Displaying items by tag: bonds
As the country contemplates the election results, people's thoughts will turn to the potential effect on their finances.
Money matters are often to the fore at this, expensive, time of year. The December election is likely to mean some changes to the pound in your pocket before the winter is out, with other changes more long-term.
Here are some of the key issues, based on the Conservative Party's manifesto, its plans before the campaign and its promises during it.
Overseas Christmas holiday boost
Those who are heading abroad for Christmas will see their holiday money go a little further.
The value of the pound improved against the US dollar and the euro when the Conservative victory became clear, and this will now have fed through to the rates at bureaux de change.
However, travelling overseas at this time of year can be very expensive, so this will only bring a little relief.
- Exchange rates: Why has the value of the pound jumped?
- Election results 2019: Analysis in maps and charts
A Budget within 100 days
The big set-piece financial event of the year had been planned for November, but was postponed as the prime minister pushed for an election.
During the campaign, Boris Johnson promised a Budget within 100 days of the polling day if the Conservatives were elected. This is likely to mean a Budget in February or March, setting any changes to taxes, benefits and allowances in time for the start of the new financial year in April.
Mr Johnson promised that a tax break for workers, through a change to National Insurance, would be confirmed in that first Budget.
The current threshold sees workers paying National Insurance contributions once they earn £8,628 a year. The Conservatives said this would rise to £9,500.
Economists at the Institute for Fiscal Studies (IFS) calculated this would be worth about £85 a year for all those with earnings above £9,500 a year.
This Budget - and any subsequent ones during this five-year Parliament - will see no income tax or VAT rises (nor any National Insurance rises), according to a promise in the Conservative Party's manifesto. However, this was described as "ill-advised" by the IFS owing to the potential lack of room for financial manoeuvre it creates.
HSBC is to bring in a single overdraft rate of 39.9% for UK customers from March 2020, as much as quadrupling the rate it charges some customers.
However, the bank is removing a £5 daily fee for going into an unarranged overdraft and introducing an interest-free £25 buffer on some accounts.
It follows a similar move from Nationwide Building Society in July.
The new annual rate comes in response to tough new rules from regulators designed to protect consumers.
But one analyst warned that steep overdraft rates could now become the "new normal".
HSBC UK currently charges rates of 9.9% to 19.9% on arranged overdrafts, but the higher rate will be applied across its whole range of accounts except for its student bank account.
The £25 buffer will apply to Bank Accounts and Advance Bank Accounts, providing leeway for those going slightly overdrawn.
HSBC said that as a result of this and the removal of the £5 daily fee for unarranged overdrafts, seven in 10 who use an overdraft would be better off or the same as a result of the changes.
But that suggests around a third could end up worse off. The bank has eight to nine million current account holders in the UK.
Madhu Kejriwal, HSBC UK's head of lending and payments, said: "By simplifying our overdraft charging structure we are making them easier to understand, more transparent and giving customers tools to help them make better financial decisions."
The move comes in response to Financial Conduct Authority's plans to shake up the "dysfunctional" overdraft market - including stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts.
The new rules, which come into force next April, will require providers to charge a simple annual interest rate on all overdrafts and get rid of fixed fees.
But there have been concerns that banks will hike authorised overdraft charges to claw back some revenue lost from unauthorised overdraft fees.
In July, Nationwide also unveiled a new single rate of 39.9% across its adult current account range. Its changes came into force in November.
Helen Saxon, banking editor at MoneySavingExpert.com, said: "With both of the first banks to announce changes moving overdraft interest rates to around 40%, we have to wonder if this is the new normal."
The FCA has acknowledged banks may look to increase their arranged overdraft prices as a result of the new rules.
But it argues the net effect will still be better for consumers - and increased competition between providers as a result of the changes will constrain any price increases.
Rachel Springall, a finance expert at Moneyfacts.co.uk, said: "It's disappointing to see such a hike in overdraft charges but there may be more brands coming out in the coming weeks to announce changes too.
"This shake-up is designed to make things fairer and more transparent to consumers.
"Borrowers would be wise to scrutinise any changes to their current account and look to switch elsewhere if they find that the account has lost its shine."
Marketing of high-risk investments - known as mini-bonds - to regular savers is to be banned by the City regulator.
Armchair investors have been tempted by the returns promised on these speculative bonds, which were often much greater than mainstream products.
But they have been at the heart of scandals, such as the collapse of London Capital & Finance (LCF) when 12,000 people lost money.
The Financial Conduct Authority (FCA) marketing ban starts in January.
The ban will last initially for 12 months, while the FCA considers permanent rules.
What is a mini-bond?
A mini-bond is described by the FCA as being a kind of IOU issued by a company to an investor. In return, the investor receives a fixed rate of interest over a set period of time. At the end of this period, the investors' money is due to be repaid.
The return on investors' money entirely depends on the success and proper running of the issuer's business. If the business fails, investors may get nothing back.
The ban applies to arrangements where funds raised from a mini-bond are used to lend to a third party, invest in other companies or buy properties.
The FCA only has power to intervene in marketing - not in the sale of the products themselves.
The regulator said they could still be marketed to "sophisticated investors", who could declare themselves able to understand the risks, or high net-worth individuals with an annual income of more than £100,000 or net assets of £250,000 or more.
Why have they been in the spotlight?
Earlier this year, people lost money on two investments involving mini-bonds.
Almost 12,000 people who put a total of £236m into a high-risk bond scheme marketed as a fixed-rate ISA with London Capital & Finance (LCF), lost their money.
LCF advertised itself as a low-risk ISA, but in reality the fund did not qualify as an ISA.
Then last month, investors who put money into two businesses started by Grand Designs presenter Kevin McCloud were warned they could lose their investment.
HAB Land Finance and its owner HAB Land called in liquidators after a period of "difficult trading".
Potential investors were pitched mini-bonds with 8% returns to crowdfund two projects.
Andrew Bailey, FCA chief executive, told the BBC's Today programme: "This is the sixth piece of intervention we're doing this year. We are also in close discussions with the internet service companies, because we want to limit the marketing of these things through that channel.
"We think it is inappropriate to market the complex versions of these instruments to retail customers, not to the high net-worth individuals, but to retail customers.
"We want to see more action. I'm keen that the legislation that the government proposed on online harms - which I know addresses really important issues which are outside our world - can also include financial harms.
"I also want more action from Google - I think they can play a big role because it is the major channel now and we find these things just popping up all the time."
Moira O'Neill, head of personal finance at Interactive Investor, said she could understand the attraction of mini-bonds.
"Savers are now in the unfortunate position where even if they can lock their money away for four years, they will only get 2%. So the prospect of lending money to a company via a mini-bond for a similar period and getting four times that amount, or more, is tempting," she said.
"But mini-bonds are paying higher rates than bank accounts precisely because they do contain an element of risk - essentially the risk that the company could go out of business.
"And it's often too difficult for customers to assess if are they paying enough to take that risk."