Waiting for the sun to shine

This time of the year is normally quiet for me and I could easily escape out of here for a few weeks and not be missed. The ‘important’ stuff can easily be sorted out, these days, by phone or internet. My family and I are heading to Tenerife next month and I wish that I could just press the fast forward button.

Needless to say, the weather here at present is not helping with any increases in business activity. I find that people get around to making hard personal finance decisions that have been put on the long finger, when the sun is shining.

The ‘sun’ isn’t really shining either, in any of the media outlets that we rely on for our news. The gradual erosion in confidence in all things ‘financial’ seems to be taking its toll and consumer sentiment is being pummelled by one gloomy story after another.

I think that we have to remind ourselves that these things run in cycles and that at some date in the future things will turn again, just as the sun will shine for more than 10 minutes at a time.

Those of you who invest on a regular basis are probably feeling that little bit better than those without. Your funds are down serious percentages in the last 12 months but at least you have ‘funds’ that you can call on to offset against rising monthly costs. So, well done on that hard personal finance decision you made some time back that now provides you with more options.

To those of you who intend investing on a regular basis at some stage in the future, start your research now and stop waiting for the ‘sun’ to shine before you make that hard decision.

Mortgage Protection

This type of policy is sometimes called ‘Decreasing Term Insurance’ as the level of cover decreases as your outstanding mortgage balance decreases. It is the cheapest form of life cover available and the premium stays the same for the duration of the policy.

The majority of quotes that are issued on this type of policy make the assumption that your mortgage will be repaid if interest rates are less than or equal to 6%. If your mortgage interest rate exceeds this for a prolonged period of time, there may be a shortfall between what the policy pays out and the balance outstanding on your mortgage at the date of a claim.

With interest rates heading towards this 'threshold' rate at present it might be prudent to choose a policy that makes a higher rate assumption. Most insurers will allow you to select a rate of up to 9%. If you choose this higher rate, be prepared to pay a slightly higher premium.

There was a time when at least one insurer guaranteed to repay the mortgage irrespective of the interest rate but demand was low as consumers were unwilling to pay the additional cost which gave the absolute peace of mind. The cheapest option won on the day.

It may be time for insurers to reintroduce this guarantee on mortgage protection, as the exact direction of interest rates are uncertain. The cost of this guarantee is not prohibitive and robust competition for new business in this sector would ensure that rates remain competitive.

There is nothing worse than paying for an insurance policy that does not give you the cover that you want and leaves you out of pocket at a claim stage.

Bank Deposit 'Frenzy'

Consumers that save their money in Deposit accounts have never had it so good. The banks are falling over themselves trying to outdo one another so that they can, either keep their existing customers happy or ebb the flow of funds to their competitors.

Naturally, if you are investment risk averse or you want to have access to short-term savings in the event of some unforeseen circumstances, this is good news.

The astute investor will also hold some of their assets in cash savings so that they can take advantage of sound investment opportunities that come their way at a later date.

But, why is all this happening now? What is the deposit taking community’s motivation for this frenzy?

We are a small nation of some 4m people and it would appear that we are relatively wealthy. The size of the deposit market would indicate that it is a worthwhile target for banks and building societies from outside the country. They would not be competing for it otherwise, right?

In an effort to delve into the psyche of the banks, it may be time to tune into their favourite radio station, Wii FM (What’s in it For Me).

 Are they suffering from pangs of guilt for previous misdemeanour's so as to create a positive profile?
 Do they think that inertia will set in once the headline rates disappear and consumers will stay put. Is it all about market share?
 Are there any liquidity concerns that we should be aware of?
 When the frenzy passes, will these deposits be ‘cannibalized’ or recycled into more profitable (for the bank) ‘Investment’ products?
 Is this a new form of ‘free’ advertising as the press scurry to announce the latest headline rate?


The jury is still out for me on this one and it is only with time that the true answer will come to the fore.

Perhaps I am tuned into the wrong radio station?