Credit crunch tips

The credit crunch is beginning to bite - industry body the CBI this week warned we are facing a potential financial crisis and a growing number of economists are warning that a recession is on the cards. Find out how to protect your finances against the coming storm

The Confederation of British Industry (CBI) this week issued a stark warning over the UK's economic prospects. The industry body downgraded its economic growth forecast for 2008 to 1.7% and warned that significant numbers of jobs could be lost in the financial services industries.

The effects of the credit crunch have spread far beyond the banking sector and are already affecting the pound in our pocket. Almost all household expenditure has risen in this harsher financial environment - most notably the double-digit increases for gas and electricity seen since the turn of the year.

Many economists claim the current economic slowdown could turn into a full-scale recession. Investment bank Lehman Brothers this week warned there is a one in three chance of the UK going into recession, as spiralling mortgage rates put the brake on consumer spending leading to sharply reduced growth.

But - before you start to panic - many other economists claim recession can still be avoided. And you can also act to protect yourself. Smart financial management can protect your cashflow and save hundreds of pounds a year - whatever happens in the coming months.

Pay down your debts
UK households now owe around £1.4 trillion to banks and building societies through credit card, personal loan and mortgage debt. If you're borrowing heavily on credit cards charging a high level of interest, it's time to switch to a cheaper lender.

The Barclaycard Platinum credit card currently offers 0% interest on balance transfers for 14 months, while a number of other providers including Tesco, the Royal Bank of Scotland and Abbey are offering 13 months interest-free on balance transfers.

Just make sure you pay off the debt in the interest-free period because after that the rate of interest you pay will increase to 15% or more.

Find a better credit card - fast

Work your money harder
Your hard-earned cash doesn't have to lie idle in a current account paying a minimal rate of interest. If you can deposit at least £1,000 a month into your account you should be able to get between 4% and 8% interest on the first £2,500 if you shop around. This would make you an extra £100 to £200 in gross (before-tax) interest over a year.

Get a better bank account

You can also give your savings a boost by sheltering £3,000 (£3,600 from 6 April) a year in a tax-free instant-access cash Isa. Many Isas are current paying in excess of 6% interest - which could earn you more than £200 over the course of a year.

For bigger sums you should be looking to get between 5.35% and 6.1% on no-notice accounts and up to 6.6% on long-term fixed-rate bond accounts.

Find the best home for your savings

Slash your bills
With Scottish and Southern Energy announcing a 15% increase in gas and electricity prices this month, all six major energy suppliers have now upped their tariffs since the turn of the year. And that means it's vital for cost-conscious consumers to get busy and shop around for the cheapest deal.

Scottish and Southern's hike, which comes into effect April 1, will add £131 to annual dual fuel bills. Average household energy bills are now topping £1,000, but by comparing tariffs and paying by the cheapest method (usually direct debit through an online account) you could save as much as £270.

Find a cheaper energy supplier

Protect your income
You may want to protect your finances against the possibility of losing your job - but be careful. Payment Protection Insurance (PPI) has received a lot of bad press over the last few years because of concerns that millions of people have been mis-sold it. An investigation by City watchdog the Financial Services Authority (FSA) uncovered many cases of consumers having been sold policies they wouldn't be eligible to make a claim on.

It pays to read the small print carefully. Many policies don't cover the self-employed while others vary on when they start paying out - some will pay out after 30 days, while others do not start paying out until you have been unable to work for 90 or even 180 days. Remember too these policies don't cover your entire monthly salary - payouts are capped although the maximum payout varies depending on the provider.

Author- Matthew Wall, Friday April 11, 2008-Sky.com