Wealth Check: Man of the World seeks word to the wise

Each week we give 'Independent on Sunday' readers a financial makeover

The problem

The problem

Nicholas Walton is the first to admit that personal finance is not his strong point. The BBC World Service producer has had his Lloyds TSB current account since he was 19 and has been meaning to switch for years. "Like much of my financial situation, I plan to do something but just don't get round to it."

His Gold Service account costs £60 a year. He gets free travel insurance for this but that's about it. "I've considered a switch to Smile or the Co-op for ethical reasons, as well as better rates for being in credit."

Nicholas says his savings could also do with an overhaul. He has built up £6,000 in Smile's online account, on which he earns 3.5 per cent interest. And he keeps £300 "from my school days" in a Newcastle building society account.

"I'm very interested in mini cash individual savings accounts [ISAs] and would be interested in an equity ISA too. However, it's vital I can gain access to my money in an emergency."

Nicholas recently bought a flat in East Dulwich, south-east London, for £175,000. He has a £112,000 mortgage with the Woolwich, which is made up of two elements, each on a "rolling discount" of 5.34 per cent on the bank's standard variable rate (SVR). The first part is a £30,000 repayment loan, the other an £82,000 interest-only loan attached to a unit-linked Winterthur Life endowment, which he took out in 1999.

Nicholas feels he could secure a better mortgage by switching the interest-only portion to a repayment deal, but he isn't sure if he could afford it.

A question mark hangs over the endowment plan too: "Should I keep the policy as a savings plan for the future?"

For four and a half years, he has paid 5 per cent of his salary into the BBC final salary pension. He is keen to boost his retirement fund, either by buying "extra years" through backdated payments, or making additional voluntary contributions (AVCs).

He has no insurance protection apart from that in his Winterthur Life endowment.

Interview by Sam Dunn

The patient

Nicholas Walton, 32, from East Dulwich, London.

Job: senior producer for the BBC World Service.

Income: up to £35,000.

Savings: £6,000 in an internet account, £300 in a building society account.

Investments: none.

Goal: to improve his mortgage, make savings work harder and switch current account.

The cure

Nicholas should be able to remortgage to a repayment loan, agree Gillian Cardy of independent financial adviser (IFA) Professional Partnerships and Danny Cox of IFA Hargreaves Lansdown.

He should act now on his savings and current account and switch to more competitive deals, says Anna Sofat of IFA Destini Fiona Price.

Property

Nicholas must check what the penalties are for cashing in his endowment. If they aren't extortionate, this would be worth doing, as he could use the proceeds to clear part of his debt, advises Ms Cardy. "He could then remortgage the loan for the [new] smaller amount on a repayment basis."

The endowment also gives Mr Cox cause for concern. "I estimate that the combination of the two parts of his mortgage and the endowment costs £736.27 a month. If this was switched over to a full repayment loan of £112,000 over the next 19 years, that would cost £761.30 a month." In other words, for not much more money, Nicholas could be certain that his mortgage would be paid off at the end of the term of the loan.

These sums are based on a two-year fixed-rate deal at 5.34 per cent. By extending the loan beyond 19 years, Nicholas could further reduce his payments, says Mr Cox.

Ms Sofat suggests switching to a discounted deal instead, since "rates are expected to increase in the very short term but then decline next year". Britannia offers a 4.99 per cent two-year discounted deal.

Savings

Nicholas should first switch £3,000 from his Smile account into a mini cash ISA, advises Mr Cox. Portman building society will give him 5.5 per cent tax free - a huge improvement on what he is getting with Smile, Mr Cox says. But this includes a 0.65 per cent bonus for the first six months. Ms Sofat prefers Abbey's 5.35 per cent cash ISA as it carries no bonus that will soon disappear.

She suggests switching the rest of his savings from Smile, and the £300 from Newcastle, to an account paying more interest. ING Direct pays 4.89 per cent and the AA 5.36 per cent, though the latter includes a 0.7 per cent bonus for the first 12 months.

Once Nicholas is in a stronger position, he should consider saving regularly into a mini UK stocks and shares ISA, adds Mr Cox.

Current account

"Paying extra for premium services is usually a complete waste of money as people rarely benefit from the extra facilities," says Ms Cardy.

The basic Lloyds TSB Gold Service account offers just 0.1 per cent interest, and Ms Cardy recommends a switch to Cahoot, which pays 4.17 per cent on balances of as little as £1. Alternatively, a move to a Smile current account would allow Nicholas to stick to his ethical stance and earn 3.25 per cent interest, says Ms Sofat. Mr Cox suggests Alliance & Leicester's current account: it pays 5.37 per cent on balances.

Retirement

If Nicholas stays at the BBC, it's worth sticking to its final salary pension scheme as it's "first class", says Mr Cox.

On top of this, buying extra years would be preferable to AVCs, Ms Cardy says.

But for a precise comparison between the two, he should visit a pensions specialist, advises Ms Sofat.

Protection

The BBC's sickness benefits will probably be adequate, says Ms Sofat, but Nicholas should check whether he has enough emergency funds to make up any shortfall.

If you would like a financial makeover, write to Melanie Bien at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email m.bien@independent.co.uk