by CHRIS NYLAND
finances. Providing for the future cannot be ignored and a few minutes spent learning about the different options available will not be wasted.
The brief guide that follows attempts to take a short and candid look at what financial products serve what purpose. The aim?
• 'lb summarise and untangle the benefits of each product; • To dispel the beliefs that financial services is a big and confusing world; • To help you decide whether or not you require any further financial provision.
Most people would find it impossible to survive without a bank account for our daily rituals of paying bills, storing money and making purchases. Once sufficient funds have been directed to an instant access current account to cover day-today expenses, it makes sense to make any spare money work harder, leading the way to a financially secure future.
It is then that one needs to look under the main categories in which financial products fall: savings and investments; protection; pensions and mortgages. Savings and investments Simply put, saving means scoring money safely Investing involves an element of risk but aims to rum money into more money.
When investing money, the choice of product depends on a number of factors. Firstly, where the investor wants to lie on the risk/return scale. Basically, the more risk somebody is willing to accept, the more return they may get and vice versa.
A cynic who hoards all his money under the bed does not risk losing it, but neither dues he stand to receive as much return on his capital as if he had gambled it all on the winning horse at the Grand National.
In between these two extremes of the risk/return rade-off come a plethora of financial services products, which are not as intimidating once broken down.
Right, let's see how much you iulow LI National Savings: 1 know that I can lend money to the government in return for a fixed rate of interest. I know this will not be the highest available rate but will be guaranteed.
LI Cash ISA: I know an ISA is a "tax-free" wrapper I can put around the underlying products. A cash ISA has essentially the same terms and conditions as a cash deposit account. My money is saved, not invested, it stays in the account in which I place it with whatever company I choose. It accrues a pre-determined annual interest rate and I know the risk factors are low.
I know there are maxi and mini ISAs and I can save up to £3,000 each tax year in a mini ISA. I am also aware that after this they become boring and confusing so I won't go into that now. Li With profits policies and endowments, I know the primary purpose of these products is long-term saving. I should only consider these products if I can save for a period over 10 years because cancellation in the early years will prove a poor alternative to short-term investments. I know that my money is pooled with many other investors and is placed on my behalf in a number of holdings.
At regular intervals the provider values its assets and assesses the year it has had, distributing surplus profits to its with-profits policy-holders.
!his form of investment enables exposure to the potential of stockmarket gains, while providing higher levels of guarantee, smoothing the ups and downs, through investing in other areas such as property and cash. They are ideal to help me accumulate an amount of money for an agreed future date as the bonuses added cannot be taken away — which could happen with a unit-linked or sharerelated investment. My savings will also be protected by life assurance. Money if I die, money if I don't!
0 Stocks and shares ISA: I know that in the same way as a cash ISA keeps the taxman's hands off my savings account, I can also protect investments in stocks and shares.
I know I can choose to invest a lump sum or make monthly contributions. I know l have a vast choice of funds in which to place my money. I could have a tracker (or passively managed) fund which follows the movements of the market or an actively managed fund which seeks to outperform it.
I know that if I can leave money in here for the medium to long-term (over five years), history has shown consistently that the growth of my capital is greatly increased over a cash account.
Please remember that past performance is no certain guide to the future and that the value of investments can go down as well as up.
Life and term assurance: with life assurance I need to consider whether my family could cope financially without me around. Will they be able to maintain their current standard of living? For a monthly premium, life assurance is a contract that will pay out an agreed sum of money upon my death.
Term assurance, as the name implies, provides me with life assurance, but only if I die before an agreed set date.
0 Permanent health insurance: I know that in the same way as life assurance pays out upon my death, health insurance helps me financially if I suffer long-term incapacity due to injury or sickness. This insurance provides a monthly income while I am incapacitated. The main factors I need to consider here are my level of earnings and whether I would receive any other income during a period of prolonged incapacity.
• Critical illness insurance: I
know that many financial problems may arise if I hit serious illness. The cost of health care, loss of earnings, cost of home help, cost of alterations, transport costs to name but a few costs. Critical illness insurance would greatly assist me in paying a lump sum after I have been diagnosed with a serious illness.
Pensions and Mortgages
U Personal pension: I know the state pension does not provide sufficient provision for my retirement and I can supplement it with other schemes. Many employers offer a pension scheme, where the taxman pays part of my contributions. Where there is not an employens scheme, personal "do it yourself" plans are available.
D Stakeholder pensions: These are a new product to be introduced in April 2001 that, we are told will be low cost, flexible and ridding us of the complex rules that pensions are renowned for. They should be of interest to anyone who does not have a comprehensive work scheme or wants to further top up their pension.
O Additional Voluntary Contribution schemes (AVCs) I know that these products enable me to top up my occupational pension arrangement to the Inland Revenue prescribed limit. These can be arranged via my employer or independently (Free Standing AVCs). If I am earning less than 130,000 then a stakeholder may be better.
D Mortgages ft I know a mortgage is a loan provided to buy a house. It is linked to the house by way of security which means it can be taken off me if I cannot make repayments. Various types of mortgage are available. Some people have found there are shortfalls in the amount they owe. Fixed rate mortgages do exactly that, fix an interest rate for a set term.
U Equity Release schemes fi Particularly for retired people these plans offer the opportunity to release some of the capital from the house they invariably own, and enable this to he used For a more comfortable retirement.
When considering your own personal finances it is a good idea to seek the professional advice of a fully-qualified financial adviser who can sit with you and talk through your financial objectives and personal priorities. Whether you found the above list intimidating or just plain dull, there are professional advisers who will relish the opportunity to propose a Ian for ou. Please remember your home is at risk if you do not keep up the mortgage or other loans secured on it. The value of your investment can fall as well as rise.
• Chris Nyland is marketing officer in the financial services division at Ecclesiastical Insurance.
No responsibility for loss occasioned to any person acting or refraining from acting as a result of the material in this article can be accepted by the writer,
his firm or the publishers of this newspaper.