Play the cards right and grasp the full handout

READERS' LIVES: The Halifax handout ... personal equity plans ... covenants for children. Your financial queries answered

My Halifax account is about pounds 2,000 short of what it needs to be to maximise my free share entitlement. Is a loan from my credit card my best option for topping up my account?

DS, Hampshire

You don't say which credit card you have, so the answer may depend on the costs of your particular card. In general, however, credit cards are one of the best sources of borrowing - whether to buy goods or to make cash withdrawals. Such advice defies the popular view of them, which demonises credit-card companies for their rip-off interest rates.

It is true that, with some notable exceptions, credit cards do indeed have high interest rates. Many credit-card rates have not fallen to the same degree as, for example, mortgage rates in recent years.

But the point is that other forms of borrowing, such as personal loans and current account overdrafts, can work out just as expensive as credit cards, or dearer. Credit cards can even be competitive for longer-term borrowing, and (unlike many personal loans) they also offer the flexibility to pay off debts faster than expected - if you can afford it.

Many people prefer to use a fixed-term personal loan as it provides the discipline needed to clear a debt, but it may not work out cheaper.

Credit-card cash withdrawals are especially suitable for short-term loans, even with those cards that charge a 1.5 per cent cash withdrawal fee. If you want to borrow to top up your Halifax account, you need top up only for 24 February (though make sure you deposit the money in time to reach your account).

If you had a balance of pounds 1,000 or more on 25 November 1994, 24 February is the date on which balances must be restored to the previous level in order to maximise your receipt of free shares. After 24 February, you can reduce your Halifax balance to pounds 1 without affecting your entitlement to free shares.

Can you explain how financial advisers can give discounts on PEPs? Is it better to invest direct with a PEP/unit trust management company, or through a financial adviser?

MC, Cardiff

Shoppers who buy from a factory shop or direct from a manufacturer will usually pay less than if they buy through a high- street shop. But in the world of investment, it can be the other way around. Buying through a financial "retailer" is sometimes cheaper than buying direct. This applies to unit trust PEPs and to other packaged investments, such as pensions and endowment policies.

Most investment providers build commission for an intermediary into the cost of the investment. If you buy direct without any intermediary, the provider (for example, the insurance company, or unit trust company) simply pockets the commission.

In practice, if you buy through financial advisers they will keep the commission, so often it makes no difference to you. However, you may be able to negotiate a refund of part of the commission, or for some of the commission to be paid back by way of an increase in the starting value of your investment. Your room to negotiate will depend on the overall value of your business to the adviser. In the same way, you may be able to negotiate a discount even if you buy direct.

There are financial advisers specialising in discounts, but they rarely give much advice. Still, if you know exactly what you want, buying through a discount broker may well be cheaper than buying direct in response, for example, to a newspaper advertisement.

Discount brokers make their money from high volumes of low-margin business. With unit trusts and unit trust PEPs, the typical commission paid to an intermediary is 3 per cent. A discount broker might keep just 1 per cent and pass on the other 2 per cent to you. You can save significant sums - 2 per cent of a pounds 6,000 PEP investment , for instance, comes to pounds 120.

But the traditional investment business is also being challenged by the rise of direct sellers such as Virgin Direct. They have stripped out the cost of commission from their products - though be wary of "direct" sellers who still sell at old-fashioned prices. Usually, with direct sellers you can only buy direct, and not through an intermediary.

Direct sellers can be cheaper, but while they don't pay commission they do have very different marketing or advertising costs instead. One way or another - perhaps through the annual charge - these costs have to be borne by the customer.

In March 1985 I drew up two deeds of covenant with my two children as beneficiaries. The covenants did not start paying out until 1993 and 1995. My non-taxpaying son - the beneficiary of the first covenant - was for two years able to claim back the basic-rate income tax I had paid on the money I had covenanted to him. But now the Inland Revenue says that both my son and daughter (the beneficiary of the second covenant) cannot reclaim tax. I thought legislation could not be retrospective and that the tax office must honour both claims for a rebate. What do you think?

BE, Powys

Unfortunately, your tax office is right. New covenants to individuals (as opposed to charities) ceased to have any tax advantages after the 1988 Budget. Originally, covenants already in place were unaffected. But even these lost their tax advantage from 6 April 1995 under a clause in the Finance Act 1995.

Tax rules and rates can always be changed in the annual Budget (and subsequent Finance Act) in a way that can foul up earlier financial decisions.

For example, home owners - especially those who pay higher-rate tax - probably have good grounds for feeling aggrieved that reductions in mortgage tax relief apply to existing as well as to new borrowers.

That said, arguably the change to the covenant rules was not retrospective, and would have been so only if it had applied to any tax years before April 1995.

q Write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a telephone number.

Do not enclose SAEs or any documents that you wish to be returned. We cannot give personal replies or guarantee to answer every letter we receive. We accept no legal responsibility for advice.

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