Investing Insiders Weekly #13

Top Story: Bank of England cuts rates

If you’re a saver or a borrower, then this week’s drop in interest rates matters.

Who benefits from a rate cut?

If you’re a mortgage holder, or you’re on the hunt for a mortgage, then raise a cheer. Although it does depend on which kind of mortgage you have if you’re an existing borrower

🎉 Winners: Those on tracker mortgages do the best from this change. This week’s 0.25% rate drop means more money in your pocket almost immediately as lenders drop rates by a similar amount.

If you have a variable mortgage, you could also see your interest rate drop. However, variable rates aren’t always directly tied to the Bank of England base rate, and can be changed by the lender at any time, for any reason. So it’s worth checking if you’re in this camp.

⚖️ Not a win, but not a loss: If you’re on a fixed rate mortgage, then nothing changes for you as your rate is set for a pre-determined period of time. However, it does mean that when you need to remortgage, lower cost options could be on the table. 

➖ Losers: If you’re diligently saving right now, or you rely on your savings to fund your spending, then it’s bad news. The interest you earn on your savings could be about to fall. In which case, it’s worth shopping around. It’s a competitive space so there are still deals to be had. Check out our Best Cash ISA page for our recommendations.

We haven’t mentioned credit cards and personal loans. That’s because these aren’t usually impacted by Bank of England base rate cuts in such a direct way. If cuts form part of a longer-term trend, then the cost of borrowing starts to reflect that. But it will take time to filter through. 

From the regulator: Drivers owed £18bn in car finance blunder

You could be in line for compensation if you used car finance to buy a vehicle in the last 18 years. 

🤔 Why is that? In 2021, the Financial Conduct Authority (FCA) banned dealers from selling loans where they earned a commission if drivers agreed to a higher rate of interest. These were known as discretionary commission arrangements (DCAs). Since January 2024, the FCA has considered whether compensation should be awarded to affected buyers.

❓What was decided? The Supreme Court largely sided with car finance companies and found that the commission paid to car dealers wasn’t unlawful. However, the judgment left the door open for compensation to be paid if dealers received extremely large commissions, which it deemed unfair. 

💡 What happens now? The FCA will roll out a compensation scheme which is estimated to pay out between £9bn and £18bn to affected drivers. Most claims are likely to be around £950, according to the FCA. 

Who’s eligible? You might be eligible for compensation if you:

• Took out car finance between 2007 and 28 January 2021. 
• Used a Personal Contract Purchase (PCP) or Hire Purchase (HP).
• Use the vehicle for personal use.
• Were not told that the finance agreement included a DCA.

How do you claim? The FCA is still finalising how the compensation scheme will work. It’s expected to launch in 2026, so watch this space for more details!

The Dividend Allowance Diet: Allowance slims from £5,000 to £500

Your tax-free dividend buffer has slimmed by ninety per cent in less than ten years. Here is the timeline.

A quick refresher: a dividend is a portion of a company’s profits shared with its shareholders. Hold the shares when the payout date arrives and you get cash, often every quarter. Many small business owners also choose to pay themselves in dividends as this is more tax efficient.

A £2,000 dividend once cost zero tax. Today, a basic-rate investor hands over £175 at 8.75%. 

HMRC estimates 4.4 million people will feel the pinch during 2024-25 as the allowance halves again.

Why it matters

• Small-business owners and side-hustlers who pay themselves in dividends will notice the biggest jump.
  
• Anyone with a general investment account that holds dividend-paying shares or equity funds could now breach the £500 limit without realising.
  
• Higher-rate investors pay 33.75% on anything above the allowance, and additional-rate investors pay 39.35%.
  

How to shield your payouts

1. Fill your ISA first: Dividends inside an ISA are always tax-free and do not count towards your allowance.
   
2. Use pensions for growth: Contributions reduce income tax today, and the funds grow free of dividend tax inside the wrapper.
   
3. Adjust your pay mix: Take a small salary plus dividends that stay under £500, then top up with ISA or pension contributions.
   
4. Plan for next year now: The allowance is scheduled to stick at £500 for 2025-26, but more stealth moves are possible. Keep records and stay flexible.
   

💡The takeaway

The dividend allowance is no longer a reliable shelter. Think wrappers first, keep an eye on your totals, and be ready for more changes.

Tip of the week: Check your premium bond prizes

Millions of premium bond holders are sitting on prizes worth up to £100,000 that they haven’t claimed, according to NS&I. 

In total, there is more than £100m going unclaimed, so if you have – or have ever had – any premium bonds, it’s worth checking if you’re owed some cash.

NS&I has a premium bonds prize checker, you just need to know your ‘holder number’, which you can find in any paperwork about your premium bonds or in your online account.

Contact N&SI directly if you can’t log into your account or don’t have any paperwork and they will ask you for some extra info.

Deal of the week: Best student bank accounts 2025 💵

Looking for a student bank account? We’ve analysed the UK’s student bank accounts to help you find the best provider to manage your money next term. 

From cash bonuses, Railcards and rewards to fee-free spending abroad and interest-free overdrafts, discover which student bank account took top spot in our list and how to apply.