Clare Francis, Site Editor
It was a tumultuous week on the global stock markets. The FTSE 100 closed down 117 points at 5,413 on Friday, while share prices in the United States, Asia and Europe also suffered significant falls.
The surging oil price, which hit new highs on Thursday breaching the $146-a-barrel-mark, is spooking the markets as investors fear the economic impact. The European Central Bank voted to increase interest rates by a quarter of one percentage point, from 4% to 4.25%, in a bid to ease inflation and the Bank of England is likely to do the same over the coming months. However, as with other central banks it faces the difficult task of curbing inflation without causing an economic recession.
A growing number of analysts are warning that a global recession is on the cards and that we could be heading for a downturn the likes of which have not been seen since the Great Depression of the 1930s. And the deputy governor of the Bank of England, Charlie Bean, said UK households should brace themselves as the standard of living is likely to continue falling for at least another year. Vote now in our poll: Is recession unavoidable?
This is not great news for the consumer, but moneysupermarket.com has come up with 10 tips to help you ride the storm:
1 - Build up a savings buffer
Saving monthly is a great habit to get into as it gives you some protection in the event of something unforeseen occurring. Advisers generally suggest you have equivalent to between three and six months' salary saved, although you may decide you need more or less than this. It will depend on your outgoings and whether you live on your own or have a partner who could cover the bills if your salary were to stop.
One of the positives of the credit crunch has been that banks have turned to retail savers to plug the gap caused by liquidity shortage on the wholesale markets. This has resulted in some great savings rates.
If you are building up an emergency fund, it's probably worth opting for an easy access account so you can get at your money, without penalty, at any time. Birmingham Midshires' e-Saver account Issue 2 has the highest rate at 6.52%, while Bradford & Bingley's Internet Saver Issue 3 is paying 6.51% and the Abbey Instant Access Saver account has a rate of 6.5%.
If you want to save monthly and won't need to access your money, consider a regular savings account. Alliance & Leicester's Premier Regular Saver is paying 12% for a year, although in order to qualify, you must open a Premier current account. Alternatively, Halifax's Regular Saver is paying 10%. You can deposit up to £500 a month in the Halifax account and up to £250 a month in the A&L account. You need to act quickly if you want to take advantage of the Halifax offer however, as it is only available until July 20.
2 - Cash is king
Volatile stock markets are likely to lead to increased demand for cash-based products as investors turn their backs on equities and seek a safer home for their money.
You should start by making full use of individual savings account allowance as returns are tax-free. You can now invest up to £3,600 a year into a cash Isa and the leading rate for easy access accounts is HSBC Cash Isa at 6.25%. The Barclays Tax Haven Isa offers the same rate at 6.25% but this includes an introductory bonus of one percentage point for the first year. Another good option is the Icesave Easy Access Isa at 6.10%, as with the HSBC product this deal does not have an introductory bonus. Another plus with this account is that it accepts transfers - the HSBC and Barclays' accounts don't accept transfers - which means you can move money into it that you invested in previous tax years.
If you have money to save in addition to your Isa, and you can afford to lock it away for 12 months, the leading fixed rate bonds are paying in excess of 7%. The Birmingham Midshire's 1 Year Internet Fixed Rate Bond pays 7.17%.Another good deal is the Bank of Cyprus UK Bond (20th Issue) is fixed at 7.15% for one year.
3 - Concentrate on repaying debts, not spending more
It's time to put those large purchases on hold and concentrate on repaying your debts. As Tim Moss, head of loans and debt at moneysupermarket.com, discussed in his article 'Avoid a lifetime of debt', paying just £10 over the minimum each month could halve the time it takes to pay off the balance of a credit card and slash the interest you pay.
While it's best to put any extra cash you have towards debt repayments, you could also reduce the amount of money you pay by moving to a 0% balance transfer card. Currently the market leading 0% balance transfer deal is the Capital One Platinum Balance Transfer Card, which offers 0% until November 1 2009 with a balance transfer fee of 3%. The Virgin Credit Card offers 0% for 15 months with a 2.98% fee. The typical standard rate of interest on both cards is 15.9%.
Though generally it is not advisable to borrow more money to get out of debt, if you're juggling several bills, debt consolidation could provide a solution. If your debts are below £25,000 and you don't want to secure the loan against your property, Moneyback Bank is offering a rate of 7.6% and Alliance & Leicester has a rate of 7.7%. Remember however, these rates are 'typical' and so will only be offered to 66% of all successful applicants - the rate you're offered depends on your credit score so you may be better advised to shop around with our Smart Search tool first before applying - as it will identify the products you are most likely to be accepted for.
4 - Concentrate on repaying secured debts first
If you are struggling to keep up with bills and debts, your priority should be to meet the repayments on your secured debts first, because your home is at risk if you fall behind. Make sure you're on the most competitive product you qualify for.
First Plus offers an exclusive deal through Moneysupermarket with a secured loan rate of 6.6% on loans from £10,000 to £100,000. However, this deal is only available to customers with excellent credit ratings. If you're unsure about your credit score use our Smart Search tool to compare deals. There are other good products available - for example, Norton Finance offers a rate of 8.4% to customers with a good credit rating, 8.9% to customers with a fair rating and 12.4% for customers a with poor credit rating.
5 - Overpay on your mortgage
If you're in a position to overpay on your mortgage - even if only by a little - then do so. It could save you thousands in interest and dramatically reduce your mortgage term. Most lenders allow overpayments but it's worth checking as not all do.
6 - Check your credit rating
Your credit score affects your chances of a successful mortgage, loan or credit card application. It also influences the rate you will be offered.
In light of the credit crunch banks and building societies are becoming more cautious about who they will lend to. They are looking for low-risk customers with a good track record in repaying debts. It's therefore crucial to ensure there are no mistakes or inaccuracies with your credit file.
You can obtain a copy of your credit histories from agencies such as Equifax and Experian for as little as £2. Check for any irregularities and if your credit score isn't great, look to see if there is any way you can improve it - closing old credit card accounts and setting up direct debits to ensure payments are made on time can have a positive impact on your score. For more tips check out our article 'How to improve your credit score'.
7 - Consider fixing your energy tariff
With the oil price continuing to rise, further increases in energy bills are expected, and are consumers being warned that they could go up by as much as 40%. With this in mind, it could be a good time to fix your energy tariff to protect yourself from further prices hikes.
Scottish Power's Fixed Price Energy 2009, will cost the average household £1,021.26 a year. Our comparison tool will help you find the most competitive deal in your area.
8 - What about protection?
What would happen if you lost your job or were unable to work due to illness? If you and your family would struggle to cover your monthly outgoings it is worth considering payment protection insurance (PPI) and mortgage payment protection insurance (MPPI).
These products are designed to cover loan and mortgage repayments if you are unable to work due to an accident or long term illness or are made unemployed.
Lenders often push PPI or MPPI when you take out a mortgage, credit card or loan, but this can prove expensive way of purchasing it - you will probably be able to get it cheaper from a standalone provider. The level of cover also varies.
Before applying for any product however, read the terms and conditions thoroughly as there are common exclusions. PPI and MMPI policies tend not to cover the self-employed, students or housewives and illnesses such as stress and back pain are commonly excluded.
Moneysupermarket.com is the only comparison site to compare MPPI policies. It also compares prices of PPI.
9 - Reduce your outgoings
Take a long hard look at your finances - is there anything you could cut back on? If you spend £5 a day on lunch, for example, you could save £100 a month by taking in a packed lunch. You may also discover old direct debits or standing orders that are going out of your account for policies or subscriptions you no longer need or use.
It's also worth thinking about how you shop - there are various discount vouchers available for major high street stores if you search the internet and if you are looking for something specific, use a comparison site to find out which retailer is offering it for the lowest price.
10 - Where else could you make savings?
As well as reviewing your everyday spending, it's also worth looking at other ways to reduce your outgoings. For example, if you have a mobile phone contract, do you use all your free minutes and text allowance each month? If not then you're probably paying over the odds - move to a more suitable package using our mobile phone comparison tool.
Take the time to review all of your insurance products and shop around for cheaper deals. Look at your broadband package too and don't pay over the odds for a download allowance you'll never use. It's always important to make sure you are not paying more than you need for home services and insurance, but never more so than at the moment when the cost of living is on the up and, for many people, money is tight.
Have your say: What do you think? Are we heading for another Great Depression or is it not as bad as some are predicting? Have you noticed a fall in your standard of living in recent months? Share your opinions and tips to help ride out the storm in our forum.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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