What’s that lurking in the corner of the dusty cupboard? Could it be a financial product that’s been left alone for too long and has now started rotting? Here are five financial ‘zombies’ you should consider booting out, as identified by financial services firm Hargreaves Lansdown.
1. Child trust funds (CTFs)
This was money handed out by the government from 2005 to children born on or after 1 September 2002. CTFs were stopped in November 2011 and replaced by the Junior ISA (Jisa) which offers tax breaks but no free cash. CTFs have been in the doldrums ever since and tend to have lower interest rates and less choice than Jisas. SMM says: think about transferring cash from the CTF to a Jisa. Read Jane’s blog on how to do it here.
2. With profits
These investment plans were (and still are) sold by insurance companies, often as a way to pay off a mortgage or to save for a pension. They claim to ‘smooth’ returns by holding back profits in the good years to subsidise the bad. Unfortunately for savers, it’s not always clear what’s going on, especially with fees. SMM says: look at moving to a more modern contract but carefully consider penalties, tax and loss of guaranteed rates of return first.
3. Old personal pensions
Older pensions (particularly pre-2000) have higher fees than modern ones. Early exit charges after age 55 are now capped at 1% for both personal and occupational pensions which can make a transfer more attractive. SMM says: check out the options but don’t give up valuable benefits such as guaranteed annuity rates which may be higher than you can get now.
4. Funds bought direct from a fund group
If you invested directly with a fund group several years ago, you could well be paying double the going rate online. If you’re still happy with the investment, you can easily transfer it to a fund ‘platform’ and convert it to what’s called an unbundled (or cheaper) share class. SMM says: There’s no tax event to worry about on conversion and, once you’ve mastered the platform website, it’s a convenient single place to manage all your fund investments.
5. Instant access cash accounts
You’ve probably noticed that your cash savings account is paying a woeful interest rate of 1% or less. With inflation (ie the rise in the cost of living) running at 2.9%, you’re actually losing money. SMM says: Investigate fixed-rate accounts for better interest or consider the stock market as a home for some of your longer-term cash.