Sharesave bonanza for ASDA workers

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Money news, advice and predictions for savers and spenders. This week: Buying shares in your own company.

By Jeremy Gates

It's a great way to save, and profitable too - especially if you work for a firm performing well on the FTSE 100.

More than 2.3 million employees in listed companies use Sharesave, putting in £5 to £250 per month over three or five years. Companies discount the option price at which a share can be bought by up to 20%.

It's proved a money-spinner for many, even in rocky stock markets.

More than 200,000 ASDA workers, for instance, have cashed in on Sharesave since 1999. Earlier this month, more than 16,000 of them got a £43 million bonus when their scheme matured after shares of parent company Wal-Mart showed a 50% rise since 2006 - and 95% of them sold all their new shares immediately to get the cash windfall.

ASDA staff who put the maximum £250 per month into the scheme got a bonus of more than £4,500 on £9,000 invested. About 25,000 ASDA workers joined the next Sharesave scheme from March 2009, and 50,000 of the total 165,000-strong ASDA workforce are in such a plan.

In 2008, more than 2,400 bus and rail drivers with transport firm Stagecoach cashed in, receiving around £6,300 for an average gain of more than £3,600 each.

Clearly, Sharesave encourages many workers on low incomes to make regular savings over several years.

The benefits are two-fold: employees are introduced to share ownership at a guaranteed profit, because if the share price falls during the saving period they can take their money, plus bonus, and walk away at the end with a lump sum.

Firms gain, because workers get an incentive to work efficiently to maximise profits.

Nearly all of us need to save more, which makes it harder to understand the decision of Her Majesty's Revenue & Customs (HMRC) to cut the rate paid on cash in three-year Save As You Earn (SAYE) schemes from 1.08% to 0.54%.

For early leavers, who fail to complete the specified saving period, the rate is cut from 0.50% to 0.36%.

For savers over five years, the rate falls to 1.42%. These rates apply to new schemes, not those already in operation.

Roy Maugham, tax partner at accountants UHY Hacker Young, says that, by setting interest rates close to zero, employees who later decide not to exercise their options will see almost no return on money they have locked away.

"HMRC could not have done this at a worse time," Maugham warns. "The recession has forced many growing companies to freeze pay and recruitment, and some use SAYE schemes to reward staff with the offer of a stake in the company instead.

"HMRC is now throwing cold water on these attempts to incentivise and reward the most promising employees."

All interest and any bonus paid on the maturity of Sharesave schemes are tax-free, so the taxman might think his revised rate is not far out of line with, say, the 0.80% currently paid as Premium Bond prizes and plenty of sub-1% bank and building society account rates.

However, it is probably more important than usual to keep interest rates on SAYE schemes attractive, because the gloom surrounding UK shares will persuade many employees not to get involved, and to waste money which would be taken from their pay packet if they joined Sharesave.

The new 0.5% interest rate will remain in place for the duration of the scheme, despite employees agreeing to lock savings away for three years and committing to pay a fixed amount of money into their account each month.

"Rather than setting interest rates in line with the Bank of England, perhaps HMRC should be aligning the rate paid on SAYE accounts to those available on gilts," Maugham says.

"Many High Street accounts requiring savers to lock their money away for just two years offer rates of 4%-plus, so there is no reason why HMRC cannot offer SAYE account holders a similar rate."

Andrew Hagger at finance website Moneynet.co.uk believes that Sharesave will not be tempting at these rates, unless you work for a company where you can predict that the share price is going to rise strongly.

"You'll get a better return from some instant access accounts, without being locked in for years," Hagger says.

Most politicians have come around to the idea that we all need to save a bit more. But perhaps Sharesave is another illustration of the huge gap between fine words and effective action.

:: Information: For details of Sharesave, see the Government website on www.hmrc.gov.uk; a useful HSBC factsheet on Sharesave is on www.hsbcsharesave.co.uk.

:: To minimise the risk of credit-card fraud, take particular care when visiting the US, Canada, Australia, Spain and Italy, which top the international league for targeting the 168.7 million plastic cards owned by Britons.

The most serious frauds on cards occur in these countries, with total losses of £609.9 million in 2008 - a whacking increase on £439.4m of dodgy dealings in 2006 when Chip and PIN was introduced to beat it.

"What has happened is that fraudsters have found ways to target cards not protected by Chip and PIN," says Michelle Whiteman, spokeswoman for APACS, the trade association for payments.

"For example, they clone cards in the UK for use in countries not yet covered by Chip and PIN, most notably America where 2008 losses (£31.7m) were 25% up on 2007.

"In Spain, which does have Chip and PIN, biggest losses are on 'card not present' frauds - internet, telephone, mail order, when a retailer doesn't have card in front of him."

The fastest-rising levels of theft occur on: card ID theft (up 30% to £47.4m) where the thief uses card or card details fraudulently obtained; cash-machine fraud (up 31% to £46m) because many cardholders keep a PIN written down in a purse or wallet; and counterfeit card fraud (up 18% to £167m), when a fake card is created from magnetic strips of the genuine card.

UK retailers lost £98.5m in 2008 (up 35%) by accepting lost and stolen cards, well down on £218.8m losses recorded in 2004 before Chip and PIN came in.

After America, the heaviest fraud losses from cards and details stolen in the UK were in Canada (£10.8m), Australia (£10.8m), Spain (£10.1m) and Italy (£8.3m).

France, which saw the heaviest losses in 2005, has dropped much lower down the league, thanks largely to Chip and PIN - to which all European countries should be committed by 2010.

:: Information: An APACS guidebook, 'Personal Security Plan: the best ways to minimise your chances of becoming a victim of fraud', can be downloaded from www.apacs.org.uk.

Telephone enquiries: 020 7711 6200.

Poundnotes

:: Rate 'tarts' who switch credit cards to dodge interest charges in the introductory period of a new deal will be scorched to the tune of £535 million in the next year, predicts price comparison service uSwitch.com.

It says they will find they can't switch, and must instead remain on cards already carrying a total of £3.5 billion of debt.

The website says rate 'tarts' had a ball in 2008, carrying out an average 650,000 balance transfers each month. As card companies crack down, it is becoming much harder to fix a switch, even with 178 balance-transfer credit cards - representing 74% of all credit cards, compared to 204 this time last year.

"The country is in economic turmoil, a situation catalysed by bad consumer credit," says uSwitch's Louise Bond.

"The knock-on effect for credit-card customers is that those with a less than perfect credit history could find themselves being turned down for the next best 0% deal, forcing them to pay interest.

"This is a huge problem for switchers. These people accumulated debt based on the fact that they do not have to pay interest on it".

Bond urges cardholders to check their credit record - on www.uswitch.com/credit-reports - before making any applications for credit.

The big risk for those turned down for several cards is that this will damage their credit score.

Bond also urges customers who don't plan to pay their balance off in full during the 0% balance transfer period to consider 'life of balance' cards, which charge one low rate of interest for the entire time the balance is on the card.

:: With Britain's public debt set to hit £1,000 billion next year, public spending will soon account for half the economy - and workers will spend a larger chunk of their year earning the money to meet the interest payments arising from this massive debt.

Chartered accountants Smith & Williamson say that Tax Freedom Day, when workers stop working to pay tax bills and start working for themselves instead, fell on May 14 this year.

But by the time massive interest charges are taken into account, it means we will have to work until June 25 before the costs of all that Government borrowing are fully met.

After that, any money earned is for workers to spend on themselves. After the Brown spending boom of 2000-2005, said the Financial Times this week, "the State will soon be larger than the taxpayers' willingness to fund it".

Helen Demuth, tax director at Smith & Williamson, says: "Every taxpayer should invest time and effort to ensure they don't pay over the odds."

:: Life is getting better for savers, as providers of fixed-rate bonds look to their savings book for funding rather than the money markets, says Michelle Slade at Moneyfacts.co.uk.

"In order to attract savers from competitors, providers offer ever-increasing rates," Slade says. "At the start of March, just three bonds paid a rate of 4% or more; today, that number has grown to 124."

Andrew Hagger at Moneynet.co.uk says savers must look closely behind the hype about the internet savings accounts launched this week. Because so many headline rates have a bonus built in, many savers could earn a very low rate if they don't keep moving cash around.

Hagger cites the Leeds BS easy-access online account paying a table-topping 3.05% gross. But 1% of that is a bonus, payable only for year one.

The current easy-access savings account from ING Direct pays 2.75%, including a first-year bonus of 2.22%.

"Savers should make a note in their diary to check the rate on offer in 12 months' time," Hagger says.

:: Small investors are still active in the London stock market, despite gloomy warnings of deepening recession, says Angus Rigby at brokers TD Waterhouse.

Although Barclays, Royal Bank of Scotland and Lloyds TSB continue to head the buying tables, there is growing interest in the big miners including Xstrata (4), Rio Tinto (7) and Kazakhmys (8), with BP (5), Yell Group (6), Taylor Wimpey (9) and even battered Legal & General (10) among the most popular targets.

Several of these aren't currently paying a dividend. Let's hope investors are pretty sure about prospects for capital growth.

TD waterhouse enquiries: 0845 607 6001 and www.tdwaterhouse.co.uk.

:: High-five savers:

Phone No Rate Account Period Deposit Interest paid

Clydesdale Bank via branch 5.00% (F) Five Year Bond Five Years £2,000 Yly

Close Brothers 0207 392 1772 4.75% (F) Premium Gold Three Years £10,000 Yly

Ruffer Bank 01372 736700 4.52% Fixed Rate Bond Five Years (P) £10,000 Quarterly

United Nat'l Bank 0800 218 2266 3.50% Three Month Gold Deposit Three Months £1 Half-yearly

Coventry BS 0845 766 5522 3.0% Three Month Gold Deposit None £1,000 Yly

:: Top-five borrowers

Phone No Rate Period Max% Adv Fee Incentive

HSBC 0800 494999 2.49% discounted for two years 60% £249 Yes

First Direct 0845 610 0100 2.89% variable for term 75% £799 Yes

HSBC 0800 494 999 2.95% variable for term 75% £799 Yes

Co-Op Bank 0800 633 5286 3.24% to 31/09/12 75% £ 995 Yes

Loughborough BS (FTB) 01509 610707 3.39% for two years 80% £449 Yes

Code:

*F - Fixed

*P - Operated by Post

*B - Operated by Post/Telephone

*T - Operated by Telephone

*W - Operated by Internet

*H - Operated by Internet/Telephone

*S - Available only to those aged 50 or over

*R - Available to those aged 60 and over.

:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).