Dear Money Mentor,

I finished college last year having completed my degree and I currently work in Kerry Group as part of the graduate programme. I am renting at the minute but working from home some of the time due to COVID-19, except when I am doing lab work. I would like to take over the family farm eventually but my parents would prefer I work and use my degree for a few years yet as I am only 23-years-old.

I earn a good salary but I do not know much about banking or personal finance. I have a student account which has now been converted to a graduate account with an overdraft. I mostly only use my debit card to take out cash and pay for items. My salary is paid into this account. I have a car which I would like to change over the next year. I previously funded my own car insurance from what I earned helping out on the farm.

I once had a student credit card (in 2017) which I used to go on a J1 visa trip which I did not repay in full, will this affect my credit rating in the future, especially as I will need a loan to change the car?

Can you advise please, and on the best finance products for me.

Regards, Martin

Margaret writes

Dear Martin,

Thank you for your email. The products I would suggest for you as a 23-year-old graduate intending to take over the family farm eventually are:

Current account

A graduate current account with a debit card. This may include an overdraft but as you are well paid you should not need to use this. A graduate current account, generally, has a 0% interest rate for a few years (usually two), so this may come in useful if you need to pay car insurance in one lump sum.

Be sure to find out how many years the 0% interest rate will apply before using the overdraft. An overdraft should only be used on a short-term basis. You could also pay your insurance by direct debit.

A savings account

Very low interest rates apply here currently. Once you have accumulated a lump sum you could invest in a State savings account (with An Post), which can be anything from a three-year to a ten-year investment bond. The interest rate applicable can vary from 0.33% to 0.96% currently, depending on the specific bond. This account could help you budget for your car insurance or a deposit on changing your car. You should try to save at least 20% of your monthly salary.

Invest in a life assurance plan or a pension plan

As you are young and single and on a good salary you really should be capable of saving some of your earnings, especially as we are in a pandemic. You should do a budget outlining what your expenses are each month (such as rent, utility bills, petrol, food etc) and how much you will have left once they are all paid. You didn’t mention whether you are investing in a group pension plan or not, but if you are, then this is the most tax-efficient way of saving. At your age, you can contribute up to 15% of your salary to a pension plan, which enables you to claim tax relief at the marginal rate on those payments.

You could invest in a life assurance policy with a savings element. This is a long-term investment and usually pays out on death to your estate or when you reach a certain age, if a whole-of-life policy. It’s a good way of saving but the premiums can be quite high. You need to get professional advice before investing in assurance or pension plans. Both of these will be suitable for you as you ultimately intend to take over the family farm. The earlier you start a pension the better.

Car Insurance

Martin, be sure to shop around before renewing your car insurance. Simply do not accept the quote from your existing insurer at renewal time. Even if the quote is less than what you paid last year this does not mean it is the cheapest quote available to you. There are currently 20 motor insurance providers in the Irish market. You can check these out yourself or engage a broker to do that for you. You can get a cheaper quote by adding another named driver, such as a family member with a full driver’s licence, to your policy once you have a full licence yourself.

Credit cards

A credit card is very convenient if travelling or buying online. Most banks offer credit cards with travel insurance included which will be very useful once COVID-19 is over. Credit cards should be used properly, with the balance cleared monthly, otherwise they are a very expensive way of borrowing money. Interest rates vary from bank to bank, and can be anything from 16.1% to 22.9%. Most banks a offer six-month interest-free balance transfer for new customers transferring from other banks.

Credit ratings

You mentioned you had an outstanding balance on a student credit card. This may show up on the Irish Credit Bureau (ICB), or the Central Credit Register (CCR - data held here since 30 June 2017). You can check this out by requesting your own credit report, which is free. These reports are important if you intend to borrow money as your bank will have access to your credit report and you will need to have a good credit rating to avail of any new loans.

Car finance

Make sure to shop around if you need finance to change the car. Personal Contract Plan (PCP) finance is available on both new and used cars. Repayments will be low but you won’t own the car during this period and there will be a remaining amount owing at the end of the contract term. At that stage, you will need to pay off the remaining amount to own the car or start a new plan and change the car again. There are other forms of car finance such as leasing, hire purchase or a bank or credit union loan. CL

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