Question Time: Should you invest in gold? Student loan interest? How to get energy credit back?

0:00Hello and welcome to the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. And this is our new weekly question time pod, where you set the agenda. You can ask me anything within reason, and I will try my best to answer off the cuff. In this week's pod, you ask me, How do I get£700 credit back on my energy bill? What can we do about the horrible interest rate on student loans? Should I be investing in gold? Should I overpay my mortgage or just save instead? And how does my granddaughter find her child trust fund?

0:52Let's start the pod. Podcast producer Matt, do you have a good raft of questions for me today? Of course I do. Okay, well I shall be judging you and giving you a score at the end. What are you going to start with? We'll start with Lisa. Yeah. My boss said today it might be better to buy gold coins than invest in the company pension scheme. What do you think? Well, I think, first of all, your boss is really naughty. So let's remember, assuming the company pension scheme is a classic auto-enrolment pension scheme, which you are legally entitled to as an employee, that means if you contribute, then your employer has to contribute as well.

1:25The minimum contribution is if you put 5 % of your earnings in, your employer has to put 3 % on top. And that is virtually unbeatable. Now, an employer should absolutely not, by law, should not be discouraging you from putting money in the company pension scheme. I don't know if this is a big company or a small company. If it's a small company and the person owned the company, for them to be saying something like that to you is absolutely outrageous because it smacks to me that they're trying to basically save themselves a cost. Because let's be really plain about this. If you put money in your company pension scheme, yes, while I accept you lose disposable income because you're getting less in your pay packet because you're contributing, in total terms, you're getting bigger remuneration.

2:07So not using the auto-enrolment scheme is effectively you forgoing extra pay. And if your boss is encouraging you to forego extra pay, that doesn't seem right to me. Now, if we move off that bit, and I would always say as a standard thing to do, most people should be maxing out the money they put in their company pension scheme to make sure that their employer is giving them the highest matched contributions they should get. Because both you're getting the tax relief that you get from investing in a pension, but you're also getting that extra employer's contribution. As for investing in gold, now look, I can't talk about individual investments.

2:44Gold is seen as a relatively safe asset. It's an interesting one because if you buy a specific type of UK bullion, then any gains you make on it has a capital gains tax exemption. So it can be quite useful. But, you know, frankly, depending on which company pension scheme you've got, well, you wouldn't get that capital gains tax investment. If you want to invest in gold, you could invest in a gold exchange traded fund, a fund that basically buys gold and moves along with the gold price for you. And you could be doing that not just with your own money, but with the money that your employer is putting in too.

3:17So I can't give you the specifics of whether gold is good or bad. That's a regulated area. I'm not a regulated investment advisor and the truth is no one knows what's going to happen to gold over the next few years. It may well be a good investment but I would always think encouraging you not to put money in your company pension scheme just feels naughty to me. Okay, what do you have for me next, Matt? A question from Captain Butler. Aye aye, Captain. That's their handle on Twitter. Is it always a good idea to pay off your mortgage with a lump sum if you can, or keep the mortgage and use savings on home improvements?

3:48Are there advantages or disadvantages? Yes, I think we need to separate the home improvements for a moment. So first of all, when we're talking about overpaying your mortgage, there's a simple rule. If your mortgage interest rate is higher than the after-tax amount you can earn in top savings, then you are better to overpay the mortgage than to save on a purely financial basis. If the savings rates available are higher than the interest charged on your mortgage, say you can get 5 % savings and the interest on your mortgage is 3 % and there's no tax on that savings, then you are mathematically better off to overpay your mortgage in most cases.

4:30The one thing I would think about there is if you had a low loan to value ratio on your mortgage, So, for example, you'd only had a small deposit and you haven't had it for very long so that most of your home is debt. In other words, you know, 95 % of you owe 95 % of your home's value in the mortgage. Then by having a smaller debt, you can improve your loan to value ratio that may mean when you remortgage, you get a better mortgage deal. But if we ignore that slight element in it, the general rule is if the mortgage rate is higher, overpay the mortgage. Now, there are some caveats to that. Caveat number one is make sure that you have a liquid, a cash emergency pot of money put aside, three to six months worth of savings.

5:20Because the fact that you've overpaid your mortgage doesn't mean if you suddenly couldn't pay your mortgage in future, they go, it's fine, you're not in arrears, don't worry. They would still want that money. So it's always worth having an emergency fund put aside. Caveat number two is make sure there aren't any penalties for overpaying the mortgage. Most people can overpay 10 % of their mortgage value each year without penalties, so it shouldn't be a problem, but it is always worth checking. So that is the general rule. If we assume that you have a higher rate mortgage than you can earn in savings, then you're asking me, should I use savings on home improvement?

5:52Well, look, you can use savings on whatever you like, would be my answer, and you could then spend them. But if you're saying, would I get better value from improving my house when I sold it? That is just, you know, apples or pears question. I can't answer. I don't know what you're planning to do as an improvement. I don't know what the market is like in your area. The safest thing to do is always to reduce debt if the debt's expensive. But if the debt isn't expensive, well, then saving will earn you more money. And if I just really break this down to why I'm saying all that, let's go really simple on this.

6:24if you have£10 ,000 in savings and the savings are earning you 3 % a year then you're making £300 a year from the savings. If you have a mortgage that's at 5 % and you use the£10 ,000 to pay off the mortgage then you're saving yourself£500 of interest a year so you'd be £200 up because the mortgage rate is more expensive. Now it does get a bit more nuanced than that. I'd strongly suggest you use a mortgage over payment calculator which is online which can really examine the differences between the two. But that's the base principle we're talking about. I hope that helps. Right, Martin, I have a caller for you.

7:02Craig is here. He's in Somerset. Hi, Craig. Hi, Matt. Hello, Craig. What's your question? Yeah, hi, Martin. My father recently passed away. Thank you. I've been trying to help with my mum to try and sort out a lot of the finances and a lot of the bills. And one of them is the electricity bill, which was in both their name with EDF. it's got about just over 700 pounds in credit it's uh it's a standard variable i didn't know that but thanks to you i did know that um and i'm looking at the options because on one hand she would like to keep that credit because she's worried about a cold winter but i'm thinking is it best to try and get that credit out and then look for another deal because i know the new fixed the new fixed contracts are coming up very shortly so i think we need to separate this into two different points, the credit and who she goes to.

7:54So the first thing to say is we are, at this time of year, this is the point where you should be in the maximum credit in the direct debit cycle. If you think about it, what you do is as you go through the warmer months from around May onwards, because you're using less energy, you build up your credit. A monthly direct debit is where you pay a fixed amount across the year, but it's meant to smooth out this. But you're building up credit during the summer months as it's warm and using less energy, and then you use them up during the winter months. And November is the split point in winter. November is the point where you tend to be at absolute maximum credit.

8:28So we're only a month away from that. So at this point of the year, if you have a couple of months worth of credit, and exactly how much you have depends on when you started, that's not a bad thing. So the problem I have now is what I need from you is I need to know what her typical monthly payment is. Well, she's only paying about£55 a month, but according to the latest bill, she's being charged about£150 a month. Okay. So the direct debit is wrong in the first place, but let's just go on that£150 a month. Let's say she's using£150 a month worth of energy. In that case, at this time of year, I would not be worried about her having£300 worth of credit, two direct debit months for her of whatever her usage is.

9:14Everything above that, I think, should be in her bank account, not in the energy firm's bank account. So that's the first principle I'd give you. At this time of year, you want a couple of months worth of credit, but nothing more. And I also think they should probably increase her direct debit, then she doesn't start getting into issues in future. Then we move on to, should she stay with Eon? Well, the first question we ask is, is her tariff good? The answer is quite simple. No, she's on a price cap tariff. You told me it was a standard variable tariff. That means it's one on the price cap. That means it's dictated by the regulator Ofgem and the price cap is one I call the pants cap.

9:50So it's going to go up on the 1st of October by 2%. And then the current predictions are it might come down a tiny bit in January, but then it'll go up by more in April. And so by this time next year, she'll probably be paying slightly more than she is right now. Contrast that to the cheapest fixes on the market that are around 13 % cheaper than what she is paying right now. And that means to me, she should be on a fix. Now, your question is, she wants to stay where she is. Well, she has a couple of choices. The first thing to understand is she moves company, she should automatically get all her credit back.

10:26They will do a final meter reading unless she's on a smart meter well, it will be automatic. They will calculate how much she's owed and she should get that money back within about a month. Alternatively, if she stays where she is, she can get in touch with Eon and say, look, I only want a couple of months worth of credit. I would like about£400 back and it'll be a bit of a negotiation and they will give us some of that credit back and she stays into credit. So it isn't really material to your choice, if you know what I mean, whether she moves or she doesn't move. You might prefer to stay with Eon and Eon does have fixes.

10:58They're not the cheapest on the market at the moment, but she could certainly get a fix with Eon cheaper than her current price cap deal. I'll be honest, I don't have the exact Eon fixes to hand, but I know they tend to be not the very cheapest, but it's probably somewhere in the 7 % or 8 % cheaper than current prices market. Or you could go into a whole of market comparison for her, find the cheapest, get that credit and move to somewhere where she's paying even less. And if her concern is, but I'm worried about the winter, I haven't got that cash stored up. well, just put that cash in a savings account somewhere so that if she needed to pay more, she's still got the money put aside, but she's earning interest on it, not on the energy provider.

11:33Does that all make sense to you? I went, it was a bit long winded, I'm afraid. No, no, no, that makes sense to you. I mean, to me, I've jotted some notes down just to let her know when she comes back, because she is very interested in what we can go for and what we could look for. And that's really helpful for all of us. So a simple summary, get off the price cap, move on to a fix either with Eon if you want it for comfort or if you want to go for the very cheapest go to a whole of market price comparison site but either way if she's only using 150 quid's worth of energy a month you know across a year on an average then she's got too much credit and she wants a couple of hundred or a few hundred quid of that back yep that makes total sense to me thank you so much oh I'm glad I'm glad we got through that thanks for calling Craig really appreciate it that's all right thank you Martin cheers I have another question for you, Martin.

12:22Yes, indeed. S Patel. How do we put to the government to remove interest from student loans? Our preference would be to go back to student grants. However, as this is unlikely, removing interest on student loans is probably the best course of action. I then got in touch with S Patel and asked for a bit more info for you. So you're welcome. Our concern is... Hold on, hold on. Can you edit in me saying thank you? Yeah, of course. I'll carry on. Our concern is our three daughters, two in uni at the minute, will possibly be coming out of higher education with student loans over£120 ,000 and the interest being applied to the loans is frightening.

13:00Wow, that is a very big question. I need to think about how to answer it. I like it when you put some theme music in. Do a bit of education theme music, well, I think. We don't need no education. OK, there's quite a lot to go into here. You're asking me how to put pressure on the government to remove interest from student loans. It won't happen. Let's be absolutely blunt. Student loans have been a political football for many years. To remove interest would cost the government substantial amounts of money. What we have seen over recent years, the last Conservative government changed the student loan system.

13:32I'm focused on the English student loan system. It was last changed for starters in 2023. And what happened at that point is the pendulum was shifted in effect so that starters in 2023 and beyond, the individual would have to contribute more to the eventual cost of their education than the state. It was shifted from the individual paying less than half to, from memory, the individual paying nearly three quarters of the cost. And that shift was done by lowering the point at which you start repaying the student loan from around£27 ,000 to£25 ,000. So you start repaying it on lower earnings and extending the time before the loan wipes from 30 to 40 years.

14:10So that is the direction of travel. But there was one positive thing that happened in 2023. And that is the interest rate on student loans was lowered to be just inflation. and what that means in economic terms what you would call that in economic terms is there is no real interest on post-2023 starter student loans now i don't know which year your daughters were in if they were in the earlier system then they will be repaying for a shorter time and they will be repaying on higher earnings but their interest would be higher if they're on the new system then the fact it's at no real interest what do i mean by that i should explain because the interest rate is set at the rate of inflation, what that means is if you borrow enough to repay 100 shopping trolleys worth of goods, well then whenever you repay that loan, you're only repaying the amount that it would cost to buy 100 shopping trolleys worth of goods in future money.

15:08The actual amount of money, because of inflation, might have gone up. So you know, you might be borrowing£50 ,000 and repaying£70 ,000, but in terms of the actual purchasing power that has, it's still only 100 shopping trolleys worth of goods. And so therefore there's no real cost to you, which is going back to a much better system so that students aren't really paying for the cost of financing their education. And then I will go even further on this because this is the conceptual thing that people struggle to understand about student loans. Remember, a student loan isn't like a normal loan. It is a loan where you only repay if you earn above a threshold and what you repay is in proportion to what you earn above that threshold.

15:48So under the 2023 starters who are called Plan 5 loans in England, you repay 9 % of everything you earn above£25 ,000. So if you earn£35 ,000, £10 ,000 above it, you repay£900. If you earned£125 ,000, so£100 ,000 above it, you'd repay£9 ,000 a year. And you would continue to do that for 40 years. So what the interest does, it does not affect the amount that you pay each year. The amount that you pay each year is dictated solely by what you earn. What the total borrowing, including interest, does is dictate how quickly you will repay it and whether or not you will repay it within the 40 years. So what we then have to do is get really conceptual on this.

16:33If your daughters, and I hope this doesn't happen to them, never earned above£25 ,000, and that will rise with average earnings, but the equivalent of £25 ,000. They would never repay a penny of their student loans. The interest is totally irrelevant. If they earned a little bit above the threshold, they probably wouldn't repay enough to repay just the amount that they initially borrowed, the£50 ,000,£60 ,000,£70 ,000,£80 ,000 that they initially borrowed, because they're only earning just above the threshold and that wouldn't be enough in 40 years. So they would still have an interest-free loan.

17:06You then get to this point where people have earned enough to repay what they borrowed and some interest, but not enough to repay the loan in full before it wipes. So they would not pay the full interest that was added to the loan. And then you get the people who clear the loan in full within the 40 years on the current system, 30 years in the previous system. They are the only ones who pay all the interest is added. So there is a confusion, and I know this is tough for people to understand, between the interest that is added to your account and the interest that you repay. The interest added to your account is one thing.

17:39What you repay depends on how much you earn over the period before it wipes. So you're asking me about your daughters, interestingly, because I don't know when they started university, whether they're on the pre-23 system or the post-23 system. If they're on the pre-23 system, yes, the interest is very scary. But the fact they're repaying above a higher threshold and the fact it wipes over 30 years means they will actually pay less in total on that system than they would if they started on the 2023 system where the interest rate is lower. But they're repaying above a higher threshold and they will be doing it for 40 years.

18:13So in most cases, the old system where interest rates were higher is for most, not everyone, it's a really complicated math, cheaper than the new system where the interest rate is lower, which is why the interest rate in many ways is a red herring. The truth is cutting the interest rate is primarily a benefit to higher earning graduates. It's not a benefit to lower earning graduates because they wouldn't repay enough to pay the interest in the full place. So it's all pretty complicated, I'm afraid. and we are going to be doing, I think, later this week, I'm planning to do the main pod as a student finance special.

18:46So if you've got any questions on that, get in touch with martinlewispodcast at bbc.co.uk and I will go far slower and in much more detail about how the student finance system works. Sounds good because that really did make my head hurt. Well, do you know the advantage of a podcast, Matt? Go on. You can listen to it back and you can slow the speed down and then hopefully it'll be understandable. I've got one for you, Martin. It's a fun one. You know I like to put a fun one in each week. Yes, go on. The great Cornholio is asking, would you rather fight one man-sized duck or ten duck-sized men? Very, very easy for me.

19:27I would always fight one man-sized duck because if anyone can take on big bills, it's me. Come on I have to say I've heard that question before And given that same answer before But I do like it Would you like to hear my Donald Duck impression? Yeah go on then

19:50And now in translation What's the next question Matt? Where are we going next? That was amazing Thank you Maureen My granddaughter has turned 18 And emailed the government trust Grant The letter she received Told her to go to her provider She doesn't know who this is Or how to find out I'm hoping you can point her in the right direction. So I think what this question means is your granddaughter has turned 18 and she has a child trust fund, which is the predecessor to a junior ISA. And with the child trust fund, the state started it off with at least£250 for every child of the right age, which off the top of my head is about 14 to 23.

20:27So 18 is exactly the right age for that. Now, many people have lost touch with that. She may have filled in the wrong thing on gov.uk. She literally needs to go to gov.uk and fill in the section that's called Find a Child Trust Fund. Then what the government via HMRC will do is it will tell her who her provider is. And once she's got that, then she goes on to the provider and can deal with the provider in that step. Now, as she's 18, she's old enough to do this herself. The rule is you can do this yourself if you're age 16 or older. and there are many people who are 19, 20, 21 who have these things and may have forgotten them.

21:03Or if you're under 18, your parent can do it for you, which obviously means someone who's 16 or 17, they can either do it themselves or their parent can do it for them. But yeah, I think that may have just, may have gone to slightly the wrong place. Have another go, Maureen, and let us know how it goes for her. Just get her to go onto that right bit of gov.uk website. And I think that's all we've got time for today, is it, Matt? That is all we've got time for, but some good questions there. Yeah, I really enjoyed them. And of course, if you've got questions you would like to pose to me, whether they're good ones or Matt's funny ones, yes, we will accept more and Matt would like you to feed in with silly questions, then you can email martinlewispodcast at bbc.co.uk and they will go through to Matt.

21:42And Matt, you tell me, you're starting to steal a bit of my limelight here. Some people are actually saying hi, Matt, when they address them, are they? It's really nice when it pops up and it says to Martin Lewis. Hi, Matt. It's my podcast. What can I say? The listeners love me. Fair enough. I love you too, buddy. That's it for this week's Question Time. Don't forget to subscribe so you know when we release a new episode. We're going to be putting out a new Question Time most Mondays alongside the regular podcast, which will continue to stay on Thursdays. Aren't you lucky? Two doses of money-saving tips and tricks each week.

22:15Do make sure you send your questions in. Just email martinlewispodcast at bbc.co.uk. See you next week. I say see you. Well, it's a podcast. I can't see you. We don't even have a video format. I mean, listen to you, but I can't listen to you. I gotta pay So I'm gonna work I gotta pay I gotta pay So I'm gonna make sure Everybody eats Martin Lewis is the founder of MoneySavingExpert.com But of course, other consumer and price comparison websites are available. You can get in touch with Martin's podcast production team by emailing martinlewispodcast at bbc.co.uk The offers and rates mentioned in the podcast are correct at the time of recording.

22:59However, if you are listening on demand, it's worth double-checking as details can date. Remember to subscribe on BBC Sounds and leave us a review however you listen.