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Martin Lewis: ten things you need to know about cash
Cash is King ... or so they say. I’m afraid I disagree. It has advantages for budgeting and haggling. But when it comes to spending or making savings safer, cash comes a distant second place. Here are my ten need-to-knows.
1. Don't stash cash under the mattress — it's only covered for £750
A recent tweet from one of my Twitter followers says it all. "My granddad just passed away. Found £22,000 in his flat. £3k in various jacket pockets and drawers, £19k in a suitcase."
Granddad didn’t only lose interest, he was also poorly protected. Most home insurance only covers up to a max £750 cash and require a receipt/bank statement as proof.
It’s not just a financial issue. As fireman @ddukeofdarkness responded on twitter, "Money under the mattress makes a nice accelerant in house fires for us to deal with."
2. Save in a UK bank and you're covered for up to £85,000
Put money in a UK-registered savings account or cash ISA rather than under the mattress and, if the bank collapses, the Government promises to pay out up to £85,000 per person, per financial institution. This excludes ING Direct which is Dutch regulated and protected.
3. Urgent. Save at 4% AER TAX-FREE
This year's cash ISA allowance closes on 5 April. If you don't use it, you lose it. A cash ISA is a savings account you can put up to £5,340 a year in, where interest is tax-free year after year-after-year.
If you're willing to lock cash away, 4.5% is possible. The top easy access deals are about 3.5%, though this includes an introductory bonus, so diarise to transfer and switch in a year. Updated best buys and more options at moneysavingexpert.com/cashISAs
4. Pay 1p on a credit card to protect a £5,000 purchase
Another warning inspired by a twitter question: "My 86-year-old dad put a £120 deposit at a restaurant (he doesn't believe in plastic). It's gone into administration, what can he do?" Sadly, the answer is ‘not much’.
While many find it counterintuitive, paying by plastic’s safer. Buy goods for £100-£30,000 on a credit card, and under ‘Section 75’ laws, the card firm's jointly liable, so you can claim a refund from it if there’s a problem.
The gobsmacking fact is even if you pay just 1p by credit card for a £5,000 kitchen, the card company’s liable for the WHOLE amount. Though repay the card in full to avoid interest.
If you don’t like credit cards, debit cards offer a lesser non-legal protection called chargeback, which is an okay last resort.
5. Get PAID £100s to spend on plastic too
Capital One's World Mastercard pays a huge 5% back (£5 per £100) on all spending for the first three months, up to £100 cashback. Then it’s a tiered rate up to 1.25%.
Not only do you get Section 75 protection, but get paid when you spend. Only do this if you set up a direct debit to repay IN FULL each month, or the 19.9% representative APR dwarves the gain.
6. Beware if you opened savings over a year ago
Check your current rate. It's likely to be paltry, often less than 1%, so ditch and switch.
If your ISA's used up, the top easy access accounts pay around 3%. If you can lock money away for longer, 4% is possible. Deals change regularly – see moneysavingexpert.com/topsavings for the latest.
7. For safety and high returns, clear your debts
If you had £1,000 stashed in a top savings account paying 3% and the same amount on a credit card charging you 18% APR, by repaying the debt you'd be £150 a year better off (more after tax).
If you're thinking, "but I need the cash in the bank for emergencies”, keep a credit card (ie, roof falls in, not need new haircut). Meanwhile, you save hugely on interest.
8. Save large amounts in 100% safety
If you've big savings, perhaps from a house sale, the highest totally safe return comes from spreading £85,000 chunks across top savings accounts at different UK regulated institutions (see mse.me/safesavings for what counts as ‘different institutions’ – it’s complex).
Want it all in one place? The only route’s NS&I's Direct Saver, but the rate’s a low 1.5% AER.
9. Don't store cash in current accounts
If you've £1,000s in a current account and it usually pays paltry interest, get a high interest savings account instead.
10. Shops needn't accept your cash just because it’s legal tender
You may be surprised that NO bank notes are legal tender in Scotland. In England and Wales, only Bank of England notes are. Though, frankly, legal tender’s meaningless in day-to-day life.
Anyone can choose to accept or refuse any payment. Legal tender just means it can't be refused as settlement of court-ordered debt.