Jill Kerby

US INTEREST RATES ARE FINALLY ON THE RISE - ARE WE NEXT?

It’s been a disappointing year for savers, but the 0.25% increase in the US Federal Reserve base interest rate (to 0.25-0.5%) is the first sign that the zero rate experiment by central bankers may be coming to an end.

It is nearly eight years since the US interest rate has been moved upward. The decision was taken last week on the grounds that the combination of years of low rate and the earlier massive, $4 trillion campaign of quantitative easing (QE) in which bank and mortgage debt was purchased by the Federal Reserve in order to encourage more lending has been a success and the US economy is sufficient strong to allow the cost of money to find it’s own level again.

Many commentators disagree and suggest that there may yet be a serious fall-out from this hike, especially in the bond markets but until there is a negative reaction from debtors and the debt markets, higher rates will (eventually) reward savers and investors, who’ve lost the most over the last eight years of zero returns.

Contrary to the theory that low interest rates and all that cheap money would stimulate business investment, more jobs, higher wages, increased productivity and more spending, all that QE and low rates barely impacted on the US domestic economy for most of the past eight years, except to hasten the paying off of debt. 

Not only did the low to zero return on money encourage the paying off of debt in America, Britain, the EU, Japan in the immediate aftermath of the great crash, but it also encouraged people to hoard their cash.  The desperate signals the central bankers were giving out – that our economies are so bad that we must print massive sums from this air to pump some life back into them – were counterproductive (and clearly haven’t worked as well as was expected.)

A 0.25% increase is welcome, but puny, so it could be many months, even in America before deposit rates rise to even meet the official inflation there, which is still just under 2%. When they do, that all-elusive ‘confidence’ level that comes with an economy that is genuinely growing might really take hold.  

Meanwhile, we might have to wait even longer.

The ECB only recently announced that the sclerotic state of the eurozone (outside of Germany and Ireland) means they will step up their version of QE – the printing of €60 billion a month to buy up government bonds sitting in European banks – by another six months to the spring of 2017.

The ECB interbank rate is therefore likely to stay at 0.05% and ordinary savers here shouldn’t expect any increase in the 1%-1.25% demand deposit rates per annum that they are getting now. The only way to secure a higher return on your money once 41% DIRT and your own inflation rate is taken is to look for other opportunities other than deposits.

Many advisers I’ve spoken to believe that unsuitable investment funds have been sold to vulnerable, usually older people who need to boost their fixed pension incomes. They’ve been enticed into buying individual stocks and bonds with inappropriately short or long time frames. Or the funds or assets they’ve purchased carry fees and charges that are too high or with too high a tax liability.

The biggest stock markets have responded brilliantly since 2009 to the huge injection of cheap cash and share buy-backs loans available to the already wealth share owners and corporations.  But that momentum could disappear if the cheap money eventually comes to an end.  What happens then to the already reluctant, older investors who felt compelled to get into these volatile markets to boost their incomes?

Until the ECB ends QE and allows interest rates to find their own level again, Irish savers need to remain alert and canny to the dangers of chasing yield. That means

-       You must regularly compare up-to-date bank deposit rates to maximise interest. Use sites like bonkers.ie, consumerhelp.ie for up-to-date bank and tax-free state savings rates and don’t forget to check the dividend at your local credit union.

-       Consider investing a portion of large cash holdings if you are adamant about getting a higher return, but only if you fully understand the risks and longer term commitment.

-       If you invest, don’t put all your savings in a single asset. Aim for the lowest cost, most widely diversified fund possible. Always use an impartial, fee-based adviser.

-       Check out peer-to-peer lending opportunities – usually 36 months long - in which you can lend small sums to multiple borrowers for higher returns. (These lending schemes carry real risks to your capital.)

-       Pay off any expensive debt with your savings. The future compound interest you will avoid is the equivalent of an investment ‘return’.

Do you have a personal finance question for Jill or would you like a copy of her new Talking Money Guide, which can also be downloaded directly at www.irishlife.ie? Write c/o this newspaper or by email: jill@jillkerby.ie

JANUARY IS THE BIG RENEWAL DEADLINE FOR HEALTH INSURANCE MEMBERS

Last week the specialist healthcare broker Dermot Goode told me that with the health insurers now effectively setting new price points two or three times a year, every one of their 2.2 million customers are probably going to face a price hike at their 2016 renewal date.

“This means that you should treat your health insurance just like your car or house insurance. Shop around every year and change your plan or provider if it means getting a better deal.” That said, one company, Laya Health is offering a two year price guarantee on their Flex 175 Explore plan which covers most public and private hospitals and costs €955 per adult and €280 for children. But he says the guarantee comes “at a high enough price” – aside from the premium, there is also a €175/€100 excess for inpatient and day care events and no day to day expenses refund.

Meanwhile under Lifetime Community Rating, everyone is entitled to change providers, buy any plan on the market, including cheaper corporate plans that may even be identical to yours. These plans are discounted because of the economy of scale involved in offering them to a large company, but because they don’t have to be openly advertised, not everyone is aware of them.

This is where a good broker can help. Every plan will also be listed on the Health Insurance Authority (HIA.ie) website, but with over 400 active plans on the market it can be difficult and time consuming to compare them yourself.

So here are some end of year renewal tips for individuals and families – care of Dermot Goode -  whose website www.totalhealthsavings.ie offers a way to compare plans or individual help.

-       First, make a note of your annual renewal date in your diary and vow to shop around. “Anyone who has been on the same plan for the last two or three years, is definitely overpaying” says Dermot. “Anyone who has never changed plans is unnecessarily paying a fortune”.

-       Before switching to a new plan, either at the same price/benefits level or a one with lower benefits, Dermot suggests that you are clear about the sorts of hospitals you want access to – public only, private only,  both or even high tech private hospitals. Different plans cover different hospitals.

-       Are you willing to pay an excess payment for inpatient or day case treatment to keep the cost down?  You may be able to keep the same plan and benefits and save hundreds of euro if you are willing to pay an excess. These are typically €100-€300.

-       Make sure to declare existing medical conditions when switching. If you drop down to a lower benefit plan and some day want to increase your benefits again, you could face a waiting period of at least two years before the condition is covered. Under 35s who bought the basic public hospital plans last April to beat the Lifetime Community Rating loading and subsequently developed a condition, may also face a waiting time if they want to increase their cover in 2016.

-       Family Plans can be very appealing, but it may still be cheaper, says Goode to buy separate plans for the adults and children.

-       In the same way that excesses are not straightforward (some are applied only for a limited number of events, others for all of them), some policies also require co-payments, especially for orthopaedic treatments.  The devil is in the detail of that new policy.

-       If you have children, sometimes the outpatient bills - GP’s and consultants, physiotherapy visits, blood tests, x-rays, etc – are your biggest health costs.  Work out this annual cost and then consider whether or not you need a more costly plan with a 50% or 75% refund for everyday, routine expenses.

According to Goode, three insurers - VHI, GloHealth and Aviva are all offering good discounts for children (under-3s and under-18s) in their new plans for 2016. (All the plans include excesses; none include refunds on everyday expenses.)

“All children under 18 are being offered half price premiums by VHI on certain One Plus plans. They are quite cheap at €130 a year. GloHealth, meanwhile, are offering free cover for all children up to age three under their new Lifestyle Bloom plans and half price for under 12’s under the Lifestyle Nurture plans. They start at €140. Aviva’s new Select Plus Plan for kids under 18 cost €168 a year.”

Finally, he recommends that customers on lower value hospital plans, with little or no everyday cover, consider a cash plan from HSF.ie .

“These are great plans that charge just one premium for the entire family, regardless of how many children you have and tax-free payments for GPs/ consultant visits, dental and optical treatments, physio, etc.

“The HSF Family Direct A plan costs €678 for the entire family but includes €500 towards routine dental expenses – per member of the family member.”

Do you have a personal finance question for Jill or would you like a copy of her new Talking Money Guide, which can also be downloaded directly at www.irishlife.ie? Write c/o this newspaper or by email: jill@jillkerby.ie

AFTER THE DELUGE: HOW TO PROTECT YOUR PROPERTY THIS FLOOD SEASON

Six years after the worst bout of flooding for half a century …many parts of the country have again experienced the worst bout of flooding for half a century. And the same homeowners and shopkeepers who weren’t insured back in 2009 are still without insurance. Thousands more will fall into the same category.

Poor planning and an even worse response to the deluge of floodwater in communities along the Shannon, in low-lying midlands counties, along the coasts of Waterford and Cork means that not only have their lives and businesses been devastated this Christmas season but their chance of ever getting flood cover, even if proper flood defenses are put in place, is unlikely.

Property insurance, as the insurance industry keeps reminding us, is designed to cover the unexpected risk of an event, whether high water, fire, a burglary, etc, not one that has already happened or is inevitable.  ‘Premiums for the many for the claims of the few’ is their unofficial motto.

Communities that are built on flood plains, or built near rivers that have been known to cause flooding in the past, however infrequently, must now rely on the ability of their local authority and their own efforts to help defend their vulnerable properties and after the event, hopefully, emergency aid from the Government to help them recover.

What isn’t going to happen, said a spokesman for Insurance Ireland, the trade body for the insurance industry, is the compulsory insuring of at-risk properties.

According to Sean O’Connell of The Insurance Shop in Dublin, who specialises in providing shop insurance for small retailers all over the country and is a Chubb agent, losing flood cover is inevitable for anyone who has a premises or property who has been caught up in this deluge. People who are living in the flood zone “could see their premiums rise even higher than they are rising for everyone” and anyone who has made a claim “shouldn’t expect future flood events and water damage to be covered by their policy” though it could be reinstated “if proper flood defenses are put in place by the authorities and they can demonstrate that they actually work.”

Until then, what can you do to both protect your property and try to keep the cost of premiums down?

Mr O’Connell suggests the following:

 -       Read your current or prospective policy document carefully to see exactly what cover you have and any exemptions that may be in place.

-       Use a good general insurance broker to try and get you the most competitive policy. Using a broker can be a great help when making a claim.

-       Always hire (or get your broker to hire) a loss assessor of your own if you have a catastrophic insurance claim like flood damage, a fire or a costly break-in. They will negotiate on your behalf with the insurer and hasten the claim process.

-       Consider increasing your “excess” – the amount you pay per claim value – in order to bring down the cost of the annual premium.

-       Retailers in flood areas should consider raising their stock permanently off the ground; protect their premises with flood gates or barriers that slot into door frames; put special flaps on air vents and consider protecting internal shores with non-retaining valves on inflow pipes (to sinks, toilets) that stop the backwash of water from sewers.

The cost of these latter kinds of protection devices and systems is not cheap, says O’Connell and will require specialist builders and some investment. They  may simply be unaffordable for private residences.

“But the one thing that future home buyers can do is never, ever, buy a house in an estate that’s called ‘Riverside View’ or ‘SpringBrook’ or ‘Brookfield’.  It’s a sure giveaway that your house is going to be near water.’ Climate change has already resulted in considerable coastal erosion and serious wind-related insurance events that could also put at risk your ability to insure your property.

Meanwhile, the Irish Broker’s Association has also produced a useful checklist of how to protect your property from flooding events or should there be another big freeze this winter. Some of their tips include:

 -       Check the Exterior Walls of Your Home for Holes: Even small holes where cable wires or phone lines enter your home can be an entry point for freezing air. Purchase a tube of foam insulation, and close them up. Then, use weather stripping to remedy any cracks around your doors.

-       Keep Your Gutters Clean: Full gutters increase your chance of having ice form on your roof, and that's not something you want to mess with! Set aside some time to clean your gutters out before the freezing temperatures get here.

-       If you are going to be away from home for any period over the winter months make sure to advise Family/Neighbours/Friends to check your house during severe weather periods.

See www.iba.ie or www.hjiu.ie for more details.

Do you have a personal finance question for Jill or would you like a copy of her new Talking Money Guide, which can also be downloaded directly at www.irishlife.ie? Write to her c/o this newspaper or by email: jill@jillkerby.ie

AFTER ‘BLACK FRIDAY’, A NEW DEBT SOLUTION?

Just as ‘Black Friday’ ads were everywhere last week, extolling us with the idea of joining in on this most American of retail phenomena that takes place the day after their Thanksgiving Day holiday, I couldn’t also but help notice the appearance of some very prominent ads from StepChange, the British debt charity reminding readers that it’s doors are now open and ready to bring their debt-busting magic to Irish debtors.

Black Friday will have no doubt been enthusiastically embraced by anyone keen to get a big discount on an expensive item they covet or need.  If you are willing to queue early, move quickly and accept what might be last season’s model, those BF discounts can be significant. For many people on really tight budgets, who really need that fridge or washing machine or new coat or sport gear for their children, it could even be a (retail) god send.   

However, for an even greater number of us, the Black Friday (and Saturday and Sunday) retail rush in many participating retailers is just another version of what was once the Great January Sale of long ago or, more recently, the Stephen’s Day/Boxing Day sales that entice some people queue outside the big electrical retailers and department stores within hours of their finishing their Christmas dinners.

But the Black Friday migration to these shores is also an indicator of the weakening of the retail sector in the United States, and increasingly here and in the UK:  fewer people are spending less money via the conventional store-based route.  On-line shopping, which happens 24/7, has not just cut into the profits of conventional retail, but it is changing the entire industry. 

Black Friday might work this year and next, but can it keep the novelty going, especially as it consumes itself from within by making the same dramatic discounts available on-line?  What’s to stop every on-line retailer from having an occasional Black Tuesday or Thursday by discounting any number of choice items by 75% or 80%?

Shopping with credit instead of income or savings is what got a great many Irish people in trouble, whether it was on St Stephen’s Day, a wet Wednesday in July or last weekend’s Black sales days.  

Property debt has made the biggest contribution to our nearly €160 billion worth of household debt, but unsecured personal debt in the form of expensive credit card, hire purchase, moneylenders’ and personal bank and credit card loans is also a heavy burden for thousands of individuals and families.

Reaching a debt settlement with creditors – whether mortgage lenders or credit card providers – has been far too slow to date despite the best efforts of the Insolvency Service of Ireland to simplify, speed up and make less expensive the process for the most serious and intractable debtors.  

Which leads us back to the arrival here of an Irish version of the UK debt charity, StepChange and why the five main banks – AIB, Bank of Ireland, KBC, Permanent TSB and Ulster Bank - are now providing it with €6 million worth of funding over the next three years to help clear, in a speedier fashion, the large backlog of debtors here.

Just two weeks in operation, StepChange Ireland (Freefone 1 800 937 434 or  www.stepchangedebtcharity.ie ) is a telephone and on-line based operation. Their two new dedicated teams of 12 debt advisers and administrators for Irish borrowers in trouble are based in their Leeds centre and take calls Monday to Friday during working hours (9am-5pm).

The entirely process is free and involves – mostly online - establishing the size and nature of the debt and the caller’s personal financial circumstances. From this information and data it will then make – where possible - a repayment/restructuring proposal that will then be put to the creditor.

Where a satisfactory solution isn’t possible the StepChange adviser can then recommend an insolvency solution (via the ISI) and identify a personal insolvency practitioner for the borrower to contact.

Over €3.5 billion of debt has now been discharged through insolvency arrangements and bankruptcy. The debt limit for a Debt Relief Notice for secured debts has been increased from under €20,000 to under €35,000; legislation will soon be passed to reduce the discharge of a bankruptcy from three years to one year.

StepChange, which has been in operation in the UK for 20 years, has eight offices and dealt with 600,000 debtors last year alone and has over €540 million worth of debt solutions. It has a long track record of impartiality and in coming up with debt solutions that both sides can live with.

It may not be the right process for everyone needing debt assistance, but home based debt assistance groups and charities like MABS and the ISI, New Beginning and the IMHO are still available to meet directly. 

The next step…is to pick up the phone to one of them.

Do you have a personal finance question for Jill?  Please write c/o this newspaper or by email to jill@jillkerby.ie

AFTER ‘BLACK FRIDAY’, A NEW DEBT SOLUTION?

Just as ‘Black Friday’ ads were everywhere last week, extolling us with the idea of joining in on this most American of retail phenomena that takes place the day after their Thanksgiving Day holiday, I couldn’t also but help notice the appearance of some very prominent ads from StepChange, the British debt charity reminding readers that it’s doors are now open and ready to bring their debt-busting magic to Irish debtors.

Black Friday will have no doubt been enthusiastically embraced by anyone keen to get a big discount on an expensive item they covet or need.  If you are willing to queue early, move quickly and accept what might be last season’s model, those BF discounts can be significant. For many people on really tight budgets, who really need that fridge or washing machine or new coat or sport gear for their children, it could even be a (retail) god send.   

However, for an even greater number of us, the Black Friday (and Saturday and Sunday) retail rush in many participating retailers is just another version of what was once the Great January Sale of long ago or, more recently, the Stephen’s Day/Boxing Day sales that entice some people queue outside the big electrical retailers and department stores within hours of their finishing their Christmas dinners.

But the Black Friday migration to these shores is also an indicator of the weakening of the retail sector in the United States, and increasingly here and in the UK:  fewer people are spending less money via the conventional store-based route.  On-line shopping, which happens 24/7, has not just cut into the profits of conventional retail, but it is changing the entire industry. 

Black Friday might work this year and next, but can it keep the novelty going, especially as it consumes itself from within by making the same dramatic discounts available on-line?  What’s to stop every on-line retailer from having an occasional Black Tuesday or Thursday by discounting any number of choice items by 75% or 80%?

Shopping with credit instead of income or savings is what got a great many Irish people in trouble, whether it was on St Stephen’s Day, a wet Wednesday in July or last weekend’s Black sales days.  

Property debt has made the biggest contribution to our nearly €160 billion worth of household debt, but unsecured personal debt in the form of expensive credit card, hire purchase, moneylenders’ and personal bank and credit card loans is also a heavy burden for thousands of individuals and families.

Reaching a debt settlement with creditors – whether mortgage lenders or credit card providers – has been far too slow to date despite the best efforts of the Insolvency Service of Ireland to simplify, speed up and make less expensive the process for the most serious and intractable debtors.  

Which leads us back to the arrival here of an Irish version of the UK debt charity, StepChange and why the five main banks – AIB, Bank of Ireland, KBC, Permanent TSB and Ulster Bank - are now providing it with €6 million worth of funding over the next three years to help clear, in a speedier fashion, the large backlog of debtors here.

Just two weeks in operation, StepChange Ireland (Freefone 1 800 937 434 or  www.stepchangedebtcharity.ie ) is a telephone and on-line based operation. Their two new dedicated teams of 12 debt advisers and administrators for Irish borrowers in trouble are based in their Leeds centre and take calls Monday to Friday during working hours (9am-5pm).

The entirely process is free and involves – mostly online - establishing the size and nature of the debt and the caller’s personal financial circumstances. From this information and data it will then make – where possible - a repayment/restructuring proposal that will then be put to the creditor.

Where a satisfactory solution isn’t possible the StepChange adviser can then recommend an insolvency solution (via the ISI) and identify a personal insolvency practitioner for the borrower to contact.

Over €3.5 billion of debt has now been discharged through insolvency arrangements and bankruptcy. The debt limit for a Debt Relief Notice for secured debts has been increased from under €20,000 to under €35,000; legislation will soon be passed to reduce the discharge of a bankruptcy from three years to one year.

StepChange, which has been in operation in the UK for 20 years, has eight offices and dealt with 600,000 debtors last year alone and has over €540 million worth of debt solutions. It has a long track record of impartiality and in coming up with debt solutions that both sides can live with.

It may not be the right process for everyone needing debt assistance, but home based debt assistance groups and charities like MABS and the ISI, New Beginning and the IMHO are still available to meet directly. 

The next step…is to pick up the phone to one of them.

Do you have a personal finance question for Jill?  Please write c/o this newspaper or by email to jill@jillkerby.ie