schemes that let you draw down money as you require it, rather than taking out a large sum at the beginning and paying interest on it.
"You should also see if there are any charges for early repayment; some schemes have none while others can be very high."
Always seek independent financial advice from someone who specialises in equity release. Do not be tempted to buy from cold callers or from door-to-door salesmen.
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