Can energy companies make themselves more popular by imitating banks?

Retail banks have done much in recent years to make current accounts more user-friendly.

Several in the UK offer text alerts which let you know if you are getting close to your overdraft limit and others offer 24 hour telephone and online banking, and balance on demand, a real help to those of us who work long hours. Others still, such as the thinkmoney personal account provide customers with a breakdown of their spending so they can identify areas in which they might be spending too much and hopefully cut down.

Perhaps it is time for energy companies to do the same. Rather than offering fixed rate tariffs where you are likely to pay a premium for the security of knowing exactly what your monthly spend is, or a variable rate, which allows you to benefit from market fluctuations, but pay more if energy prices rise, why don't energy companies encourage more people to take control of their own electricity usage by using pay-as-you-go meters?

By adopting many of the features of  bank current accounts, customers would have a far better idea of their energy consumption. They could set up a preferred limit, and have the energy company text them web they were nearing this usage, and they could let customers know on demand how much their bill was at a given point. Other features might include an app that could let customers know how expensive a particular branded item was to run. This way, consumers would be able to ration their energy, so if, say, a pensioner wished to use their central heating more often, they could check what else they might be able to turn off to avoid going over budget.

    Energy companies would certainly need to educate people about the average usage for everyday tasks, such as boiling a kettle or doing a washing load, but this would be a huge step in the right direction for energy companies, and it might even improve the relationship between the much maligned energy giants and ordinary bill payers.

What is the best energy tariff for people on a budget?

Energy bills are a major headache. With so many different companies, tariffs and price plans, it is almost impossible to work out if you getting the best value for your money. So how can you navigate the market and work out the best deal for you, especially if you are on a limited budget? 



Websites

      The best way to begin is by looking directly at price plans offered by different companies. It is notoriously difficult to compare like for like, but there are a few websites you can visit that may help. Consumer Focus recommends you check on a Confidence Code accredited price comparison site - UkPower.co.uk, for example, which breaks down energy prices by looking at the type of consumer you might be, and working out the most appropriate price plans based on this and give you an indication of the amount of energy you might use in each situation. For example,  if you live in a small flat and are out at work most of the time - your bills will be lower than a family living in a large house, who have young children around the house. Price comparison websites such as Comparethemarket.com can offer some good deals for switching provider, even though new research has found that only 33% of customers use a price comparison service when switching. You should also look at Moneysavingexpert.com, on which you can sign up to a weekly newsletter advising you of any changes to the prices of the major energy providers.

Choosing a price plan 

Next step is choosing a price plan. Once you have decided on the company, you need to look at the method of payment. Do you want to pay the same amount each month, or would you rather pay a different amount depending on the season, the energy market or the amount of electricity you are using?

  

Pros and cons

What are the advantages and disadvantages of each? Well, a fixed-rate tariff works well if you are on a budget. It enables you to plan exactly how much you are likely to spend and pay only this amount each month. The downside here is that since the price plan is fixed, you won't be able to save any money, if, say energy prices come down, nor will you be able to adjust costs based on how much you are using: the bill is simply based on a projected output depending on the type of property, number of inhabitants amongst other variables. The energy company may also charge you a premium for the security of knowing your bills beforehand.

    

Another type of payment plan is a variable rate tariff. Here, instead of paying the same amount every month, you'll be billed according to the price of energy in the market at that time. So if energy prices go down, your bills may go down. If energy prices rise, so will your bills.

On the other hand, a metered tariff works in the same way as a pay-as-you-go phone - so you pay according to the amount of energy you have used in a given month, so it could vary drastically - February, for instance, will be much more expensive than July, as you are likely to have central heating on in February. The good thing about this sort of plan is that it is you can control how much energy you are using by doing simple things, such as keeping the heating down and improving insulation. It also means you can save money if prices do suddenly go down, although this means that  if prices increase, it won't be long before you get a bigger gas or electricity bill.

Individual choice

In the end though, the choice is down to the individual and individual circumstances. After all, it is still possible to keep to a strict budget on a variable rate and it is possible to have a little flexibility with a fixed tariff, as long as you keep an accurate record of your meter readings.

Entrepreneurship: not for the young?

Entrepreneurship is very much on the national agenda at the moment. With job prospects for 16-24 year olds looking unpromising, the UK government has recently launched the StartUp initiative to encourage young people to work for themselves instead. Recent research by Money also found that the up to 38% of employees felt they could run their company better than their employers. So how realistic is the idea of setting up a company for the young (and possibly unemployed)?

Let's look at the issues a 26 year old who might want to set up a small business selling, say customised t-shirts might face. 

-First of all, there is the question of funding. The young entrepreneur might be able to keep overheads low initially, possibly by keeping a strong online presence rather than paying rent on a business premises, but they may well struggle to market their product and take it to the next level. Fortunately, there is funding available for this - despite the difficulties small companies are having currently in accessing credit. Certain companies may be able to give you seed capital or a seed loan - Seedrs, for example, or Zopa, which matches up individual lenders with individual borrowers. So, this is all very well if the company does well and begins to turn a profit quickly, but what if the company is more of a slow burner?

This brings us to the 2nd problem for (very) young entrepreneurs: they may have a great idea, but do they have the support of a strong network of entrepreneurs or experts in their field? The answer for a sizeable minority of them is no - and as Newsbeat reports, 30 percent of start-ups stop trading within three years. The problem is that many of the would-be funders and mentors of these companies do not believe that these young people have enough experience in their field - after all, many other people have had to grapple with high level professional qualifications, and some of these entrepreneurs might not even have a university degree. 

The angel/'dragon's den'/private equity' scenario is another minefield. If they cannot see instant potential in a brand, they won't invest - and that can often mean sacrificing a  diamond in the rough for a  a glorified get-rich-quick-scheme - unless, of course, the business plan stands up to scrutiny.

But actually, entrepreneurs are very supportive of their colleagues. There are a number of entrepreneurial groups - Julia Hobsbawn (daughter of historian Eric) for instance, runs a networking group for young entrepreneurs, and there is a strong community of entrepreneurs in London, from the Richard Reids (of Innocent Smoothies/BBC3's Be Your Own Boss fame) to those in the tech savvy East London area.

But this brings us to the final hurdle, especially for young people coming out of university with limited job prospects: can an entrepreneur be made? Successful entrepreneurs are generally fairly unequivocal about this, spouting stories about how they left school at 16 with no qualifications and built up a successful business. In practice, though, these lucky individuals had enough financial backing to allow them to fail a few times. 

Nowadays, building up a brand is much easier - free social media platforms, such as Twitter, Facebook, even YouTube have allowed young people to rapidly create strong and loyal fan bases. This has done away with much of the access to funding needed for traditional start-ups and gives the opportunity for may to enhance their skill sets and express their creativity - even allowing a lucky few to earn a salary from it, in the form of GoogleAds.

Perhaps universities should be teaching Google and YouTube studies as a way of empowering the unemployed youth of today?

How can credit unions reach out to younger customers?

Credit unions play a key role in helping the 'underbanked' to access credit for everyday necessities. According to the Association of British Credit Unions Limited (ABCUL), there are now 405 credit unions across England, Wales and Scotland, with more than 1 million users (a 170% increase in membership since 2007), equating to a total amount in savings of £762 million, and a total of £604 million out on loan. Several of these - 25 - now offer current accounts and growing number are offering mortgages, cash ISAs and insurance products.

But how do they benefit the young, especially those between 18-25, who may not yet have had the chance to build up many savings, but might be keen to get into the right habits of saving, building up assets and keeping debt down? Are there even any advantages to using a credit union at all?  Well, of the total number of credit union members, over 121,000 are junior savers. So, there is clearly a strong base market for savings accounts amongst the young.

However, the main problem that credit unions face is the fact that many people only become aware of them when they get into difficulty - particularly regarding debt. When they are financially stable, they are more likely to use a current account or savings account with a high st bank, or building society, after all, they offer higher interest rates on savings accounts, and lower interest rates on loan repayments. But when the amount in question is lower than £3000, credit unions begin to come into their own – in fact, a credit union can lend as little as £50 to those who need it. Moreover, with an repayment rate which averages just under 13%, this undercuts high st and payday lenders, by almost 9% - so interest on an amount of £100, would be about £10 cheaper for those who used a credit union.

The only catch is that credit unions require anyone who borrows from them to already be a member, so that they have proved themselves to be a prudent saver over a period of time. However, this is set to change with new guidelines brought in by the UK government to increase credit union membership.

Are credit unions then, doing more to attract younger users? In today’s uncertain economic climate, young people are beginning to turn to credit unions more to pay off debts, including credit card, as reported recently by the North Wales Credit Union. There is little data regarding the amount of savings young people are willing to invest in a credit union rather than a conventional institution, such as a bank. But Young Scot Extra, an information site aimed at young Scots aged between 16-26, is working on the possibility of setting up an online credit union for young people aged up to 26 and credit unions are working with schools and colleges to identify ways they might better engage with younger members of a community. There is a long way to go, though, before, they reach the dizzying heights of existing credit unions in the republic of Ireland, where a historically poor population has built a loyal base of members. Here, young people are quick to see the benefits of becoming a member – especially with university loans, where students are increasingly turning to credit unions to help fund the costs of university.

    

But overall credit unions need to do more to attract younger customers, and provide an alternative to banks, not just by allowing access to credit to pay off debts, if they are to expand meaningfully.   

Improving bank accounts for young people

Improving bank accounts for young people

The Fairbanking Foundation awarded four new FairBanking Marks at a ceremony at the London Guildhall last Thursday, to bank accounts which were judged to contribute to the financial well-being of customers who choose to use them. This signals a real step forward  not just for retail banks, whose reputations have taken a battering in recent years, but also for young people, who struggle to engage with the financial services industry, and have limited access to financial education.

Let’s have a look at the accounts deemed worthy of a Fairbanking Mark.

Lloyds TSB – Current Account with Control

Awarded a 3 Star Fairbanking Mark. A current account with overdraft which keeps customers informed about their balance with a range of alerts, including weekly balance, account limit and high/low balance. This account also shows customers their overall income and spending patterns, as well as how their spending breaks down into different categories over time, to allow customers to rethink how to spend their money.

RBS/Natwest – Your Savings Goals

Awarded a 4 Star Fairbanking Mark. A regular savings account which allows customers to set up savings ‘pots’, which can be personalised, including specific ‘rainy day’ funds for emergencies. Customers can find out how much they need save for a particular goal, and for long, and makes it easy for them to easily set up regular payments to their savings account. The account is attractively presented, with graphics and numbers.

thinkmoney – Personal Account

Awarded a 4 Star Fairbanking Mark. A current account without overdraft which keeps customers updated on their account through regular messages. It aims to prevent customers the costly business of going over their agreed overdraft limit by alerting customers via a system called Your Money Manger if their account balance is insufficient to pay upcoming bills, and uses simple graphics such as a smiley or sad face depending on account status. Customers can also see their overall income and spending and how they change over time, giving customers the opportunity to identify patterns in their spending.

Secure Trust Bank – Current Account

Awarded a 4 Start Fairbanking Mark. A current account without overdraft which provides 24/7 phone and internet services to help customers stay informed about their balance and recent transactions. Customers can set an overall budget and keep money to pay regular bills separate from disposable income. It allows customers to break down spending into different categories, petrol, for instance, or eating out, and set budgets by individual category.

What these accounts have in common is the element of control they give customers over their money. They keep customers informed about their finances through spending breakdowns and regular alerts but insist upon ultimate personal responsibility. The visual factors such as the smiley and sad faces give customers an instantaneous assessment of how they are managing their money and make the whole business of managing money easier.

These accounts are particularly useful for young people, particularly those between the ages of 17-25, who for the most part have lower incomes, but fairly simple banking needs – they may still be supported by their parents, and apart from student debt, are unlikely to have any significant financial burdens, such as a mortgage. By getting into the habit of regularly checking their accounts early , banks are helping them to sow the seeds of good financial practice, which will eventually take them towards financial independence.

For more information, visit http://www.fairbanking.org.uk/