"The cleverest financial inventions enable you to save or make a fortune" David Prosser

The Independent / Saturday, 4 November 2006

Banks and insurance companies are not renowned for moving with the times - more often than not, innovation is an alien concept. But that doesn't mean the financial services industry doesn't occasionally come up with a new idea. And the best ones could save - or make - you serious amounts of money.

1. ZOPA

Zopa.com is an internet site that gives people the opportunity to lend to individual borrowers for their mutual benefit. It describes the concept as "real people lending to real people and cutting out the banks".

Lenders earn more money than they would from depositing their cash in the bank - the average annual return is around 6.8 per cent - while borrowers pay less than they would be charged by commercial loans companies - as little as 4.5 per cent.

People can lend as little as £10 and there's no maximum limit. Your money is split between 50 borrowers, reducing the risk of defaults hitting the return earned, though Zopa's bad debts are currently running at less than 0.05 per cent.

"With loans companies, those with good credit ratings typically pay 10 per cent annual interest, with the best credit risks getting cheaper deals," says James Alexander, Zopa's chief operating officer. "At Zopa, the average lending rate is 6.5 to 7 per cent and the best risks pay below 5 per cent."

Zopa is quite picky about who it allows to borrow, so the service won't suit everyone, but if you pass the credit checks you should be able to borrow more cheaply here than elsewhere.

Lenders can specify which class of borrowers, in risk terms, they want to loan to, as well as the term over which they want their cash back. An average annual return of 6.8 per cent is above the best savings account rate payable, though there's an element of risk to the loan and you effectively tie up your cash for the term you specify.

2. PRUHEALTH

Private medical insurance (PMI) was once popular with people attracted to the tax relief on premiums offered by the Conservative governments of the Eighties and worried about the state of the National Health Service. But over the past 10 years, despite its obvious usefulness, fewer and fewer individuals have bought PMI, chiefly because of rising premiums.

Prudential's PruHealth plan could change that. Like all PMI policies, it offers cheaper premiums to healthier people - younger people, non-smokers and those who are not overweight will all pay less, for example. But the policy goes much further than that, with a series of financial incentives designed to help people become healthier, and a programme that rewards policyholders who meet that goal.

The first half of the deal is discounts off gym memberships - policyholders can join Holmes Place for £25 a month, for example, a saving of up to £45 - as well as stop-smoking programmes, health checks and medicals.

The second element is PruHealth's Vitality programme. Policyholders start at the Bronze stage and earn points for everything from downloading healthy meal plans to attending screenings for common medical problems. As they earn points, they move up the programme, eventually to Platinum membership, with money off premiums at each level.

PruHealth is less likely to suit people with unhealthy lifestyles, but for those prepared to change it offers real incentives for healthy living, plus help to get you there - and medical insurance, of course.

3. OFFSET MORTGAGES

Offset mortgages were first launched in the UK in 1999, but this year they have finally come of age.

The products enable borrowers to combine their mortgage with cash assets such as savings and any money they have in their current accounts. This cash is offset against the overall size of the debt, reducing the amount on which you pay interest. That curbs the bill and shortens the term of the loan.

Fine in theory. But until this year, the high interest rates charged by offset mortgage providers cancelled out the potential savings on offer to all but those borrowers with the largest cash assets.

Ray Boulger, of the independent mortgage broker John Charcol, points to a new deal from Intelligent Finance (IF), the offset specialist owned by the HBOS group. It will charge the Bank of England base rate minus 0.41 percentage points for the next two years, the second cheapest variable rate mortgage on the whole market.

A £2,500 arrangement fee means the IF deal really only suits borrowers with mortgages of £250,000 or more, but good offset products are now much more widely available. Woolwich and Clydesdale Bank both offer offset products with lifetime guaranteed interest rates that are just as cheap as their non-offset equivalents, Boulger adds.

Offset products will continue to work best for those prepared to hold savings cash in the accounts, or those with volatile income streams that produce large irregular payments. The self-employed are another important market. But for the first time, the best offset deals could save almost everyone money.

4. CASHBACK ON SHOPPING

>Sites such as Amazon and eBay offer huge ranges of goods at bargain prices, while price checking services such as Kelkoo help you to make sure you are getting the cheapest deal. But now it's possible to go further - several internet sites will literally pay you to shop through them.

These cashback sites have relationship with most of the big retailers in the UK. They get paid a commission for referring shoppers to the retailers, which they then share with you. Typically, you can earn 2 per cent of what you're spending, but it can rise to as much as 10 per cent.

Once you've decided what you want to buy, consult a cashback site to see if it has a relationship with the retailer of your choice.
Martin Lewis, who runs the Moneysavingexpert. com website, recommends two sites in particular. "For cashback kings who'll spend over £500 a year, Quidco's higher rates per shop make it the winner," says Lewis. " For those who'll spend less, Rpoints has a range of advantages - it pays via bank transfer or Paypal, it has a lower pay-out threshold and it gives you a bonus if you refer a friend."
At Rpoints (www.rpoints.com ) spend £300 and you'll get £7.50 cashback, plus a £5 signing-on bonus the first time you use the site. Quidco (www.quidco.com) would pay £10.40, but there's no bonus.

5. WRAPS

If your independent financial adviser isn't using a wrap, you need to find out why. A wrap is a computer system that enables advisers to put all your investment products on to one screen, to switch in and out of these investments at will, and to make new investments from the widest possible choice of providers and products.

Wraps are revolutionising financial advice. Until now, most advisers have maintained your affairs in a haphazard fashion, with no single administration of your account.

With a wrap, your adviser cab see every financial asset you own. It may be the first time he has had a proper overview of your portfolio, even though this is crucial to assess whether you are on target to meet your needs and goals.

'I try to avoid dealing with the banks'

Karl Wood turned to Zopa when he needed to borrow some money last year to pay for his wedding. The 38-year-old, who works as a technician in the steel works in Port Talbot, South Wales, wanted to borrow £3,000 over five years and came across Zopa while trawling the internet for cheap deals.

"The rate I was offered was very low - the equivalent of total interest of £180 over the three years," says Karl. "It appealed to me because I try not to deal with the banks - I've got a good credit rating and always make my repayments, and I want to avoid their high charges."

Having been initially attracted to Zopa by the low interest rates, Wood then discovered the community aspect of the site. "I've never had an internet experience like this one," he says.

"My e-mails were answered within half an hour. It feels a bit odd borrowing money from individual people, rather than an institution, but I soon got over that."

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