Breaking the Debt Trap through Financial Education

The United Kingdom is reeling under a personal debt crisis, unprecedented in its scale. There are a disturbing number of statistics on the financial fragility of UK household finances. There clearly is a pressing need to address this financial vulnerability. There seems to be a weakness in money management skills, including anticipating bills and budgeting among people in general.

After the Christmas excesses, millions have come face to face with the cost of the celebrations as the credit card bills came through the letterbox on Blue Monday, traditionally dubbed the most depressing day of the year. According to Professor John Jerrim, of the UCL Institute of Education, “There’s a direct link between basic financial literacy and being able to make big financial decisions, such as knowing the implications of getting a mortgage with a certain interest rate.

Data compiled through the Programme for International Assessment of Adult Competencies (PIAAC) in 2011, show that England and Northern Ireland are facing a “crisis” in financial literacy skills, as research reveals that one in three people cannot work out the correct change from a shopping trip. This lack of financial literacy in the UK has been found to be correlated with higher debt burdens, incurring greater fees, loan defaults and loan delinquency.

Financial education programmes aiming at money management skills could be effective in reducing debt. Personal financial management software, behavioural finance literature as well as financial education need to be employed to encourage budgeting and saving.

According to a report commissioned for Talk Money Week, 77% of UK citizens said they did not or could not recall receiving any financial education at school. Most payday borrowers cannot accurately recall Annual Percentage Rates (APRs) despite having the ability to report finance charges, suggesting that most borrowers consider charges rather than APRs in making borrowing decisions.

A major part of financial education includes understanding the value of money. It is vital that individuals realise that financial education offers incredible value for them as it has the potential to treat the underlying cause of under-saving and high reliance on debt. Here, two things need to be called out, one, some of the responsibility for ensuring employees have received or have access to basic financial education should lie with the employers – this is because it is they who end up bearing the impact of their employees money concerns in the form of loss of productivity and lack of engagement in the workplace. One underused resource for financial support is Credit Unions, which may just have the answers. The second thing that needs to be acknowledged is that this education needs to be more than just a checkbox exercise. Just providing access to material or videos in the form of education may not work for everyone. People learn differently and have different triggers, this education needs to be delivered in a way that it is personalised, relevant and timely in order to maximise engagement and uptake, and therefore, the resultant benefit.

Credit Unions are important players in national financial literacy strategies. They have a core operating principle of financial education, but this is primarily restricted to low-commitment activities with marginal impact. What is required is a well-structured programme, that could focus on money management skills and constitute an effective financial education strategy for those in distress. The FairQuid Wellbeing Platform is structured in a way that is based on personas and triggers,and it delivers personalised and relevant content to each user when they would respond to it. Technology is used to personalise the experience and hence, drive engagement with the content. It can help people learn healthy financial habits while supporting them in times of need.

How to Address the Question of Financial Security for Gig Economy Workers?

The concept of work today is changing. One key trend making waves is the concept of freelance or contract-based work, also known as the gig economy. A departure from the full-time employment, a gig is a temporary work engagement where the worker is paid only for that specific job.

According to the McKinsey Global Institute [1], there are 5 million people currently working in the gig economy in the UK, which is around 15.6% of the total full- and part-time workforce in the UK (32 million). The flexibility that this trend offers the individuals is what makes it so attractive, especially for those who do not want to, or for some reason cannot, work full time; while the businesses find the gig-based system to be more cost-effective and efficient.

Many of the current work profiles can easily be transformed into gig economy contracts. Some of them are obvious, such as couriers, delivery staff, drivers and manual labour; while others may not be as obvious, such as part-time teachers and healthcare providers. According to the Office of National Statistics[2], most of UK’s gig workers are in London. Around 27% of the capital’s workforce is employed on a gig basis (17% are self-employed and just 13% are employees).

While it is a given that people who are working as independent contractors benefit from the ability to quote their price on the project of their choice, there are some obvious pitfalls as well. One of the biggest one is, of course, the lack of job security and continuity. Also, as gig workers are not recognized as employees, they are not eligible for workers’ rights and benefits such as sick leave, holiday pay, maternity leave, etc. In fact, they are not even assured a minimum wage.

This is a disturbing development, taking into the account the fact that the UK is currently facing a consumer debt crisis. The average UK family now owes £15,385 in unsecured debt, including credit cards, loans and overdrafts. According to the Trades Union Congress, the total amount owed rose to £428 billion in the Q3 2018. That means each household owed £886 more than a year earlier. [3]

Another disturbing sub-trend developing in relation to the gig economy is regulatory in nature. As gig workers are not recognized as employees, they are, therefore, cut off from the ‘benefits’ that go hand-in-hand with full-time employment. As a result, many gig companies are facing legal issues. Addison Lee, a car and courier business, has come under a lot of scrutiny in the UK for claiming that their drivers are not employees but self-employed and are not entitled for employee benefits. Deliveroo, another gig company, faced riders’ strikes after the company announced plans to replace their hourly rate with a payment per delivery[4].

Such examples clearly point to the fact that financial security is top of mind for individuals.
Recognising this need, companies such as Addison Lee and Deliveroo have now started to evaluate alternatives that allow them to improve engagement with their workers as well as benefits that go with the gig they signed on for. For example, Deliveroo is set to equip its 35,000 riders with free accident insurance worth £10 million. The flip side to this move is that the company risks labeling its self-employed workers as staff. However, if regulations allowed for benefits to gig workers, then many companies would certainly be exploring additional options. According to Deliveroo’s CEO and founder Will Shu, “We would like to go further, but are currently constrained by the law.”

One thought that needs further deliberation is that for a gig worker access to mainstream financial products is limited considerably, since old credit models don’t treat a gig worker in the same light as a full-time employee. Even if they have a good history of earning and stable income, their options get reduced and costs are driven up if they have to access funds in need. Additionally, the variability in income makes it difficult to stick to regular savings as income may be flexible but expenses are not.

In such an ecosystem, it is interesting to note that the number of gig workers in the UK economy are only set to grow. As per numbers shared by RSA Insurance [5], 18% of the workers in the UK would be open to gig work – that is roughly 7.9 million people prepared to make this leap. With the number of people moving from fixed income to variable income career options, there is a pressing need for a solution to address their financial needs and at the same time empower them to get into the habit of saving for a rainy day.

The FairQuid Wellness Platform may just have the answers. Having partnered with Credit Unions, FairQuid offers people an alternative access for emergency funds as well as a flexible way to save regularly – using the work history and performance as current and forward-looking credit risk indicators, rather than conventional financial parameters. In the context of the gig economy, FairQuid would tie up with gig companies to offer their self-employed contractors this innovative financial solution. They would receive financial and educational tools to take better finance-related decisions with regards to initiating savings and have ethical access to funds, if needed.

On Demand platforms will benefit by not only generating immense goodwill among the contract workers, but also proactively preventing financial security-based mental health issues and boosting engagement levels. They will also be benefitted by increasing stickiness of their platforms as they would have converted individual’s platform data into a credit currency for them.


Don't let debt cast a shadow on the season to be jolly

It’s Christmas time again. For Mike, like many others, Christmas means being with family and friends as everyone enjoys the Christmas Day feast. The festival brings along with it the joy of giving gifts to loved ones, as well as going out with friends to enjoy everything the holiday season has to offer.

However, many like Mike also find it to be a very stressful time of the year, especially when budgets are tight and savings low. This is when the pressure to celebrate with all the traditional trappings takes its toll. Many people end up taking out high-interest payday loans or overspending on credit cards.

According to PricewaterhouseCoopers [1], shoppers in the UK are preparing to spend an average of £420 on Christmas presents this year. Christmas spending, which often goes on high-interest credit cards, tends to put an extra end-of-year crunch on people’s ability to pay back their debt.

According to a Nationwide Building Society survey, more than a third (36%) of the respondents were left in the red last year– struggling with £426 of debt on average. It took around two and a half months for most people to clear the debt, although a third of the respondents (32%) struggled with it until July – seven months [2], which really means that they got only 4-5 months to save for the next holiday and might need to borrow again. This, then, initiates the cycle of perpetual debt. For Mike and many others, any unexpected expenses during these seven months could be a trigger to push them into persistent debt with zero savings to fall back upon.

What they need is not more debt, but a strategy that would not only help with meet their immediate needs and, simultaneously, set them on a path to get ready for the next year with a smile on their face. The FairQuid Wellbeing platform, with partner Credit Unions, could have the answer.

For Mike, (name changed) it was almost like a Christmas miracle. He had been working for Recycling Lives, a company with a commercial recycling business, for over a year. Last Christmas (Dec 2017), he needed funds during the festive season to buy gifts for family and friends, as well as undertake minor repairs around the house. He had been going through a difficult patch and his conventional credit worthiness scores were at rock bottom. He was quite at a loss trying to find a way to work things out and payday loans seemed to be his only option. To his relief and delight, his employer stepped in to offer all employees an opportunity to access credit at fair terms by partnering with the FairQuid Wellbeing platform.

Instead of taking on high-interest debt, Mike was able to obtain the loan, through First Choice Credit Union, that he needed to meet his commitments last Christmas. His loan repayments were easy to manage as they came straight out of his wages and the bundled savings option was a bonus. He had borrowed £600 last December and has not only repaid the amount comfortably through payroll deductions (auto-pilot) but has also managed to save around £520 and will be able to fund the current (2018) festive season himself instead of having to borrow again.

For Mike and others like him, who can find it tough to make those important changes in life, it is not easy to even open a bank account at times, let alone access credit on fair terms. FairQuid believes Credit Unions can play a central role in addressing the need for short-term holiday season credit, help millions of Britons who are excluded from mainstream finance and at the same time facilitate savings – thus ending the vicious cycle of debt people fall into during this time. Certainly, a reason to rejoice!


Workforce Financial Health – Impact Analysis: The Story Behind the Numbers

FairQuid’s Financial Wellbeing Scheme gives employees the chance to save and provides them with access to ethical credit through a current and future view of their creditworthiness instead of a backward looking score view.

Savings contributions and loan repayments are taken directly from wages, ensuring employees can relieve financial stress without going through a cycle of decision making every month. Here are some recent statistics from employers we are working with.

Employee uptake: 21%

Benefits disconnect is frustrating for all. All Employers provide benefits with the genuine objective of ensuring it is a good fit for what employees need and want. The uptake of employees joining the Financial Wellbeing Scheme grew steadily throughout 2017, reaching 21% in December. Uptake jumped by 10% in the two-month period from October to December. This was driven by the holiday season with employees looking to improve finances over Christmas and into the new year.

Employee Benefit Loans are used to address a wide variety of needs. The most popular reason given by applicants was to consolidate credit cards, overdrafts and other debts.

As the Financial Wellbeing Scheme grows and employee saving increases, it is hoped that employees will be able to gain greater control over debt. Repayments made through payroll means there is no decision every month on how much of the balance to repay and how to carry forward. It also means that the money in the bank is not fighting with expenses ensuring the new year resolution to save is something one can stick to.

Unlike other employee benefit schemes – which cost employers money (FairQuid doesn’t cost for employers) – uptake is higher than Cycle to Work Scheme and gym memberships — both of which average uptake of 5% or less.

Improved savings to Income ratio: 39%

The scheme aims to help employees stay debt free, save regularly as a healthy habit and reduce reliance on high-interest lenders. In Q4 2017, average savings per net income ratio was two-times greater than Q2-Q3 2017. November recorded a high of 43%.

These results were helped by version two of our nudge initiative, based around the benefits of saving through payroll. The increase in savings shows how education coupled with actionable tools around saving has a real impact.

For the employees currently in the scheme, unexpected costs can be met without the need for expensive borrowing, reducing the endless cycle of debt. Based on multiple case studies after the introduction of the scheme, data shows that it continues to prove popular with both employers and employees.

Approval rates: 85-97%

Employee Benefit Loans give employees access to additional funds. At 85-97% approval rates for these loans, a high number of employees were able to access ethical credit without the need to approach high-street lenders or payday loan providers. The uptake and demand is well spread out in terms of Length of service/tenure at the employers.

What’s more, 15-20% of applicants had an impaired credit file. Without the Employee Benefit Loan and its use of length of service and performance to assess risk, the only other means of credit would have been through credit score-based pricing, resulting in extortionate interest rates, often in excess of 1,000%.

FairQuid’s, partner Credit Unions, base their decisions on a length-of-service model which ensures access to ethical credit isn’t impaired and a high number of employees can receive the funds they need.

Find out more

The Financial Wellbeing Scheme is helping employers build a financially sound workforce, ensuring staff are responsible with savings and budgeting. This, in turn, leads to happier employees, free of the stress and burden of debt.

To find out more about the scheme, visit:

Catalogue Goods & Appliances – their cost to an Employer?

With interest and unnecessary adds-ons (e.g. insurance), goods purchased from catalogue websites can cost up to three-times as much as the same item on the high-street. And payday loans don’t make for better reading, with interest rates as high as 1,500%.

It sounds like a consumer credit issue and not something linked to an employer one would think. However as progressive employers think of Financial Wellbeing under the holistic umbrella of improved mental health and overall wellbeing of the workforce it highlights key underlying issues that need to be addressed for the workforce.

Lack of Financial Education

We all know and demand financial education to be included in schools but we need to take some action for the workforce that is already out of schools and need it the most. The fact that objectively no one should be using these schemes and still the brands are seeing double/triple digit growth rates tells us that there is a dire need for financial education in the workplace.

Lack of Access to Essential Items

Access and cost of credit in this country is denied or exorbitant for people who would benefit from it the most. Pricing based on, backward looking, credit scores means, past haunts hard working folks indefinitely. Low levels of savings and flat wages mean many have to resort to expensive credit like rent to own even for essentials like Fridge or a washer. FairQuid’s Length of service and performance as a credit currency let’s employees present a more current and future view on their creditworthiness, through their employers. This becomes a very critical first step helping hand that many need.

Declining Rate of savings and reliance on expensive credit

The Regulator sees the problem, as Employers we need to also see the direct impact it has on staff productivity and health. We need to ensure that as we think of Financial education we make it actionable and easy for our teams to adopt and stick to good habits. Habits are formed over a period of time and hence programs like payroll savings make it easier for folks to not just opt in but to stick to it till the time it becomes a habit like tying your shoelaces.

Best Practice For Financial Wellbeing: Actionable Tools To Help Your Employees

It sounds cynical, but however much your employee loves their job, a big motivating factor in coming to work is the financial stability they get from it.

They exchange forty or so hours of their week for a wage that allows them to rent or mortgage a home, purchase food, drive a car, and have access to other services, including leisure activities.

When there is a risk to their financial stability, staff are unlikely to be motivated, and their efficiency is likely to be affected. Small amounts of stress aren’t necessarily considered a bad thing. Pressure to meet deadlines and targets could propel employees to do their best (as long as it isn’t applied too harshly or maintained for an extended period), and, theoretically, financial incentives such as commission for salespeople are more effective if they are appreciated – or necessary. However, stress, induced by money worries or otherwise, is likely to have a negative effect on an employee’s state of mind whilst working.

Losing sleep over money

Almost half of UK employees are worrying about their financial situation – and 18% are losing sleep over it. Stress prompts the release of adrenaline and cortisol, two hormones which can cause significant harm throughout the body, affecting mood, memory, blood pressure, heart rate, and the immune system.

Employees can hardly be expected to perform at their best under such conditions: 1 in 20 staff have been absent from work an average of 4.2 days a year due to financial stress-induced illness, with 49% of stressed employees taking sick leave compared to 36% of those who aren’t as worried about money.

Alongside the run-up to Christmas, this time of year is probably one of the worst for employees’ stressing about money. It has a negative impact on productivity and can lead to time off sick or some looking for a new employer.

With the news that Carillion, the UK’s second-largest construction company, has gone into liquidation, threatening the jobs of its 20,000 UK workers, it’s evident that our current economic climate poses risks to financial security. Even organisations that are seemingly doing well can do more to prop their employees’ sense of financial well-being. Only you and your senior managers can take steps to ensuring your employees’ jobs are safe – but what about implementing other security nets?

Financial well-being services (that won’t cost a penny)

Many companies offer financial benefit packages – but employees are not always aware of what they can take advantage of. Bonuses are one benefit, but others might include investment opportunities, share schemes, and other ways of profiting from the success of the company.

One tool for promoting well-being at work is to make yourself an employer that is approachable, particularly when it’s a sensitive issue. Employees struggling with money might benefit from an advance on their wages, a loan, or asking for a wage increase; but often, they are embarrassed to broach the subject. Many people also believe that management will be unsympathetic to their concerns, with some even thinking that it could affect their prospects if they ask for more money.

Even if you are unable to help, remember to remain sympathetic, and perhaps point them in the direction of alternatives, such as a FairQuid employee financial well-being savings or debt consolidation solution.

Inflation coupled with the stagnation of wage growth has seen a narrowing of disposable income. The first quarter of 2017 saw disposable income, adjusted by inflation, shrink by 0.4% – the greatest drop in almost three years. As households feel the pinch, they are more likely to rely on credit cards or turn to payday loans to fund their spending. With high interest and missed payment charges, the amount being paid back can quickly add up and be in excess of what was originally borrowed.

Saving for a “rainy day” has always been considered worthwhile: a few pounds every week can soon grow into a fund that can be dipped into in emergencies.

However, the fourth quarter of 2016 saw the lowest savings ratio since records began in 1963, falling sharply from 5.3% previously to 3.3%. The ratio, which represents how much of a household’s disposable income is set aside for saving, increased in 2017 back to 5.5% and standing at 5.2% in the latest reported quarter of Q3 2017 (see chart below). However, it is still falling short of previous years like 2015, which saw highs of 9.7%. It seems that British homes are struggling to set money aside from their disposable income.

A sensible, proactive solution

A FairQuid savings account, with partner Credit Unions, is designed for your employees. Rather than an employee taking money from their disposable income – what is left after bills, food, and rent is paid for – to put into their savings – the money is taken directly from their wage even before they receive it.

Instead of savings being relegated to “whatever’s left over” at the end of the month, it is the first outgoing, so it can never be spent, whether accidentally or on purpose. In fact, since the employee will never hold the total amount (that is, their wage including the savings), they are less likely to miss it.

With one cost already removed from their consideration, employees can budget more effectively with what is left over. And, since they are part of member-owned credit unions, participants can benefit from healthy dividends on their savings – so paying in also pays out.

Creating financial security is about more than creating more disposable income for your employees. Peace of mind contributes to a healthy body, a focussed mindset, and an overall happier outlook.

Financial Well-being: The last taboo of the workplace? – Barclays
Financial well-being: the employee view – CIPD

The Holiday Hangover

How repayments and debt consolidation can help your finances recover

January: a financial wasteland month. All the fun and excitement of Christmas has worn off, and what we’re left with is the financial implications of the seasonal excess.

It was expected that last Christmas the average UK adult would spend £243.77 on Christmas presents alone, a 1.4% increase from last year. This figure, of course, excludes the additional costs of the holiday that are often neglected from the gift buying budget, including the dinner with all the trimmings plus the decorations. In total, the Christmas spending was estimated to increase by 1.3% since 2016 reaching £821 for an average family, while the household saving ratio has dropped to a record low level of 5.2% in Q3 2017 (see the chart below).

Most adults also buy more alcohol and nibbles, outfits and decorations than normal – and that’s just entertaining at home, without factoring in those end-of-work parties and pub get-togethers.

Excessive debt everywhere

Once Boxing Day is over, the festivities don’t end: New Year’s Eve and Day are just around the corner, with excess expected into early January. So it’s no surprise that Christmas can hit our wallets hard, despite our best intentions.

Last year it was reported that roughly 50% of Brits would be paying off 2016’s Christmas a year later, and there’s nothing to suggest that the same won’t happen this year. With anxieties about providing the “perfect Christmas”, including satisfying children’s wishes for must-have presents and hosting family events, it’s understandable that we go all out to ensure everyone has a good time. And there are meals out, day trips with the kids, nights out with friends … it all adds up.

But when the party’s over, how can we regain control over our runaway finances – and exert better control over them for next time?

Christmas on credit is becoming alarmingly common, with a third of Brits either borrowing money or buying items on credit to be paid off later. The UK is struggling under an alarmingly high £200bn of personal debt, with 35% of that attributed to credit cards.

Making affordable repayments on these after an exuberant Christmas can often mean paying a minimum sum – sometimes just enough to cover the interest payments, meaning that we’re stuck in debt for longer. Sometimes we can free ourselves from debt just in time for next Christmas, and just in time for new credit spending, and so we find ourselves trapped in a cycle of borrowing and repaying.

With so many credit options to choose from, including store cards, credit cards, and payday loans, it can be tempting to borrow a little here and a little there – which makes it harder to keep track of where the money is going, and how much the interest is adding up with varying APRs.

Consolidation loans

A consolidated loan is a simpler way of managing debt. Once those variable interest cards and loans are paid off, you’ve left with easily-monitored credit: one monthly payment, one fixed rate. With only one monthly outgoing, you’re less likely to miss a payment and incur fees, and, even better, you can have it taken directly from your wage. That way, you’re less likely even to notice the deduction from your monthly allowance (or to accidentally spend it).

FairQuid Credit Union consolidation loans also come with a savings account starting from £10 a month, so even while you’re paying off the expenses of last Christmas, you can be preparing for the next one, or saving for a holiday.

With a savings account, the cost of paying for next Christmas is spread out in advance over the year – but without interest rates to worry about. The double benefits of a consolidation loan and a savings account mean that not only can you pull yourself out of debt, but you’re well-prepared for larger costs, expected (like the Christmas holidays) or unexpected (why do boilers always seem to break down on the coldest week of the year?).

New Year resolutions can often be vague, such as promises to work out ‘more’ and to ‘do better’ with money. To Start Saving with FairQuid is one concrete method of keeping your finances in order. It takes back control of your debt as well as taking charge of your savings, and when it’s all done directly from your payslip, it’s one resolution that is easy to keep.

When you plan ahead, not only can you escape the almost-inevitable sinking into debt to prepare for Christmas, but the holidays themselves become more enjoyable without that pressure of worrying how it will all be paid for later. After all, Christmas is a time for celebration, not for contributing to anxiety about money in the new year. Start Saving today

Why Employee Financial Benchmarking Could Solve Productivity Problems

Far too many people, over 70 percent of us in the UK, have no meaningful savings. No rainy day fund or cushion to safeguard against the unexpected.

With interest rates on the rise, inflation still increasing, mounting consumer debt and economic uncertainty, far too many of us are in a more perilous financial position than we would care to admit.

Average household debt, not including mortgages is around £13,000 and rising. Around 20 million working adults are struggling financially.

Living month to month has a direct impact on productivity and mental health at work. Financial stresses reduce our concentration, sometimes to the point whereby someone is physically present whilst being mentally checked out.

Stress reduces productivity. Employees may need time off. It’s also potentially dangerous when people are mentally checked out, a health and safety incident waiting to happen.

Employers often want to help. Knowing how to help, without giving out salary increases, loans or leaflets offering financial advice, is more difficult. We provide services that solve these problems.

What can an employer do?

Money is a sensitive topic. Even though, as an employer – or HR professional – you know everyone’s salary, people rarely talk about money at work. Asking employees to divulge personal financial information isn’t a practical option. Some employees will talk about personal finance when they need help, but most won’t.

This information gap is a big part of the problem. Thankfully, FairQuid has created a solution that goes a long way to solving it without breaching confidentiality or needing to ask for financial details from staff.
Get a financial health check for your team.

Using postcode data and national financial statistical information, our data scientists can create a customised report that will give you a statistical average for your employee financial personas.

With this information, we can create tailored financial wellbeing solutions that won’t cost you a penny.

Request YOUR free Employee Financial Wellbeing Report Today. Know more here…

Bank of England Rate Rise: Will it Help Save More or Cost You?

In November 2017, the Bank of England announced that it was raising its base interest rate for the first time in a decade, from the record low 0.25% to 0.5%.
Will it help you save more?

When it comes to savings, you’re not going to see a massive influx of extra savings interest, but anything extra always helps. With most ISA interest rates hovering around the 2% mark, we’ll probably see an extra 0.25% return – another £2.50 per £1,000 each year, or £22.50 instead of £20.

How Will It Cost You Money?

This depends on the type of credit you already have and whether you have a fixed or variable return rate.
Most common, smaller types of debt – such as credit cards, store cards, and unsecured personal loans – have fixed terms for repayments set out when you sign up, which won’t be affected by the new base rate. If there are going to be interest rate changes, the company will contact you directly to make you aware of what these changes are and when they will take effect.

How Will Your Mortgage Be Affected?

With a mortgage being possibly the biggest monthly outgoing, this is the biggest concern for most people. How your mortgage repayments are affected depends on the type of mortgage you took out:

Fixed rates

This offers a set sum to be paid every month for a determined period (one, two, three, five, or ten years). These often have the most expensive rates and fees since they offer stability and reliability: However much the Bank of England’s base rate varies, you will never pay more (or less) than agreed.

Your fixed rate mortgage should not be affected by the base rate change. However, once the period has expired, you will be subject to the lender’s SVR (Standard Variable Rate), which is affected by the base rate, unless you take up a new mortgage deal.

Standard variable rates

These are interest rates set by the lender and are subject to change at any time. They loosely follow the Bank of England’s base rate but don’t reflect them exactly: For example, with the base rate increase of 0.25%, your lender could increase standard variable rates by 0.5%.

Tracker rates

These are directly correlated with a base rate, “tracking” at a certain level above. This is usually, but not necessarily, the Bank of England base rate.

For example, if you rate is tracked as 2% above the Bank of England base rate, it has just risen from 2.25% to 2.5%. However, some lenders use other base rates, like the LIBOR interest rate, which is higher than the Bank of England rate, due to the higher risk. Like fixed rates, tracker rates are normally only in place for a few years, and then your mortgage will revert to the (typically higher) standard variable rates.

Capped Rates

These can be either fixed, standard variable, or tracker, and react accordingly (or not) with the base rate, but they come with a guarantee that they will never exceed a certain amount. As long as this cap is not being exceeded by the 0.5% increase, then your rates will still fluctuate (or not, depending on if your rate is fixed or variable) with the base rate.

Time to start saving and reduce debts?

With savings rates back up and interest rates on the increase, and more rises expected in the future, 2018 could be the year to start saving and clear away debt before the base rate gets any higher. And if you want to get rid of all your debts, you could consolidate them and reduce your monthly payments, whilst paying into a savings account at the same time. Already debt free but want to take advantage of a savings account? Put a little aside each month straight from your salary payments and take control of your savings.

The Bank of England Interest Rate Rise: What this Means For Your Staff?

The Bank of England announced that it was raising its base interest rate for the first time in a decade, from the record low 0.25% in August 2016 to November 2017’s 0.5%. How will the rising base rate affect your staff?

Higher Mortgage Payments

Approximately half of mortgage-paying homeowners are going to have a little less disposable income each month.

Out of 8.1 million mortgaged households, the BBC identifies 3.7 million (46%) as having a tracker or standard variable rates, both of which are influenced by the Bank of England’s hike in the base rate.

Although SRV’s may follow base rate trends (increasing a little as the base rate increases and vice versa), they do not follow it exactly. Tracker rates, however, directly correlate with the Bank of England’s rate, and so those with a tracker rate mortgage can expect a 0.25% increase in their payments.

According to UK Finance, the average outstanding balance on a UK mortgage is £89,000, meaning a tracker-based increase of about £12 a month. However, many homeowners are preparing to lock-in fixed rates, with predictions of another two increases coming over the next three years, bringing the base rate up to 1%.

More Savings … Right?

It makes sense that a higher Bank of England base rate would automatically equate to a greater return on savings accounts and ISAs. Well, not necessarily. Newcastle building society has said it will pass on the 0.25% increase in full to all its savers, whereas for Nationwide users, the “majority” will benefit from “improvements.”

Even if a bank does offer the increased rate, the extra 0.25% on £1,000 (the minimum amount recommended as emergency savings) is £2.50, which is a small incentive for holding money for a year.

Spending, Not Saving

The low-interest rates of the previous years have encouraged debt and inhibited saving. Most people have felt that, what was the point in putting money away for a couple of pounds when it could be being spent in the here and now?

And with bank interest rates low for loans, it seemed there was a glut of spending beyond our means. But now with the higher base rate (and its potential to continue climbing), it’s time to be a little more savvy with our personal finances before they become out of control.

A Different Way to Save

Money worries have a direct impact on productivity, mental health, absence and even a decision to go elsewhere. Employees work for money: to pay their mortgages (with the newly inflated prices) or rent, pay off debt, save, enjoy themselves and treat their families.

Employees stressed out by not having a “financial cushion” to fall back on can become anxious and less productive with their minds on other matters, whether that’s paying off existing debt or saving for emergencies or special occasions. Our Credit Union savings account is a useful tool for employees to put aside as much or as little as they like every month – and at no cost to your business.