Questions of cash: 'Should I stick with my corporate bonds?'
Saturday 18 April 2009
Q: A recent article in The Independent ["How to make your savings pay", 7 March] recommended investing in corporate bonds to receive a good return of 6 per cent or more. While I have received this return on my corporate bonds with Halifax, the capital invested has fallen by 14 per cent. Should I maintain this investment? Will the capital recover? How bad could the capital value become if we have lots of corporate bankruptcies? JG, Mansfield.
A: Ben Yearsley, investment manager at advisers Hargreaves Lansdown, says: "Corporate bonds have been through a torrid time over the last 12 months as the credit crunch has hugely impacted the bond market. Concerns over companies being able first to repay their debt and second refinance it in current market conditions, have caused extreme price volatility. Investment grade bonds are currently pricing default rates of 33 per cent assuming that one-third of bonds will default. This would be far worse than the depression of the 1930s. Many bond managers believe these levels of default are unlikely to occur. If you assume that there will be some defaults but not at this level then capital values should recover over time.
"I don't see the point in selling now. You have had the pain, and you are still being paid a reasonable level of income, so why sell now and crystallise your loss? Various governments have thrown huge amounts of money at the financial system to try to get it functioning again if that works and money starts flowing again, bond prices should start to recover. One thing I won't do is put a timescale on your recovering your capital, though. If you aren't happy with your capital value fluctuating, you may well be in the wrong sort of investment and cash is more appropriate for you."
Q: My 18-year-old son worked for more than a year part time for the Cadbury Garden Centre and was paid his last monthly salary in November 2008. In December the company wrote saying it had overpaid him 15.60 and needed to recover the overpayment. He did not respond and has now received another letter saying that if he does not respond by 17 April the matter will be referred to solicitors and court proceedings may be taken against him. Can the company actually do this? LL, Bristol
A: Your son was permitted by his employer to take holidays from work, prior to having earned his entitlement to them. The 15.60 represents the value of that holiday time that he had still not earned by the time he left. His employer says the letters were seeking to persuade your son either to repay the money, or else suggest a repayment plan for doing so. It is not ruling out legal action, but does not seem to be intending to commence this immediately. We suggested to the company that its action seems heavy-handed for this small amount of money. Its spokesman, Carol Paris, operations director of the parent Garden & Leisure Group, says: "We can't afford to sustain these losses, even if the individual sum seems small. We have a lot of employees."
Whether the company is legally permitted to require this money to be repaid depends on the terms of the contract of employment. Getting this checked out by a lawyer is not justified by the amount of money involved. We suggest that you or your son pay the money and put an end to the dispute.
Q: You report that Thames Water's service has fallen short of its own high standards. I regret that these standards are not as high as we might wish they were. My wife is seriously ill in hospital and Thames Water has phoned chasing an unpaid water bill that was due at the end of February. I asked how much was owed and was told it is illegal to divulge this information to a third party. But it seems it is legal to pass this information on to a debt collection agency. CM, Surrey.
A: It needs to be stressed that we quoted Thames Water in claiming its standards had fallen below what it expected to deliver we were not making out own value judgement on whether Thames Water's standards are high. Indeed, we are concerned that we have received several complaints about Thames Water in recent weeks. Thames Water does, though, defend its interpretation of the law in your case. Its spokesman, Rebecca Johnson, says: "The Data Protection Act restricts us from providing information to a person not named on an account. We can pass information on to a debt collection agency as they are acting on our behalf and are only permitted to use customer information in the collection of debt."
Thames Water has, belatedly, adopted a more common-sense approach and is sending a copy of the bill to your wife at your address. You can now open this and pay it on behalf of your wife. Thames Water suggests that when your wife recovers, she add your name to the account so that in future either of you can make enquiries.
Q: Where can I get Prime cards? I don't have a bank account and want to buy things online. DW, Dorset.
A: Prime payment cards were launched in 2006 as a prepayment MasterCard that can be used to make payments over the internet or phone, without having to pass credit checks or open a bank account. They are issued by IDT Finance, an international regulated business, that also issues prepaid phone cards. It is available in 16,000 stores in the UK. Any shop with a "PayPoint" or "e-pay" sign in the window, and all Total filling stations, sell Prime cards. Alternatively, you can locate the nearest outlet by visiting www.pay point.co.uk/locator/
The initial card costs 3 to purchase, but can be reloaded. Additional costs are 2 per cent per transaction. Disposable cards have an additional monthly fee of 2 after their initial period.
Questions of Cash cannot give individual advice. But if you have a financial dilemma, well do our best to help. Please email us at: firstname.lastname@example.org
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