So yesterday, when I pointed out the free download that was available of Suze Orman’s book Women and Money, I said that I’d explain how some of her ideas relate to British personal finance products
checking accounts = current accounts
You probably know that what are called checking accounts in the US, are called current accounts in the UK. Suze recommends that you open a new checking account with the following features:
- no monthly fee
- a low balance to qualify for free checking
- free checks and check writing
- online access and free online bill pay
- insurance coverage
In the UK, you should actually be able to do a lot better than that. Every single bank in the UK offers at least one (and sometimes many) current accounts with those features. To that list you can also add:
- high interest
- FSA registered
- telephone banking
- the ability to set up direct debits and standing orders
- free cash machine transactions at all banks
Currently the best accounts if you are in credit are with First Direct (it’s a high cash bonus rather than a high interest rate) or Alliance and Leicester or Cahoot . Which one you should get depends on how much you earn and deposit each month .
FDIC = FSCS
Just like the Yanks have insurance on bank deposits, so do us Brits. Every bank, building society or credit union regulated by the FSA is insured by the Financial Services Compensation Scheme (FSCS). In the event of a bank or building society failing, the first £35k that you hold in all your accounts combined at the bank will definitely be returned to you.
401(k) = direct benefit (money purchase) pension
A 401(k) scheme or similar is an employment based retirement account. The exact equivalent in the UK is a direct benefit pension, often called a money purchase pension. As in the US, these usually come with employer contributions, which may or may not be dependent on your own contributions.
There are more generous limits on contributions. You may contribute up to the lower of your annual earnings and £215k over all your pensions, including private pensions.
roth IRA = stocks and shares ISA, sort of
The closest thing that we have in the UK to a Roth IRA is a stocks and shares ISA . Stocks and shares ISAs are more flexible than Roth IRAs, which has it’s own disadvantages. You can contribute up to £7000 per year (increasing to £7200 in April) to a stocks and shares ISA, but this limit is dependant on whether you have a cash ISA as well.
Anyone over the age of 18 may hold a stocks and shares ISA, regardless of their earnings.
traditional IRA = private pension, sort of
A traditional IRA in the US, is much the same as a British personal pension, but the limits on making tax-free contributions are much more generous. They are the same as those for an employment based defined benefit pension.
In addition, you can contribute up to £2,808 before tax (which HMRC will top up to £3600) even if you don’t have any earnings, there is no age limit on this.
advance directive / healthcare DPOA = living will: advance statement and advance directive
In the UK, the way to specify in advance what you would like to have happen to you should you become incapacitated is through a living will with an advance statement and/or an advance directive.
An advance statement describes treatment that you would be happy to have, want to have or prefer not to have. It also indicates who you would like to be consulted over your treatment. It is not legally binding, but healthcare professionals must take it into account.
An advance directive is a refusal in advance of certain types of treatment. It is legally binding and must be followed except in a few cases .
I’ve given equivalents all the American financial products that I noticed featuring heavily, but if you spot any others, let me know. I’m always happy to try to translate from yank speak to the Queen’s English.
Image by jennifrog
- what is an isa?
- comparison of US and UK investment concepts
- baby boomer with no pension: tax and benefit implications