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Alan Kendrick: Maximising your income in current financial climate
The current economic climate is now affecting everyone. As a result interest rates have reduced considerably and very quickly, with the aim of providing a boost to the economy. when I was actually writing this article it was announced that the Bank of England base rate had been reduced to 0.5 per cent. If this works then ultimately everyone will benefit.
The current economic climate is now affecting everyone. As a result interest rates have reduced considerably and very quickly, with the aim of providing a boost to the economy. when I was actually writing this article it was announced that the Bank of England base rate had been reduced to 0.5 per cent. If this works then ultimately everyone will benefit.However, there is no gain without pain and those feeling more pain than most are those who rely on interest from their bank accounts to provide for their living expenses. They are seeing an equally sharp reduction in their income and are struggling to make ends meet. This is often the elderly who may not have an option of boosting their income from other resources. Even those who have been fortunate enough to lock into a high fixed interest bond before interest rates went down are likely sometime soon to have to face the prospect of finding a new home for their funds when the fixed term expires. This is not easy when the average interest rate on an instant access deposit account is now virtually zero and there is no immediate prospect of seeing interest rates increasing.
Third Way Products
This is a generic term for a number of financial products which have been available in America and other parts of the world for many years. Over the last two to three years they have been introduced into the UK by American financial institutions with some considerable success. They have proved so popular that some UK financial institutions are also beginning to introduce their own version of these products, so these are going to become more and more common.
The details do vary between financial institutions but they do tend to have the following features in common:
A guaranteed minimum rate of tax-free income for life ranging from four per cent to six per cent (depending on age and product selected).
Often linked to stock market investments but with the safeguard that when the market goes down the minimum income remains unchanged, when the market goes up the minimum guaranteed income increases.
Minimum guaranteed death benefits so that there are funds to pass on to through the family.
As these products are designed to provide an income for the medium to long term, (you cannot get more longer term than for the rest of your life), and the death benefits as the term suggests does only apply on death, these are long-term investments. It is important that you do not put all your deposit funds into these investments. With any long-term investment you should retain a contingency fund for emergencies.
These products are also often complex to understand and are not for everyone. It is important that you seek professional advice when considering these so that the right solution for your circumstances can be selected.
(The details contained in this article are for information only and should not be considered as advice).
Alan Kendrick, Independent Financial Adviser, Oakwood Insurance Consultants and Financial Services Tel: 01778 341658
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Sunday 12 February 2012
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