Saving graces for leaner times

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The Independent Online
FROM all directions, savers and investors are being reminded that profits will be even harder to come by this year than last. So it is more important than ever to avoid throwing money away on poor deals.

This can mean getting to grips with issues that previously did not seem too important - such as avoiding bank charges and ensuring that deposits do not languish in accounts that pay uncompetitive rates of interest.

Investors Chronicle magazine has produced a timely and detailed list of tips. The magazine's usual editorial fare is detailed company analysis for serious private investors, but its new report Savings Traps - published free with this week's issue - is easily accessible to those with more modest aspirations.

A section headed 'Banks as Bandits' shows how customers can lose money in an interest-bearing current account.

'You have an average balance of pounds 500 in your current account all year long. But one month a payment you expect goes astray. So you slip into the red for a few days.

'Assume your bank pays 1 per cent on your average balance. Your income on this account would be pounds 5 a year before tax; pounds 3.75 after standard rate tax.

'If you warn your bank manager, the minimum charge for an unauthorised overdraft will be at least pounds 7; double that if you don't warn him. One mistake has cost more than your entire year's income.' The pounds 7 charge mentioned by Investors Chronicle was the lowest charge the magazine's researchers found among banks for going into the red in these circumstances.

The magazine draws attention to the billions of pounds of matured National Savings Certificates earning the 'general extension' rate of just 3.75 per cent tax- free when the money could be earning much more elsewhere.

Insurance companies have been declaring sharply reduced bonuses on with-profits endowment policies, one of the most widely sold forms of savings.

The Investors Chronicle report points out that endowments are an inflexible type of savings contract, with poor returns in the first few years.

The magazine outlines the alternatives to surrendering the policy early. These include selling it, if it is one of those in demand in the second-hand market.