How to Find the Best Annuity Rates for Your Retirement

What You Need to Know

1. Annuities are generally provided by insurance companies and are designed to supply you with an income after you've retired.
2. There can be huge differences in the level income offered by different annuities.
3. Men traditionally received better rates due to having lower life expectancy, but thanks to new EU legislation this is no longer the case.
4. Your age, health, post code and the value of gilt bonds will all go towards the rate you are offered.
5. The recent climate of economic uncertainty has pushed up the price of gilt bonds and consequently reduced annuity rates.
6. To ensure you’re making adequate provisions for later life it’s best to talk to an independent financial advisor.

There is a substantial difference in the size of income that the best and worst annuity rates pay out. As such, it’s crucially important that you secure the best rate available to you for your pension pot as once you've made your choice you can’t go back on it.

What is a Pension Annuity?

An annuity is a type of financial product that provides you with a regular monthly income in exchange for your pension pot when you retire.

Annuities are typical provided by insurance companies. Some of the leading UK providers include Aviva, AXA, L&G, Scottish Widows, Prudential and Standard Life.

As with any form of insurance product, the provider will make calculations as to how much money they will need to pay out and offer a rate accordingly. One of the biggest factors here is your life expectancy as the longer it is, the more regular payments that the provider must make.

This is the reason that, until very recent EU legislation that ruled annuity rates cannot be gender bias, women generally got lower rates as they typically live longer than men.

Pension annuities used to be compulsory in the UK for all by the age of 75. However, since spring 2011 this deadline has been removed, which allows you to be more flexible and choose when you feel is a good time to buy an annuity. This change also opened up other options such as income drawdown.

What affects the annuity rate I am offered by pension providers?

• Your Age: All other aspects being equal, the older you are the higher the rate you will be offered.
• Your Health: If you have any health conditions, are overweight or are a smoker, you may qualify for an enhanced annuity which will give you a higher monthly income.
• Your Life Expectancy: This is the biggest factor affecting the rate you receive.
• Your Postcode:
Providers are using postcode information as part of their evaluation process to predict life expectancy.
• Government Gilt Returns: These are investments that are held by pension providers and affect the annuity rates they offer. Higher returns generally mean better rates.

Annuity Rates are at Historic Lows

Annuity rates have been declining for two decades because of extending life expectancies. Since 2007’s economic downturn, however, the situation for retirees has been made more bleak.

With the volatility of stock markets in recent years there has been increased demand for government gilt bonds, seen as a safety bet in uncertain conditions. This has meant that gilt prices have risen leading to proportionately smaller returns. This is bad news for retirees and means incomes are lower now than pre-credit crunch.

Retirees have been further hit by the economic uncertainty in the eurozone which has put the squeeze on UK annuity rates.

The Golden Mantra: Shop Around for the Best Annuity Rates

Whilst the annuities market is struggling there is still value to be found for retirees. The key is to speak to an IFA and shop around for the best annuity rates on the open market. Options such as enhanced annuities and drawdown can be very attractive.

Market Unlikely to Change Soon

A key takeaway here is that experts are not predicting any sizeable increases in annuity rates in 2013. As such, taking the approaching of doing nothing in the hope that the market may pick up soon is not advised.

A far wiser solution is to speak to an independent financial advisor.

Importance of Using an IFA

This is critically important. The only way to ensure you get the best options in retirement for your is by speaking to a qualified independent financial advisor (IFA). Emphasis being on independent here, as IFAs are required by law to advise you to the best option for your needs, regardless of commission or provider bias.

It is important to understand that there are never one-size-fits-all best solutions when it comes to retirement planning. Every retiree has a highly individualized set of needs and circumstances that must be fully considered when choosing an annuity.

Remember, once you make your choice here, there is no changing it.

Tip For The Best Balance Transfer Credit Cards

Balance transfer credit cards make an excellent choice for consumers looking to transfer a balance from a higher interest rate credit card to one with a lower interest rate. In this way, the consumer can save money by reducing or even eliminating finance charges. When looking for the best balance transfer credit cards, it is important to look at a variety of factors.

The APR is one of the first factors a consumer should consider when looking for the best balance transfer credit cards. Credit card companies are hoping to steal your business away from other credit card companies. As a result, they often make special introductory offers with lowered interest rates for balance transfers. In many cases, this APR will even be 0.00%. Be sure to find the balance transfer credit card offering the lowest APR, and then only use that card for your balance transfer. Don't use it to make any purchases. This is what the credit card companies are hoping consumers will do so they can assess finance charges on the purchases they make with their card.

The length of the special introductory APR varies from card to card. Sometimes, the length is also dependent upon the applicant's credit history. It is important to be sure how long this period lasts and to set goals to have the balance paid in full once the introductory period is complete. The best balance transfer credit cards will keep the special introductory rate in effect on the card for the life of the loan. In other words, the APR stays the same until it has been paid off entirely. For consumers that will not be able to pay off the balance within the introductory period, this is certainly the best way to go.

Most credit cards assess fees when making balance transfers. These fees are generally determined as a percentage of the total amount of funds transferred. Most commonly, balance transfer fees are 3% of the amount transferred. Many balance transfer credit cards will, however, waive these fees during the introductory period. It is best for consumers to choose these balance transfer credit cards. Otherwise, they may be paying large amounts in fees, negating the savings in finance charges.

Some balance transfer credit cards require initiating balance transfers at the time of application for the card. Yet others allow balance transfers to be completed throughout the duration of the introductory period. The best balance transfer credit cards are the former, simply because they allow for more flexibility. Consumers who are sure they will not need to transfer balances later may, however, be happy with a credit card that only allows transfers to be made at the time of application.

Some balance transfer credit cards place restrictions on the types of balances that can be transferred. For example, some business credit cards only allow business expenses to be eligible for introductory rates. It is important for consumers to be sure to understand what type of balances can be transferred before applying for a card to ensure it meets their needs.

Many balance transfer credit cards also have special rewards programs. Consumers need to compare the programs before deciding on a credit card so they can choose the card with the rewards program best suited to their lifestyle. In addition, some balance transfer credit cards do not count the funds that are transferred toward the points system used in the rewards programs. To get the most of the card, consumers should find balance transfer credit cards that do count the transfers toward their rewards programs.

Ways to improve the return on your savings

If you haven't checked the interest rate on your savings account recently you are almost certainly losing money. Banks and building societies have been cutting interest rates on savings as much and as often as they can. So most savers are losing their purchasing their power as their savings fail to grow in line with inflation.

The most recent numbers showed inflation as measured by the consumer price index (CPI) running at 3.5%. But the average rate paid on an instant-access account is just 0.86%. So even before you take tax into account, you're losing more than 2.5% a year in real terms (ie after taking inflation into account).

Even more shocking are the rates on notice accounts. Usually these are higher than the rates on instant access accounts. You get extra interest as a reward for locking your money away for three or six months. Not so this year. 40 notice accounts are paying less than 0.5%. The Halifax's Extra Income Saver account is paying a mere 0.13% on up to £10,000 at 60-days notice, according to the FT. It's a classic example of a financial product doing precisely the opposite of what it claims to do.

So what can you do to make sure that your money grows rather than shrinks every year? You need to find an account that pays enough interest to beat inflation, even after you've paid tax on your interest. So a basic-rate taxpayer needs a gross interest rate of 4.38%, while a higher rate taxpayer needs their money to be earning 5.83%. If you opt for an Isa then you only need a rate of 3.5% or above, as your money won't be taxed.
Are Isas the answer?

Surely then, an Isa is the option to go for? Well, you should definitely always use your Isa allowance. Any legal opportunity to dodge tax should be grasped with both hands. But this year there aren't any Isa interest rates that really impress.

The best short-term fixed rates are 3.5%. So you'd have to lock up your money for at least three years to beat inflation – Skipton Building Society pay 3.75% on their three-year fixed-rate Isa. But once that money is in an Isa it is protected from tax for life unless you withdraw it. So even though Isa interest rates are pretty rubbish this year it's still worth using your allowance.
Make the most of current accounts

The only bank accounts offering really good rates of return just now are current accounts. Alliance & Leicester's Premier Direct Current Account pays 5% interest on balances up to £2,500, as does its parent company Santander. Meanwhile Halifax pays £5 a month to holders of its Ultimate Reward Current Account.

To get these rates you need to pay a regular sum into the accounts - £1,000 with Santander and Halifax, and £500 with Alliance & Leicester. And you can't earn 5% on both a Santander and an Alliance & Leicester account. If you have both accounts in your name one will earn 5%, and the other 1%. But you could get round this by putting one account in your spouse's name.

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The easiest way to make sure you meet the funding requirements of the accounts is to set up a direct debit moving money between them. So have £1,000 automatically transferred from Santander to Halifax at the same time as you have £1,000 transferred from Halifax to Santander. The banks have confirmed that the regular income doesn't have to come from an employer, so this arrangement is acceptable, reports Ali Hussain in The Sunday Times.

So if you have a £3,500 lump sum and you place £2,500 in the Santander account and £1,000 in the Halifax account (and make sure you set up the regular transfers between the two) then you would earn £185 gross a year. Whereas if you had placed the money in the best one-year bond – the Post Office pays 3.3% - then you would have earned £116 gross. The difference might not sound like much, but it comes with very little effort.
What to do with larger amounts

If you have a large sum that you want to save in a low-risk account then the best account that I can find is Investec's High 5 Account. This account's interest rate is re-calculated each week, as it pays the average of the five highest paying savings accounts published in the best-buy tables of the Moneyfacts website. It is currently paying 3.16%.

The catch is that the minimum deposit is £25,000. You also have to give three months' notice to withdraw your cash. But it's worth it for the peace of mind of knowing your money is always getting a good rate.

To keep your risk to a minimum, only invest a maximum of £50,000 in the account so that you are completely covered by the Financial Services Compensation Scheme (FSCS). If you need a home for more than £50,000 then put the first £50,000 in the Investec High 5 Account, then work your way down the best buy tables in £50,000 chunks. Just make sure that the bank or building society is covered by the FSCS. So if the bank is foreign double-check its guarantee system. Also make sure that you don't invest with two companies that share a banking licence, as then you would only be covered for the first £50,000. You can check which banks share licences here.
Offset your mortgage

If you have a large amount of savings and a mortgage, it may be worth getting an offset mortgage. With an offset, any savings you have are placed in a savings account which is linked to your mortgage. The savings don't earn any interest. But the balance of your savings account is deducted from your home loan.

So if you have a £200,000 mortgage and £25,000 in an offset account, then your mortgage interest payments would be worked out on the basis that the mortgage was only £175,000. If you took out the First Direct offset lifetime tracker at 3.59%, that would save you £897.50 in interest a year.

So don't despair. Savings rates may be low. But there are ways to improve the return you are getting.

APR ? AER ? EAR ?

APR ? AER ? EAR ?
What do the terms APR, AER and EAR mean?

Do you often look at the advertisements for loans, mortgages and savings and wonder what APR, AER and EAR actually mean? Well you're certainly not alone. Even banking staff can get confused!

The Financial Services Authority specifies the exact mathematics behind these calculations and polices their use. All financial institutions have to stick to the exact calculations and the FSA lays down rules as to when and how the figures have to be disclosed. There are no exclusions! But it's no good if the public don't understand what the terms mean.

So lets do our bit to lift the mists of misunderstanding!
APR stands for "annual percentage rate"

It is used to describe the true cost of the money borrowed on mortgages, loans, and credit cards.

The calculation for APR takes into account the basic interest rate, when it is charged (i.e. daily, weekly, monthly or annually), all initial fees and any other costs you have to pay.
As all lenders calculate APR exactly the same way, it enables you to make direct cost comparisons between lending products.

So if one building society is offering you a mortgage at 4.8% plus an arrangement fee of £600 and a bank is offering you an interest rate of 5.2% with a £150 fee, then the APR figures will show you which of the two mortgages is cheapest.
There are then two further expressions that use APR.

When you see X% APR variable , this means that the cost is currently X% but the interest rate is not fixed and from time to time the interest rate is likely to vary (up or down).

The second variant is X% APR Typical variable. You'll frequently see this _expression in promotions for loans. It means that the lender is not being totally specific about the interest rate you will be charged as their rates vary, usually in response to your personal credit rating and the amount of money you want to borrow.
Therefore X% APR Typical variable is used to give you a general idea of what interest rate you can expect to pay.

The addition of the word "Typical" means that at least 66% of their approved applications are offered that rate or cheaper. Then when a loan offer is confirmed to you, the paperwork will disclose the actual APR or APR variable you are being offered.
Now lets look at EAR.

EAR is the abbreviation for "equivalent annual rate". It's used to illustrate the full percentage cost of overdrafts and any type of account that can be in credit and also go overdrawn.

The calculation shows you the true cost if you use the overdraft facility. In common with the APR calculation, EAR takes account of the basic rate of interest and when the interest is charged to the account plus any additional charges.
So in most respects EAR and APR achieve the same thing -

it's just that APR applies to a pure lending product whereas EAR applies to a product, such as a bank current account, that can be in credit or go overdrawn.

By the way, the calculations for both EAR and APR always exclude any Payment Protection Insurance you've bought to ensure the monthly repayments are maintained if you are off work due to accident, sickness or unemployment. That's because this insurance is always optional and is not a condition of the lending.
AER is totally different.

It's only used in relation to savings and interest based investments. It's all about the rate of interest you'll receive on your money.
AER means "annual equivalent rate".

It shows the true rate of interest you will have received by the end of the year taking into account the regularity of which interest is added to the account (as the payment frequency has a compounding affect on the amount of interest you receive). The AER calculation also removes the affect of any promotional offer that disappear after a few months - a popular trick used by banks and other institutions to boost their savings products to the top of the Best Buy tables.

It's not easy to remember all this but we hope we've shed some light on some of the jargon you're faced with!

The Underlying Problem In Credit Cards

The Underlying Problem In Credit Cards


There's no arguing about it, credit cards provide ease and convenience for its holders. But today, debt problems resulting from credit card use seem to grow by the minute. Surveys prove that compared to the past years, credit card companies today have been imposing interest rates and other costs that are sometimes way too much than what they should be charging. As a credit card holder, how should these changes affect you?

Whether you already own a credit card or is still planning on getting one, being aware of the true costs associated with your card is definitely your best defense against unreasonable charges. Are you really aware of what exact fess your card charges you every month? What are the factors that you should check on in choosing the right card for you? Let's discuss some of the possible problems that you should know about your credit card.

Choosing the Right Credit Card

Multiple APR. Some credit cards have more than one APR that may apply to varying credit card transactions. Don't immediately assume that the low APR offered for your balance transfers will be the same as the rate that applies to the purchases you will charge to your card.

Take note that if you use a low APR or a zero APR balance transfer credit card on your shopping, you could be charged with an expensive APR on these purchases. Thus, examine carefully how much APR will apply to your balance transfers, purchases, and cash advances.

The introductory period. Introductory offers usually last about 3 to six months while some credit cards may extend their promo rates for up to a year or more. The important thing is that you know exactly how long the low interest rate will last and how you can make the most of that given period.

For instance, if you're getting a balance transfer credit card with a 6-month introductory offer, make sure that you'll be able to pay off all the balances you transferred within that period to avoid incurring the regular interest rates of the card. Consequently, find a credit card that will maintain reasonable rates even after the introductory period expires.

Know the consequences of the rewards. You may easily get enticed by the ads promising to give you freebies, rebates and other bonuses from your credit card purchases. But watch out about the consequences that may come with rewards credit cards.

For example, how much is the APR you'll pay if you carry over your balance from month to month? How much is the annual fee on that card? How much are the penalty charges if you delay your payment? Will the interest rate, annual fee, and penalty costs offset the value of rewards you can get? What happens if you make even just one late payment? Will your chance to earn rewards be forfeited? Don't just take a look at the rewards being offered, understand carefully how the reward program works and the fees that come with it.