The Cheapest Home Insurance

We've previously run the maths to demonstrate how quickly small regular amounts of expenditure can add up to large amounts.  We've also analysed how it is important to save large amounts if you are chasing financial independence in a short space of time.  This is because over a short period compound interest doesn't really get time to work its magic.  It is therefore crucial to ruthlessly look at every piece of expenditure you make to identify savings.  Those savings can then be invested wisely.

One piece of expenditure that is not small and repeats year in year out in various forms forever is insurance.  Depending on your level of acceptance of risk and life situation you might be paying for car insurance, home insurance, life insurance, travel insurance, health insurance and income protection insurance to name only  a few right now.  That is a lot of insurances.  Let’s therefore pick one and by using Retirement Investing Today principles think through how we might be able to reduce our insurance spend leaving more money for financial independence investing.

In the UK home insurance is a generic term which actually covers 2 very separate insurance types.  The first is buildings insurance which protects you from damage to the fabric of your home and so will cover floors, walls, and roofs.  It usually also protects you from damage to fixtures and fittings such as kitchens and bathrooms.  The second is contents insurance which protects you from loss associated with stuff kept in your home such as furniture, computers and personal belongings.

We’ll look at how we can reduce cost with each type of home insurance in a minute.  However while we have them grouped together one thing I would expect most people, including non Retirement Investing Today readers, to be doing in the modern day is to use price comparison sites to scan the home insurance market for the best deal.  A word of caution though.  No two policies are alike and so you must not just pick the cheapest offering presented by price comparison sites.  Instead you must read all the small print and pick the cheapest product that gives you the protection level you desire.

Let’s now look at each home insurance type in turn to identify a couple of further cost saving ideas:

Building Insurance

Your home is probably the biggest purchase any of us will ever make in our lives.  If you own your home or are renting out a home the responsibility for building insurance sits with you.  This then identifies one saving opportunity.  If you are in rental accommodation, as I am today, then I don’t need buildings insurance as it is my landlord’s responsibility.

It’s an Advertisement not News

Apologies in advance for an uncharacteristic short post.  Most of my energies this week have gone into pulling together the fourth quarterly Monevator Private Investor Market Roundup.  ( )

Today BBC radio along with their web offering have felt the need to present us with the “news” that the Post Office is to offer current accounts.  I know it’s all very exciting (yawn!) but please stay with me a little longer before you run off and sign up (not!).  This apparently is all in response to the regulator claiming that the High Street today offers little choice for consumers.  Details are scant at the moment but I’d be willing to bet it will be pretty much more of the same with an interest rate on offer of between 0% and 0.1% AER.  I can’t see it correcting the “lack of dynamism” currently on offer from Banks such as Lloyds, RBS, Barclays and HSBC given that it will just be another offering from yet another Bank, albeit from another High Street.  Am I the only one who doesn’t see this as news but instead just a thinly veiled advertisement for a new current account being offered by the Bank of Ireland?

UK Savings Account Interest Rates – March 2013 Update

Head over to Martin Lewis at Money Saving Expert and you’ll find that today the best easy access savings account comes from West Bromwich Building Society.  It pays interest of 2.05% AER but forget to switch after 31 May 2014 to the next bank or building society offering the highest interest rate at that time and you’ll lose 0.55% of that.  There are other limitations also which includes only 4 free withdrawals per year and a minimum initial deposit of £10,000 so be sure to read the small print if it looks interesting.  If you want something a bit cleaner then you’re looking at Skipton Building Society with 2% AER which includes a bonus 1% which you’ll lose after a year.

It therefore looks as though since we last looked at Savings Rates in February the best buy market has reached a plateau with 2% AER from Derbyshire being the best available at that time.

I must note that I continue to ignore the Santander 123 account for reasons explained in February.  If you’re using it and would recommend it over other options it would be great to hear from you.

So best buys are flat but what’s happening on average.  Well it’s probably no surprise that interest bearing site deposits are also pretty flat since I last posted at 1.08%. They are also flat since the Funding for Lending Scheme (FLS) was announced.  The interest on fixed maturity savings accounts is however a very different story.  Time deposits with a maturity of less than or equal to 1 year have now fallen 0.72% since FLS was announced ending up at 1.57%.  1 to 2 year maturities fall 0.94% to 2.45%.  Greater than 2 year maturities have fallen 0.84% since FLS to 2.72% but interestingly are up 0.2% on the month.  Could this be the start of a trend?  This is all shown in the chart below.

Click to enlarge

This all looks bad for somebody who is trying to save hard  but if you’re a worker paying 40% tax then its worse after HMRC has finished with you.  After tax you end up with 0.65, 0.94, 1.47 and 1.63% per annum respectively (0.86, 1.26, 1.96 and 2.18% for 20% taxpayers).  But wait it gets even worse because inflation is also devaluing your savings at the rate of 3.2% per year.  So after inflation and HMRC you’re actually losing savings to the tune of -2.56, -2.27, -1.74 and -1.58% per annum respectively for a 40% taxpayer (-2.35, -1.95, -1.25, -1.03% for 20% taxpayers).

A Retirement Investing Today Review of Quarter 1 2013

For all UK based readers a Happy New Financial Year to you.  I wasn't sure if I should have put the Happy in front because for me a new financial year carries both a positives and a negatives.  The positive is that a new ISA year is upon us meaning I can again begin working hard to fill my full Stocks and Shares ISA allowance which for this year is £11,520.  The negative is that HM Revenue & Customs (HMRC) will soon send me a request to complete a tax return where as always I will be sent a bill because of my now considerable investment sum.  This however is not as bad as it could be as I continue to push hard to minimise taxes paid through tax avoidance schemes such as ISA’s, Pensions and NS&I Index Linked Savings Certificates (ILSC’s).  Over time continual energy to take advantage of these when possible (remember ISA’s are an annual use it or lose it allowance, NS&I ILSC’s come and go on an ad hoc basis and for this financial year the pension contribution limit is for me a very large lower of 100% of earnings or £50,000 which is called the annual allowance) really add up and mean this year I will only be taxed on around one third of my total investment portfolio.  Therefore on the whole I’ll call it a Happy New Financial Year.

In the past I have only tended to publish my own personal financial position on an annual basis even though I track value weekly and performance monthly.  I now intend to publish my own situation on a quarterly basis for 2 reasons:

• My 2012 annual review showed that in the metrics that I measure myself against I had one conceded pass and one fail.  By publishing more regularly I hope that it will force me to hold myself more accountable to my objectives plus also allow more time for recovery should I fall off the rails.
• The 2012 annual review sparked some good discussion so was clearly worthwhile to both myself and some readers. 

My own personal situation follows everything I talk about on this Site to the letter.  The site is all about Save Hard, Invest Wisely, Retire Early so as with the 2012 Review let’s continue to use those 6 words as a theme.

SAVE HARD

I am now into a fifth year of aiming to save 60% of my earnings, which I define as my gross (ie before tax) earnings plus any employee pension contributions.  This is a very tough target particularly in the current age where we have increased taxes and prices going up due to unrelenting inflation while at the same time my salary is not moving in nominal terms.  My company is currently at the point of annual “salary reviews” but even though I have worked hard over the past year and delivered a lot I expect the same increase as last year which was a large 0%.  I did however manage to this year secure a bonus so I can’t really complain as many of my fellow UK residents I'm sure received nothing.


In addition to hard work Saving Hard has also required me to live frugally and opt out of consumerism. This on the whole has been a very positive experience however every now and then I come close to straying from the path. For example I don’t own an Apple iPhone, Nokia Lumia or Samsung Galaxy mobile phone which I'm told are the current must haves. Instead my personal phone is on a Pay As You Go contract which does not include data and is carried for emergencies only. To be honest I don’t covet a modern smart phone but I would love one of these to simplify reading when on the go and to make staying in touch with the world a little easier. Instead I stick with good old fashioned books and an old laptop which seems to get slower and slower every day.

UK House Value vs UK House Affordability – March 2013

This is the monthly UK House Affordability update, which is the metric that I believe is the key driver of UK House Prices.  It also updates UK House Value which is the metric I am using to assess when it is time to buy a UK home and Sales Volumes.  The last update can be found here.

Let’s first update the key data being used to calculate both UK House Value and UK House Affordability plus report on Volumes:

• UK Nominal House Prices.  There are numerous UK House Price Indices which each measure something different.  This analysis has always used the Nationwide Historical House Price dataset which measures the price of a Standard House and so this month we stay with that for consistency.  March 2013 house prices were reported as £164,630.  Month on month that is a rise of £1,992 (+1.2%).  Year on year also sees an increase of £1,303 (+0.8%).
• UK Real House Prices.  If we account for the devaluation of the £ through inflation (the Retail Prices Index) we see a different picture.  Month on month that increase of £1,992 turns into an increase of £810 (+0.5%).  Year on year that £1,303 increase turns into a decrease of £4,525 (-2.8%).  In real terms prices are now back to those around January 2003.
• UK House Sales Volume.  Sales volumes according to the Land Registry were 53,860 in December 2012.  Month on month that is a fall of 14.0% and year on year a fall of 15.3%.  Volumes are now 40% of peak sales in May 2002 and 66% of the dataset average volume.  
• UK Nominal Earnings.  I choose to use the Office for National Statistics (ONS) Average Weekly Earnings KAB9 dataset which is the seasonally adjusted average weekly earnings of both the public and private sector including bonuses.  January 2013 sees earnings at £470.  Month on month that is a nominal decrease of £2 (-0.4%).  Year on year sees a nominal increase of £5 (+1.1%).  With inflation (the Retail Prices Index) running at 3.3% over the same yearly period the purchasing power of those that work continues to be eroded.
• UK Mortgage Rates.  The proxy I use to monitor mortgage interest rates is the Bank of England dataset IUMTLMV which is the monthly interest rate of UK resident banks and building societies sterling Standard Variable Rate (SVR) mortgage to households (not seasonally adjusted).  February 2013 sees a mortgage rate of 4.4% which is flat month on month and year on year is an increase of 0.26%.  While this metric sees mortgage rates increasing a number of mortgages are seeing falls largely because of the Funding for Lending Scheme (FLS).  2, 3 and 5 Year Fixed Rate Mortgages with high 25% Loan to Value Ratios (LTV) requirements have seen year on year falls of between 0.5% and 0.59% and at 2.87% for a 2 year effectively mean negative real interest rates.