Top tips to help take your finances back-to-school

The school holidays have come to an end and parents may well be reeling over the costs of supplies to kit out their children for the new school term. Indeed, according to research from Mintel, back to school costs has risen from £855m to £1.16bn this year.

Moneyfacts.co.uk has drawn up some top tips on how consumers can improve their finances as the kids return to school, whether it be plugging the pension gap, saving for a rainy day, getting a new mortgage or to consolidate debts.

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said: “Parents who have done everything they can to prepare their children for the new school term may feel that they have neglected their own financial wellbeing. If this is the case, there are many steps parents can take to rein in their finances and get back above board.”

Plug the pension gap

“Parents may well put off making significant savings into their pension as they will not be able to access their cash for some time – compared to a savings account – however, they could be setting themselves up for a pension shortfall. Indeed, according to recent research from Just, couples would have hit ‘Shortfall Day’ (the day in the calendar year that the average retiree would run out of money if living solely off the state pension from 1 January) on the 31 August, as their average yearly spending exceeds the annual state pension.

“This then should spark the importance of saving regularly into a personal pension and monitoring their projected retirement pot. It’s vital that consumers seek advice to ensure they have a comfortable pot ready for their retirement, as it will only get harder to plug the gap as they get older. Saving just £100 extra per month for the next 25 years will amass £30,000 and, while this sounds a lot, it may not last long or could be just a one-year salary for some.”

Remortgage and reduce monthly repayments

“One way to reduce essential outgoings would be to remortgage, and next month there is an expected surge in the number of people remortgaging. Indeed, back in October 2017 the average two-year fixed rate plummeted to a record low of 2.21%, so those borrowers who took advantage will now revert onto a standard variable rate (SVR) that could potentially see their monthly repayments double. In fact, the average SVR today is 4.89% compared to the average two-year fixed rate today of 2.47%.

“Borrowers may also be concerned about economic uncertainties and are looking to fix for longer. Thankfully, there have been significant cuts to deals in the five-year fixed market, as well as more deals surfacing for even longer terms, such as 10-year and 15-year fixed deals. All in all, borrowers have plenty of choice, but seeking independent financial advice may be wise to navigate the mortgage minefield.”

Shift credit card debts to an interest-free card

“Turning to a credit card to help cover expenses is convenient to do, but it can cost. This is why consumers should consider shifting their debts to an interest-free balance transfer card to avoid incurring interest charges. According to The Money Charity, the average credit card debt per household is £2,625 and if a borrower only paid the minimum repayment per month, it would take them over 26 years to pay it off.

“MBNA is currently offering one of the longest offers, which has a 29-month interest-free deal on balance transfers for a fee of 2.75%. This may not be the best choice for some borrowers though, as they could instead apply for a fee-free deal, such as the 23-month 0% balance transfer offer from NatWest.”

Consider a low-cost loan to consolidate debts

“Sometimes debts can get out of hand or there are too many credit cards open with various balances, so it would be wise for consumers to consider an unsecured personal loan to tackle their debts. Loan rates are much lower than a few years ago – today the lowest rate on offer on a £10,000 loan over five years is 2.9% from a few lenders, including John Lewis Financial Services, whereas five years ago the lowest rate for the equivalent amount and term was 4.1% from Sainsbury’s Bank. It’s important to keep in mind that out of all successful applicants, a minimum of 51% must be offered the advertised rate, and that early repayment charges may apply if customers do switch their loan.”

Switch current accounts for some free cash

“One way to get a fairly instantaneous reward when sorting the finances would be to switch current accounts for a free cash incentive. Traditionally over the summer, free cash offers dry up, but as we come towards the end of the season, Royal Bank of Scotland recently announced it would give £150 to consumers who switched to them using the Current Account Switcher Service (CASS). Other examples of cashback perks include first direct, which offers £50, while customers who switch to M&S Bank can get up to £180 in gift vouchers when they switch and stay.

“Switching may sound a hassle but it is simple and easy to do, within seven days in fact, and with over five million successful switches taking place since the service launched in 2013 – there is little reason not to take advantage. As with any current account, it is important that consumers look at all the features and charges to ensure it’s the right choice for their day-to-day banking needs.”

Build a savings fund

“Saving little and often is the key to building a nest egg, but this may not be as simple as it seems for those who have little to no disposable income. There is help available with Government schemes, such as the Help to Save scheme designed to encourage working people on Tax Credits to save. HMRC last week revealed that more than 132,000 Help to Save account holders are eligible for bonuses totalling £14 million – where consumers have deposited more than £31.4 million. The scheme’s 50p per £1 initiative means that it will pay a maximum bonus of £1,200 over four years.

“Those who want to supplement a Help to Save account or who are not eligible will find the best easy access account on the market today pays 10 times more than a high street bank. Marcus by Goldman Sachs® pays 1.50% AER on its Online Savings Account, whereas HSBC pays just 0.15% on its Flexible Saver. Clearly it pays to switch, but according to the Financial Conduct Authority, only 9% of easy access accounts were switched in the previous three years.”