Personal finance: Wishing you many happy returns for the new year

This being my last column before the new year, it seems only apposite to write about two things. One is a quick look at events that affected readers' pockets in 1997. The second is to make a few suggestions as to how 1998 can be made marginally more prosperous.

For savers, the year has been - let's be honest - a good one. Not only did high street banks and building societies raise rates on their accounts to levels not seen for three years or so but, with the notable exception of the Far East and so-called emerging markets, share prices also reached record highs.

This was in sharp contrast to predictions by gloom-and-doom merchants, who suggested 1997 would be the year in which "corrections" around the world would see a drop in share values of 10 per cent or more.

Anyone investing in UK tracker funds would have seen gains of up to 30 per cent in 1997, compounding similar growth the previous year. In the US, the Dow Jones share index has recorded a similar uplift.

All the same, it makes sense to be a tad more careful in 1998. Now is the time to consolidate, looking at sectors less likely to be affected by an expected slowdown in the UK economy.

Indeed, the implications of events in Japan and their potential to spill over in the West mean that the gloomsters' warnings may simply have been premature and no more.

This means that - unless you are a very long-term investor, in for 10 years or more - now is definitely not the right time to invest in the Far East. It may actually be time to move out.

As for UK and European equities, far safer - if not as exciting - havens for your cash as the past 12 months have been, in our first few issues next year, our experts will be pin-pointing interesting investment areas to look at in 1998.

A warning, however: don't even think about investing money until you have paid off existing credit card debts. Unless you are a financial guru, nothing will beat annual "returns" of 20 per cent or more gained by settling your plastic debt.

Meanwhile, mortgage borrowers have faced a torrid time in the past 12 months, with a succession of rate rises which will be expressed for many in the annual mortgage reviews they face in the first few months of the year. For someone with a typical pounds 60,000 loan, the increases seen in the past eight months have added about pounds 70 a month in repayment costs.

Nor is it likely that mortgage interest rates will come down swiftly in 1998. The answer must be to take advantage of some of the lower fixed and discounted rates now available and look not just two but three or more years ahead. It is still possible to obtain a four-year fix at 6.5 per cent and discounts of between 2 and 2.5 per cent on the current 8.7 per cent variable rate are around. It wouldn't be right to leave 1997 without a glance at two changes set in motion by New Labour.

Labour's decision to remove the right to reclaim advance corporation tax on pensions means that anyone in a money-purchase occupational scheme or with a personal pension will see a severe shortfall in the value of their retirement income.

This invisible tax means that, according to some calculations, someone paying in pounds 100 a month into a pension for the past five years, with 20 years to go until retirement, will see a drop in the value of his or her retirement fund of up to 10 per cent. To maintain its value, gross contributions should increase by pounds 17 a month. This is clearly one useful new year resolution to take up.

Another is the ISA. The bottom line is that, assuming the pounds 50,000 ISA upper limit remains unchanged, it makes sense to PEP up to the limit between now and April 1999, when the new regime comes in - particularly for higher- rate taxpayers. Allowing Tessas to run alongside the ISA for the rest of their five-year lives means you should be tucking away any spare cash into a Tessa right now - or at some stage in the next 15 months.

Finally, a quick look at credit cards and instant access accounts. Competition is fierce and there are cards out there with rates as low as 10.9 per cent. Some of the better ones are from the Co-operative Bank, Save& Prosper/Fleming and Royal Bank of Scotland.

Lastly: if you have money parked in a low-interest bank account, my advice is to go shopping for a better deal - to Tesco, Sainsbury's or some of the direct account providers such as Standard Life Bank who now offer direct access account rates of 7 per cent gross or more.

That's it for now. To all our readers, a happy and prosperous new year. We hope to help you make it so.