What is it you just don’t get about money? Beginners guide to pensions, energy, credit cards, return rights and far more

21:32Martin Lewis:So you've got£1 million, but you've got£500 ,000. So there's another£200 ,000 of inheritance tax coming off, because you've got a usual 500 ,000 pounds. Hello, this is Martin interrupting my own podcast because I'm walking home at the moment doing this on my phone and the wonderful podcast producer Simon had sent me a review copy, just to have a quick listen over, which I normally do at double speed. And I listened to the bit of me and Adrian talking about inheritance facts and I've just gone, no, it's actually even worse than that. When I did the calculation for unmarried couples, I actually gave Adrian and assumed that he could get£500 ,000 left to him from my estate tax-free, including the main property.

22:16Martin Lewis:But that isn't right, because Adrian is not married to me, nor is he my direct descendant, and therefore I wouldn't get the extra property allowance. I'd just get the basic£325 ,000 that I could leave tax-free. all the rest would be taxed so that's an extra 175 000 pounds taxable at 40 percent it's even worse if you're unmarried than i've made it out back to the podcast so now let's do it the other way so if you'd made an honest man of me now i'm making an honest man of you and if i made an honest man of you i've got a million quid i leave it all to you there's no inheritance tax because i've left everything to you.

22:59Martin Lewis:You, now, and I remember our house was going in this, that's why it was the£500 ,000. I find another bloke to marry. No, no, no, let's not. Leave it, leave it. Okay, okay. I've been gone one minute. One minute. That's not very nice. That's not. So you now don't find anybody else because how could you ever replace me? Yeah. I think that's a more likely scenario. You have got your£200 ,000, so you're leaving£1.2 million to our kids, right? You've got your£500 ,000 including property because we're leaving the property and my£500 ,000 including the property. So that's a million pounds with no inheritance tax.

23:34Martin Lewis:You're only paying inheritance tax on the£200 ,000. And so we're paying 40 % of that. That's 80 grand. So instead of£400 ,000 of inheritance tax, because we were married, it's 80 grand of inheritance tax. OK. So that's the first big thing. And the even more important one to avoid inheritance tax, big picture, give stuff away. right, and give it away before you die. If you're giving stuff out of income and it's generally out of income and not out of your wealth, you can give as much as you like. Yeah, making regular donations and proving it is the way to do that. But equally, if you give stuff away more than seven years before you die without reservation, without, you know, so it's not like I'm going to give you my house, but I'm still going to live in it and not pay any rent, then you genuinely give stuff away and you live more than seven years, then there is no inheritance tax to pay on that.

24:21Those are the two big picture things

24:23Martin Lewis:I would remember, but there's a lot more. Well, go listen to the Inheritance Tax podcast. Then it was time for a news break. And in separate studios, Adrian in Salford and me in London, we both contemplated our new relationship.

24:43Martin Lewis with us in the last 10 minutes. He's actually suggested we get married, the two of us. So who knows what could happen before. It's over, Adrian. It's over. I've changed mind in the break. Okay.

24:52Martin Lewis:I've just decided it isn't worth it. Okay. I mean, I cannot marry a man who is not beating random chance on a Mastermind quiz. I mean, I'd sit there and go, oh, I'm struggling with my work. Have you got any thoughts? Can you feed into this? And I look and realise, no, you're not going to be any help at all. And what are you going to bring? Just what are you going to bring to this marriage? Just love. Oh, that's a nice answer. Anyway, we're into this. I don't get money special. Just questions, anything you want to ask about money. Mick Hall, it's less about what he doesn't know than what he says he does know.

25:28He said it's our money, our family know what we want to happen once we go. If prior to that we lose our marbles, as he puts it, our family know what we want to happen. Why should anyone else know our business? We don't need a will or lasting power of eternity, yet we supposedly have to have one or buy one.

25:47Martin Lewis:Because the world, I'm afraid, doesn't work like that, Mick. and you do not want someone saying, oh, my dad, my husband, my father, my wife isn't very well, so I'd like to get money out of their bank account, please. You don't have a lasting power? No, I just... But they've told me to get it. I mean, we can't work in a world. Unfortunately, the modern world doesn't work like that. It doesn't work in that simple, easy way. And actually, more so, it's not just finances when you're talking about a lasting power of attorney. We're talking about the health and well-being one as well. I mean, do you want anyone who says, well, I'm his cousin and I'm going to go into hospital and I'm going to tell them when you're there.

26:26Martin Lewis:Actually, I think this is the treatment that they should have. Well, hold on. You know, have you got a lasting power? No, but it's fine. I think this is the treatment they should have. I talked to him about it. You actually want the protections in place that you want to be able to register legally who it is who can make decisions and access your finances. if you do not have the capacity, if and when you do not have the capacity to do so. Not when you do have capacity, when you don't have capacity. And that's what a lasting power of attorney does. It puts down in law who has that right. And interestingly, if you don't do that, then you're going to need effectively the same.

27:03Martin Lewis:But without a lasting power of attorney done in advance while you do have your faculties to say what should happen in the event you don't have your faculties, then your relatives would have to go to the court of protection. and they'd have to go to the court of protection, which is, I'm talking the English system, which is long and arduous and expensive and stressful for people who are already likely suffering semi-grief because they've just lost, to an extent, they've lost the person they knew because you no longer have capacity. And they're dealing with all that. They're dealing with all your care and they're going to have to go to the court of protection and pay all the money and it can be thousands and take a year.

27:33Martin Lewis:So that's what a lasting power of attorney is for. You may not like the system, but I'm afraid even some people complain power of attorney isn't enough protection from relatives who don't get it quite the right way. But it's a lot better than just saying, let anyone who I'm related to access my bank accounts and my finances and my products, and equally with a will. If you don't leave a will, you're saying, our family know what we want to happen. But if you don't leave a will, then you go to the intestacy laws. And the intestacy laws are effectively the default laws of what happens to your assets.

28:03Martin Lewis:It's different in each of the UK nations. And those default laws can both leave money to the people you don't want to leave money to, but equally they can be, we talked about inheritance tax before, they can mess up your inheritance tax planning as well. So I get you want your family to deal with it all but we live in a modern digital world where you have assets, you have registers, you have laws and wills and lasting power of attorneys are about that. So that's just the way it is. Gary Bruce, can't get my head around paying tax on savings which is money you've already paid tax on. That's not strictly true.

28:36Martin Lewis:I'm not making a political point here, I'm making a point on accuracy. You do not pay tax on savings. You pay tax on the amount you earn on savings from the interest. And by definition, the earnings on savings you haven't paid tax on before because they are earnings. So if you, you know, let's imagine you have£10 ,000 in a savings account. It earns you£500 interest in a year. You pay interest on the£500 you've earned, not on the£10 ,000 of savings. So as for getting your head around it, the other thing people need to understand that people miss is there are actually five big allowances on savings that mean many people do not need to pay tax on their savings interest.

29:23Martin Lewis:And remember, it's the interest. So the first one is the standard personal allowance, the£12 ,570 a year that most people can earn from any form of income, whether it's savings interest or income from work or income from a pension that you do not pay tax on. So everyone's got that until you earn so much that they take it away from you. The next is a thing called the starting savings allowance. Now, this is for people who have low earnings but high savings interest. There's actually another£5 ,000 you can earn of interest tax-free. And this is for people who generally earn under£18 ,570 a year.

29:59Martin Lewis:I've explained before how it works. If you don't know, have a look at the starting allowance for savings. Above that, you have the personal savings allowance. So this is where basic rate taxpayers can earn£1 ,000 of interest per year tax-free from any form of savings. Higher rate taxpayers, those who pay 40%, can earn£500 of interest a year tax-free. So remember, that's the interest you're earning. So if we say a basic rate taxpayer can earn£1 ,000 of interest, and the top savings account is 5 % roughly at the moment, well, you would need£20 ,000 in savings to generate£1 ,000 of interest. So on up to£20 ,000 of savings, you wouldn't be paying tax on the interest if you're a basic rate taxpayer.

30:40Martin Lewis:Then you've got your ISA allowance, which is totally separate from everything else. Money inside an ISA, if it earns interest, doesn't even count towards all the other allowances. It's not taxable. It's totally tax-free. And currently you can put£20 ,000 per tax year in a cash ISA. So you can build that up year after year after year. From next April, it'll be£12 ,000 per tax year. You can add for those who are under £65 ,000 and£20 ,000 if you're over£65 ,000. And then you're also allowed to put up to£50 ,000 total, not per tax year, into premium bonds too. So tax on savings is actually one of the areas where if you know what you're doing, you can really minimise or not pay any tax on savings interest unless you earn a lot, so you're a top-rate taxpayer, or you've got a very large amount of savings.

31:27Jackie Chillard, this has just made me laugh out loud, energy. Why is it such an impossible gamble for most of us? Why is it so difficult to understand when to act, whether to act, how to act? I know you try hard, but I can't understand a word you say. Thanks so much, Jackie.

31:46Martin Lewis:Let me see if I can simplify it a bit for you. It's not that firm. You're definitely getting divorced now, mate. You're laughing a bit too hard. Look, I'll be honest here. One of the great problems I have in my job is you're dealing with multiple audiences. So at the same time as I'm talking to a struggling 70-year-old who's never understood this and is new to the internet about what to do with energy bills. I'm also talking to people who just give me a quick answer and I want to get over and done with, but I sort of roughly get it. And then I'm talking to people who say, why haven't you mentioned this time of use tariff that's only for sophisticated users and how it interacts with my EV and solar panels and my batteries?

32:30Martin Lewis:And at the same time, I'm doing this and you haven't mentioned that. Now, actually, I do do work on all of those, but certainly in my broadcasting, it is very difficult to talk to all those audiences at once. So what ends up happening is you do an energy show and I start simple and then I get onto more and more complexity that some people don't need to nose, but other people would berate me if I didn't put it in. And that's the honest truth of the difficulty. So I'm going to try and give Jackie a simple answer, but it's interesting you talk about it being an impossible gamble because right now I genuinely feel making a decision on what to do today is a gamble.

33:07Martin Lewis:And I actually was on a radio program the other day where I called it a bit of a casino. So let's just go through this. And for those of you who are complicated, I am only going simple. So do not berate me for not mentioning the more complicated options. The two primary options that people have are sticking on the price cap. Now, people don't know they're on the price cap, but if you're not sure what you're on, you're probably on the price cap. The price cap is simply if you haven't chosen an energy tariff or you were on an energy tariff, you'd chosen and it ended, you go to your firm's standard variable tariff and all firms, bar one, price that at what Ofgem says the maximum they can charge under the price cap is.

33:48Martin Lewis:And the price cap sets two things. It sets the standing charge, that is a daily fee that you pay for having gas and electricity, and the unit rate, which is the amount you pay for each unit, known as a kilowatt hour of gas and electricity that you use. The standing charge sets that and all firms bar one are within a couple of quid of it. So that's what you're going to pay. Your main alternative is to fix. And a fix is where you say, I am going to pick a rate today and I'm going to lock that in, say for a year, and that dictates my standing charge and unit rate for the next year. Whereas if you are on the price cap, the price cap changes every three months.

34:28Martin Lewis:That's why it's called variable. It changes. So you are contrasting a fixed rate, one that you lock in, with a variable rate. And because a variable rate is variable, clearly we don't know where it will go in future. We have predictions, but the further out you go, the more difficult it is. And this is where the choice is generally relatively complex. Now, the simple answer is over the past two years, and I've done detailed research at this. At no point would you have been better off being on the price cap than going for the cheapest fix. So fixing is generally better than the price cap. The vast majority of people should get off the price cap, get off their standard variable rates and do a cheap fix.

35:13Martin Lewis:That doesn't mean your company's fix. That means finding the cheapest fix on the market. And you should lock in at that rate because it will be cheaper. To take this up a little step now, one of the real problems here is about time lags. The main variable that changes on energy to change the price you pay, there are lots of other things in costs, including policy costs from government, but the main variable is wholesale rates on the international market, and particularly the natural gas rate for the UK that varies 100 times a day. And that is what is used to assess the price cap. But for the price cap, it is assessed on past prices.

35:58Martin Lewis:So the July price cap was assessed on prices from mid-February to mid-May. The October price cap is assessed on prices from mid-May to mid-August. So the price that you pay is based on past prices on the price cap. But on a fix, the price that you set get your fix at today is placed on today's prices. This is why it's complicated, because one is moving slowly, slow to rise, slow to fall. One, the price that you can lock in at depends on what's going on today in the last few days. Now, the reason why I say it is a gamble right now is because we've seen an enormous rise in wholesale rates over the last month, up about 40%, which has done two things.

36:45One, it means the likely price cap from October is going to be higher.

36:53Martin Lewis:The October price cap is currently looking to rise about 5.1%, and I think it may be even more when we actually get there, because prices are so high and that will factor into it. Now, we're ignoring that VAT cut, because that is the same on fixes and the same on the price cap. It's coming off everywhere. The cheapest fix at the moment is 8 % less than the current price cap. So certainly you can save money by fixing now. And certainly the cheapest fix now will be cheaper than the October price cap. And it will probably be cheaper than the January price cap. So fixing today will save you money.

37:25Martin Lewis:So I could stop there. And I could say to Jackie, there we go. You can get a fix that's 8 % cheaper than the price cap right now and is probably going to be 13 % cheaper than the price cap come October. And on current predictions, it's looking to stay substantially cheaper than the price cap for the entire year that you fix for. And I could stop there. And I probably should stop there. But I can't help myself. So I'm going to go on a little bit more. The problem is that two weeks ago, the cheapest fix was 15 % cheaper than the price cap. And because wholesale rates have risen so rapidly, you can now only fix at 8 % cheaper than the price cap.

38:03Martin Lewis:So the real difficulty for me when I'm suggesting this to people is my concern is if the conflict in the Middle East, because it's all about the conflict in the Middle East that's pushed those wholesale prices up, if the conflict in the Middle East lessened or ended tomorrow, those wholesale rates would come down and you would be able to get a much cheaper fix. And therefore, if you fix today at 8 % cheaper, whereas in a week's time you could fix at 14 % cheaper, you've locked in at a higher rate than you need to. But that is unknowable. That's why it's a casino. So my answer is probably for those people who just don't get this, just get yourself on a cheap fix now and look away and cross your fingers and you will definitely save compared to what you would have paid, but it might not be the perfect outcome.

38:44Martin Lewis:For those people who understand this and are willing to play it a little bit, I probably wouldn't lock into a fix today because the rates are so high. I'd probably cross my fingers and it's only crossing my fingers. It's not an estimate. It's not a guesstimate. It's not a prediction. And hope that things change in the next couple of weeks and you can get a fix that is cheaper in a couple of weeks' time. But I wouldn't wait that much longer if I were on the price cap. And that is the problem. That's really how it works. And I can't make it any simpler. OK. Because it isn't. So we do mastermind and put some pressure on you instead.

39:16Martin Lewis:Can we go... There's just one more question I'm quite interested in. It says... Yeah, Stuart Guess. He says all banking apps and websites show you what direct debits or standing orders you have set up on your account and give you the opportunity to cancel unnecessary ones. Yet no credit card apps or websites show what continuous payment authorities you've got set up on your credit cards, nor give you the opportunity to cancel. I'm not aware of any that do. There are some that try and track them for you. So a continuous payment authority, also known as a recurring payment, a regular payment, is where you, instead of setting up a direct debit where you give your bank account details or setting up a standing order where you tell your bank account to pay someone on a regular basis a set amount, you give a company the longer number on your credit or debit card.

40:06Martin Lewis:So this does apply to debit cards, too, not just credit cards. And you pay by the long number. And then they take a regular amount out. classic examples, Netflix and other subscription services like that. So it is not a direct debit. Now, the problem is, underneath it, what a continuous payment actually is, is it's you saying, I'm going to pay you each month. Now, you could do that by actually going and making a payment and giving them your number each month. Or you can say, take my card number, and you can take a payment every month of an amount that we've agreed. And that's how they take the payment.

40:38Martin Lewis:So it isn't actually, while we call it a continuous payment authority, you've given them of authority, but in sort of technical terms, you're just making a payment each month. It's as if you bought the same, you know, if you went to an online supermarket and bought, I can't even think, a£20 stake every month on the same date, that would look to your bank exactly the same as a continuous payment authority. But why can't they make it easy for you to cancel it if you change your mind on something? Well, you can cancel it. You can cancel it. And you can actually cancel it with your bank or credit card company.

41:08Martin Lewis:I was involved in pushing for the regulations to change on that. Many people don't know it, but it's often easier to cancel it with the company itself. But the problem is tracking data. People don't know those subscriptions. I mean, I've actually looked at building a tool that can track them for you, and I think there may be a couple of apps that they're not your own bank that can track them for you. But basically all you're doing is you're pattern spotting and saying what payment is coming out the same time each month because it isn't a thing. Do you know what I'm saying? It's not a thing. It's not like a direct debit, which you've got conditions.

41:35Martin Lewis:It's just basically you're paying someone the same amount each month, and you've given them permission to take that payment off your card each month. Got it. That's why. Now we've got lots more of your I just don't understand questions coming later in the podcast. For now, though, I want to put Adrian to the test.

41:58Martin Lewis:Hello and welcome to Money Mastermind. Adrian, you've got 20 right and 42 wrong in this three-option, multiple-choice quiz, leaving you sadly... N-B-R-C. No better than random chance. Now, recently, our Adrian was alone in his BBC dressing room, finishing an untouched plate of fig rolls and slowly removing his make-up. Why he wears it for radio, no one is quite sure. Suddenly, the lights flicker, the heating clicks off and the air turns icy, Adrian steps out into the corridor, and a pale ten-year-old boy stands there staring unblinkingly. Mr Child, can I tell you a secret? Adrian replies gently, yes.

42:46I see debt people.

42:51Martin Lewis:I have a sixth sense for these things, says Adrian. I think you mean dead people, the boy calmly replies. No. Debt people. Those with credit cards. Personal loans. Buy now, pay later. Adrian, sensing the moment, chips in. Student loans too. I'm not sure, says the boy. That's why I need your help. So, Adrian. Did I go too far? Did you like that? No, don't go any further, though. Okay. So, Adrian, if someone is repaying a£50 ,000 Plan 2 student loan, Those are the loans, the big one out there, that all English students who started between 2012 and 2022 got and all Welsh students from 2012 onwards got.

43:36Martin Lewis:If they were to apply for a mortgage, which of these statements is most accurate? A. The repayments on the student loan would reduce their disposable income for mortgage affordability purposes. B. The repayments would reduce their disposable income for mortgage affordability purposes. And the loan also damages the credit score the lender does. C, the student loan has no impact unless you have missed past repayments. Well, B. So B was the repayments reduce their disposable income for mortgage affordability purposes and the loan also damages the credit score with the lender. But look, I'm not saying that's not the case, but it would strike me as being unfair.

44:25but I suppose disposable income is what they're looking at with mortgage affordability. So I'd say, I would say A. So remember, A and B are both mortgage affordability.

44:36Martin Lewis:The difference between A and B is you've also got the damage to the credit score. So really, if you're choosing between those, your real decision is, does it also damage the credit score or not? I don't think it does, so I'm going to go for A. Final answer. So Adrian says, the repayments reduce their disposable income for mortgage affordability purposes. And Adrian is right. Play the Hallelujah. Hallelujah. Well done, mate.

45:07Okay. I'll finish that one. Can we just play the Hallelujah chorus until one o 'clock?

45:12Martin Lewis:No, I need to explain the answer. Well done, though. So that brings the score to you've got 21 right and 42 wrong. Still no better than random chance. but if you get it right next week then you would be better but there is no podcast next week so you're not going to sorry about that okay let's explain the answer to everyone this is really important people always ask me about this question student loans and credit files so we're talking plan one two three four and five here we're not talking the earlier loans that happened between 1991 and 1998 I think it was I may have got that last date wrong slightly they do not appear on your credit file the student loan is not reported to credit reference agencies so it is not in the data for credit scoring purposes that most firms use, though they can ask you about it on their application form.

45:56Martin Lewis:But general rule, having a student loan does not affect your credit score. But that is not to say it does not affect your application for credit. Because when you apply for credit, while a credit score is done, one of the other really big elements is the affordability score. Now, the first thing is your credit reference agency doesn't include your income, so they're always going to want your income. And that's the biggest single factor that affects anything. And that isn't in your credit score or your credit file anyway. So the affordability score, remember each lender does its own credit score and affordability score.

46:27Martin Lewis:There's no universal thing. An affordability score is basically working out on the income you have and the expenditure you have, can you afford to repay whether it's a mortgage or a credit card or a loan. Now, exactly how they do this, in some cases they do it statistically. You tell them they've got a student loan and they don't look at your exact outgoings. They just do, especially on cards and loans, they just do a statistical likelihood of what somebody in your exact position would do. And in some cases on mortgages, it can be more bespoke where they're looking at your exact expenditure. But as I always talk about, a student loan while you're repaying it effectively acts like an increased form of tax above the repayment threshold.

47:07Martin Lewis:So for plan two student loans, you repay 9 % of everything you earn above£29 ,400 odd. So above that level, it's like you're paying more tax and you have less disposable income. And what the lenders are looking at is saying, well, they have reduced disposable income. They're going to have that for the foreseeable future. And we're going to factor that into the mortgage application. So in fact, how much you can borrow and what you can afford to get. And all of that is what the student loan is doing. It's less about your credit score, but it is reducing your disposable income. It's effectively comparing you to someone who hadn't gone to university and doesn't have a student loan who earns less than you do because they would have the same disposable income because they wouldn't have the extra nine percent of tax above the threshold i explained that slightly garbly but hopefully people got there and just before we get back to questions an extra quick tip for you i want you to remember these three numbers 159 think of it on your phone keyboard you're sort of going from top left to bottom right in a diagonal line.

48:08Martin Lewis:If you dial 159, you will get put through to an automated switchboard and it'll say which bank do you want to contact. You tell it your bank and it will put you through to your bank's legitimate phone number. Now, the reason this is important is all about scams. So if a scammer calls you pretending to be from your bank or someone calls you and you think they may be a scammer, you can plightly say, I'm just going to check your legitimate. I'm going to put the phone down. And then you call back and you call through 159 for two reasons. One, then you know you're getting the right number and you don't have to look it up if you're in a bit of a panic.

48:39Martin Lewis:And two, in the very rare events that a scammer is spoofing your line so that they're sort of staying on, they will answer, hello, this is Martin Bank, because they thought you were going to call Martin Bank, but you're not. You're going to be calling a switchboard, which will ask you what bank. So if they say, hello, it's Martin Bank, you know it's not the right switchboard. You can put the phone down again and go and call on a different phone line or wait 10 minutes or do something. So it's a really nice, easy bit of protection from scams. And yeah, I put it on on social media with a little video asking people to share it.

49:08Martin Lewis:And it's going great guns. I'm very pleased to hear lots of people are sharing it because it's important information that everybody should remember. One, five, nine.

49:20Martin Lewis:Right, we're outside the podcast with Adrian now. And I, of course, have the one and only podcast producer, Simon, joining me. Hello, Simon. How are you? I'm excellent, actually. This is the exact sort of podcast for me. I think that kind of area of what's going on. Those sort of things that I'm a bit too embarrassed to not know. I love podcasts like this. And also, the other thing to perk me up, they had a fake, well, you don't have to say fake, they had a dinosaur at Five Live today. So I got to walk past one of them when I was coming in. So that was a bit of fun. Can you just explain? Obviously, it definitely is a fake dinosaur.

49:51Martin Lewis:Yeah, yeah. Is it an animatronic dinosaur, a dinosaur skeleton, or just a model of a dinosaur? No. So it was like a kind of big thing that someone then was wearing it on their back and sort of bounding around with the arms. So it was a bit of fun, you know, prehistoric, not seen. Nobody else knew it existed for thousands of years. But enough about your jokes. They had this dinosaur in the office, right? That's very good. No, no, it was good. It was fun. Right, no, you've just lost all permission now. We're just going to move on to questions. How many do we have left that we haven't covered that was in your plans?

50:18So I think we've got four really interesting questions left. Do you want me to start with the first?

50:22Martin Lewis:Yeah, definitely. So John Fulcher. Let's start with the third. John Fulcher's got in touch. regarding money, why is it more and more of running away from cash? In my opinion, cash is exceptionally important and should never be taken away. Well, I fundamentally agree with you and I support the campaign for cash because especially the more people that are digital natives and they prefer plastic and digital and watches and phones to pay, the more that we have to protect cash for those who need it, especially elderly and vulnerable people who prefer cash. However, I need to be straight, but under the law, you are far less protected as a consumer paying with cash than you are paying on plastic.

51:03Martin Lewis:I should be careful. If you do a bank transfer, that's not particularly protected either. And cheques, not that anyone uses them anymore, aren't particularly protected either. So the strongest form of payment protection that you have is paying on a credit card for items over£100, up to£30 ,000. It's called Section 75. And it means that the credit card company is jointly liable with the retailer for the entire transaction, even if you only part pay. If you only put 10p on a credit card and pay the rest in cash if you wanted to, then you would get the credit card protection for the entire transaction as long as it's an item that costs over£100.

51:36Martin Lewis:And that joint protection means if the retailer won't give you your rights, you can go to the credit card company. Hey, you can go to the credit card company first. It also means if the retailer goes bust, you can go to the credit card company. Second strongest protection, chargeback. Now, chargeback basically applies to all purchases on all plastic over 10 quid. So it includes credit cards. So on credit cards over 100 quid, you have both chargeback and section 75. On under 100 quid, you just have chargeback. And on debit cards, you just have chargeback. Chargeback is a rule of Visa, Mastercard, Amex, that effectively says you should get what you paid for.

52:12Martin Lewis:So if something doesn't come or you're having a problem with the retailer, you can ask for a chargeback. And that means you are asking your bank to ask the retailer's bank for the money back because you didn't get it. It can then be disputed when you do and you might, if you're lying, it will be disputed. But generally, it works very well. Now, actually, if you have a chargeback right, I would always first ask for chargeback over Section 75, even though Section 75 is more powerful, simply because with chargeback, your bank isn't paying you. So it tends to be more happy to help. It's another bank that's paying you with section 75.

52:44Martin Lewis:It's actually coming out of their pockets. So I would work it that way. And then after that, you have very limited protection. If you leave a deposit on cash and a restaurant and the restaurant goes bust, you have no protection. If you pay for something and the order doesn't come and the firm goes bust, you're just going to be a creditor for the firm, which tends to mean if you get anything back, it'd be pennies in the pound. So many people find digital payments far more convenient. Many people also like cash. But when it comes to protection for major purchases, you are far more protected on plastic.

53:14Martin Lewis:And I should say, of course, if you're paying on a credit card, I don't want you to pay interest. So make sure you're paying the card off in full at the end of every month. But I understand many people feel not just an attraction to cash, an affiliation with cash. And they don't like the idea that everything that they pay is being tracked by a bank and is all digital. and I think it's important we keep the right to cash for those who want it. Do you know, I feel nervous if I'm out and about and I don't have sort of like 20 quid on me just in case I find myself in a situation where I need cash.

53:43Martin Lewis:I think that's really, really important to always carry some cash on you. Certainly, we've had the cases where payment mechanisms and banks have closed down so you can't transact on them and you need to get home or, you know, there are some places, depending where you are, that only take cash. I also keep cash on me because there's a homeless chap near me. I like to give cash to him and he doesn't have any other way to take payments so I can get him to buy some food if he needs it and that type of stuff. So listen, no one is making the B a unilateral one way or another choice. But I suspect knowing your age, the vast majority of your transactions you pay for, I would suggest probably on your phone or watch, not even a card, right?

54:15Well, no, I do pay on my card. But yeah, it's interesting. The same 20 quid probably stays in my wallet for about six months. Exactly. Yeah, very much so. Next question, Mark Hellyer. It's a big topic, but a simple explanation on annuity. With respect to defined contribution pension plans, is there a default annuity from your pension fund provider or are there options? What options do you pay for an annuity? What affects its performance?

54:40Martin Lewis:OK, it's a really, really important question. And the most important thing I will say at the start is never just go for your pension provider's default option. The nature of what an annuity is, is it is arguably the biggest and most important single transaction you will make in your life if you get one. because if you get it wrong, the result is going to affect you for the rest of your life, potentially, depending on which annuity. So I mentioned annuities earlier in the podcast. An annuity is a product you can buy with your pension fund that gives you an income each year for the rest of your life.

55:15Martin Lewis:Now, there are many different types out there. You could have a fixed income. You could have an escalating income, which goes up with inflation. You could have one that pays you for the rest of your life, but you might have one that pays out to someone else or keeps There are lots of different varieties, but we're going to stick vanilla. It is a payment you get each year for the rest of your life until you die. Now, the advantage of an annuity, it's a clever concept. If you think about it, the advantage of annuity, if you've got money and you want to know you've got income coming in, then you simply have this guaranteed income for the rest of your life.

55:47Martin Lewis:Now, clearly, the amount it'll pay you will depend on how long you live. If you only live five years after you buy it, it might turn out to be bad value. If you live 35 years after you buy it, it might turn out to be really good value. It used to be the case that most people, when they retired until George Osborne's Pension Freedoms, had to buy an annuity with their retirement income or at least some of their retirement income. That was changed. So you don't have to anymore. And the main reason it was got rid of is annuities are a great concept, but the rates were pants. You just weren't getting much.

56:16Martin Lewis:Now, interestingly, as interest rates have gone back up, the top annuity rate is now seven to eight percent currently. In other words, you've got£100 ,000 on a basic fixed annuity, you could earn£7 ,000 to£8 ,000 a year. That's what it would buy you each year for the rest of your life. Let's just go through the core annuity rules. Never just get an annuity from your provider. As it is money each year for the rest of your life, if you lock in at a poor rate from your provider, you are losing income each year for the rest of your life. If you live 30 years, it can be an enormous amount of money.

56:50Martin Lewis:so you need to be looking right across the market and either getting advice or going to a comparison site that will do that for you the next thing i'd say is you should be looking for an enhanced annuity if you have an illness therefore there's a foreseeability that you may die sooner being blunt or you're a smoker which means you would tend to have a shorter life expectancy and you should be absolutely looking at whether you can get an enhanced annuity in other words you get a higher rate because you're likely to have a shorter life expectancy. Now, I go back to the answer I gave earlier in the podcast, having just given you a cursory explanation.

57:24Martin Lewis:If you want to buy an annuity, please talk to PensionWise first and get your free guidance. You may then after that, especially if you're talking substantial money, want to go and get yourself independent financial advice where they can help you find the best product as well, because PensionWise will talk about the generality and the different options, but they won't pick a specific product for you. An independent financial advisor, you can pay to pick a specific product for you. But do not just get an annuity from your pension provider, because it's such a big decision, you need to get it right.

57:55Dave Richards, percentage rates on credit cards or anything else, why can't they be written in pence per pound?

58:02Martin Lewis:It's a really interesting question, David. Thank you so much. And I'm afraid it's just because the maths behind the way interest works is more complicated than that. Yes, we could say that if you have a 24.9 % APR annual percentage rate and you had£100 on the credit card and you didn't pay it off, then you would owe£24.90 over the year. And that's a simple way to think about it. But there are some problems because if you did it on a loan, when you have a loan, if you had a£1 ,000 loan at 24.9 % APR and you paid it off over a year, it would not cost you£249 because each month you're making a repayment and the interest is charged on your outstanding repayment.

58:45Martin Lewis:So after month one, you owe£1 ,000 and then you make an £80-ish repayment. So after month two, you owe£922,£23 with some interest added on top. After month three, you owe£846, whatever it is. So while we could say 24.9%, it wouldn't be equivalent to£249 because gradually your balance is reducing and you're only paying the interest on the debt you owe. To complicate this a little bit further, ultimately the interest is being charged normally on a daily rate. And if you wanted to convert an annual rate to a daily rate, 24.9 % is roughly a daily rate of 0.061%. Little break for maths nerds. Simon some maths nerd music please, so it's only for maths nerds.

59:29Martin Lewis:To convert an annual rate into a daily rate, what you do is you take 24.9%, so we'll call that 1.249, because that's the maths sum. If you're a maths nerd, you will understand why. And then you do it to the power of 1 divided by 365, close brackets, and that will give you the daily rate. So you can start to see how complicated it is. And this understanding of the interest is per day is really important, because there There are three factors that affect how much you pay when you borrow. One, the amount of debt you have, and that can, of course, be changeable if you're paying it off. Two, the interest rate that you're being charged.

1:00:07Martin Lewis:And three, how long you are borrowing for. The longer you borrow for, the more the interest compounds, the more you will owe. So, a£1 ,000 personal loan at 20 % over a year is£102 interest. £1 ,000 at 5 % interest over four years is also around£102 interest. It's actually£103 interest because you compound a bit longer. So many people think lower interest rate cheaper. No, shorter loan can often be cheaper as well. So, you know, 10 % over one year is cheaper than 5 % over five years. And that has to be factored in. So if we just talk for a second about payday loans, I did a sum many years ago. I've just found my blog on it from 2011.

1:00:50Martin Lewis:And it actually was to work out one of the problems with APRs and one of the reasons people get confused is, Simon, if you said, can you borrow 20 quid from me? Yeah. And I said, tell you what, you borrow 20 quid, but you can buy me back a pint next week when I see you. And let's say, because I did work this out in 2011, so we'll say the pint is a nice cheap three quid. Yeah. Yeah. Would you say that was a reasonable transaction between friends? Yeah, yeah. What do you think the APR would be? well well apr means annual doesn't it so we're talking about a week but so 10 percent of i think one pound 50 yeah one pound 50 would be the annual 15 that'd be 15 yeah it's 15 on a week and this is the problem with with percentages actually if you were to take it as a loan and we were to assume it compounded that three pounds a week it is equivalent to an annual interest rate of 143 ,000%.

1:01:51That's a lot.

1:01:52Martin Lewis:It's a lot. It's a big number. And this is why it is all very confusing. So if I lend you 10 quid and say, give me 11 pounds back tomorrow, it may not sound that expensive. But if we convert that into an APR, it's going to be absolutely enormous. And that's why there's lots of difficulties. And that's sort of my, I may have made it too complicated there, but trying to explain to David why it isn't that simple to just do it because there are so many other factors in there. And we'll stop there on that one. Have you got a last question for me? What's the last one? So our final question comes from Atsu.

1:02:20Yeah. Social tariffs for broadband. Why is the threshold just about the means-tested benefits of universal credit? Nothing for single people not on those benefits, such as Job Seekers Allowance and Carers Allowance that are also on low incomes?

1:02:33Martin Lewis:So I gave evidence to the Public Accounts Committee about this a few weeks ago. And look, there are a couple of problems with social tariffs. Social tariffs are those tariffs available for those people on lower incomes. Now, when it comes to broadband, social tariffs are entirely voluntary. And it is up to the individual broadband providers to set their social tariffs. They are hideously under-publicised. They often can be quite slow speeds, which is also a problem. They're not in comparison sites, barring one comparison site, which I can't tell you. You can probably work out which one, because I believe they should be in comparison sites, which is even more of a clue to the one that they are in.

1:03:07Martin Lewis:And the reason is it's entirely voluntary. And some do it. there's one that just says we'll give it to job seekers for six months totally for free and others give you they give you a reduced cost and it can be good but the exact criteria often you're exactly right just on the receipt of means tested universal credit and something that I suggested while the regulator was in the room when giving evidence is we need to codify what the benefits are and we need to ensure that they're on comparison sites and a great suggestion from Citizens Advice on broadband social tariffs, which I love, is actually it should just be done via a voucher because you're often missing out on the faster speeds and it would be much better just to give people a voucher to get their broadband as part of the social tariffs rather than coming up with these rather slow social tariffs that are available.

1:03:50Martin Lewis:You could get your voucher each year if you qualified. But it's because it's a completely unregulated, it's just something they're encouraged to do and they do it as a SOP, I think, to make sure that it doesn't come into formal regulation. So many problems on social tariffs. I'll give you another example, water tariffs. The social tariff on water is company by company. So it's a postcode lottery. And I can't tell you if you're going to qualify because some do it on benefits. Some do it on an assessment. Some do it on your income level. Some do it on your equivalised income. Don't ask me what that is.

1:04:21It's an economic criteria that's coming out.

1:04:24Martin Lewis:So I would say if you earn under£26 ,000, check out whether you can get a social tariff. There are millions of people missing out on social tariffs. But the government missed out on the opportunity recently to do a universal social tariff where they came some strict rules and every company had to offer the same. We are not as developed on social tariffs as we should be. We do not have a social tariff on energy. And basically, the answer to your question is because the system isn't good enough. Which seems a slightly depressing way to end it after we've been so positive all the way through. I hope that you have enjoyed this I Don't Get Money podcast.

1:04:59Martin Lewis:It's my last big topics podcast before I take a wee break for the summer. But don't worry, because Simon, you're currently editing some best of podcasts, aren't you? Some excellent best of podcasts. Definitely worth still downloading. So they're going to be coming out over the next few weeks. And of course, I've still got a question time to come out on Monday. So do make sure you listen to that too. Thanks very much to the huge numbers of people who sent in there. I just don't get it questions. Hopefully now you get it a little bit more. That's it for this week We normally put an episode out every Thursday and Monday The Monday coming is our Question Time podcast That's where you get to ask me absolutely anything and everything Open brackets within reason, close brackets If you've enjoyed today's show Please tell your friends you've been listening to the Martin Lewis podcast And why not subscribe and do leave us a review too Then your pockets and us will be pleased with you And if you haven't enjoyed it And you've been listening this long Well, I think you need to go back to basics yourself, don't you really?

1:05:59Martin Lewis:Why have you kept a podcast on this long if you haven't enjoyed it? You have choice. You have free will. Make an active decision. Shut me up earlier. Now you can't shut me up at all. I'm just going to keep going on and on and on.

1:06:23I've got to feed, so I'm going to 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. However, 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.