Money

How young Brits can Brexit-proof their money

The flags of the European Union and the United Kingdom hang one day prior to a summit of European Union leaders at the European Council on October 16, 2019 in Brussels, Belgium.
Sean Gallup | Getty Images News | Getty Images

With the U.K. set to hold a general election next month, investors are looking for clues on how this could impact the Brexit process.

CNBC looks at ways to protect your money against this political uncertainty.

Voting is due to take place on December 12, with polls showing that Prime Minister Boris Johnson's Conservative Party is likely to win the majority of seats and remain in power.

If Johnson's government is re-elected this would see the leader make another attempt at getting British lawmakers to back his Brexit divorce deal in U.K. parliament by the extended deadline of January 31. This is the third Brexit extension European Union officials have granted the U.K. in the three years since the referendum vote of June 2016.

However, an election victory for Johnson's center-right party could still mean the U.K. might crash out of the EU without a deal if he once again fails to get members of parliament onside with his proposed divorce agreement. This is despite the fact that British politicians have attempted to block a "no-deal" scenario in parliament.

The U.K.'s leading opposition, the leftist Labour party, has pledged to put a final vote on the Brexit deal back to the British people if it is elected. Meanwhile, the center-left Liberal Democrat party have promised to put a stop to Brexit altogether.

Given the uncertainty that surrounds Brexit, it's important consider the potential impact on your personal finances which is why CNBC Make It asked experts how young Brits can best protect their money.

'Build your own resilience'

The U.K. economy has avoided a recession so far this year, according to the latest figures measuring economic growth in the U.K.

However, the figures showed the recent rate of economic growth in the U.K. had been at its slowest since 2010, with continued Brexit uncertainty blamed for slowing British business activity.

In order to withstand potential economic adversity should the U.K. fall into a recession, Becky O'Connor, personal finance specialist at financial services firm Royal London says it is key to "build your own resilience."

Putting a little more money into savings can help in case of temporary loss of income and is "the financial equivalent of stockpiling tins," she says.

"When rainy days seem more likely, as they might with Brexit around the corner, it could be better to spend a little less," O'Connor adds.

She recommends having three to six months' worth of income in emergency savings.

Be aware of interest rates

If Britain did fall into recession as a result of Brexit, the U.K. central bank the Bank of England (BoE) might respond by cutting interest rates, in order to try to increase spending and stimulate economic growth.

Yet if a Brexit deal was agreed and the U.K. did manage to leave the EU within the deadline, this might cause a wave of business activity and spending that companies and consumers had been holding off on during the negotiations.

An influx of money into the economy might prompt the BoE to then raise interest rates to keep spending and price inflation in check.

Laura Suter, personal finance analyst at online investment platform AJ Bell, says it's therefore important to keep an eye on the direction of rates as this forms the basis for interest on borrowings and savings.

Typically if rates are likely to rise, then you should look to lock in good deals on any debt you have, she says, with the opposite being true if interest rates looked as if they were to fall.

Keep savings easily accessible

Suter admits that "without a crystal ball it's impossible to know the exact outcome" of Brexit but adds that rather than guessing which way rates are going savers should look to get the best deal on their cash without tying money up for too long.

She says the best easy access savings account that allows unlimited withdrawals is from Goldman Sachs' online bank Marcus, paying 1.45% interest. Regular savings accounts offer up to 5% interest but on small amounts, normally of around £250 a month, she says.

O'Connor also emphasizes the importance of keeping savings easily accessible.

"Once you've got your savings up to a level you are happy with, you might want to consider investing any further spare money in a stocks and shares Lifetime ISA, which can be used towards a first home or towards retirement," she says.

"If neither of these goals inspire you, then investing in a regular stocks and shares ISA is a good way to boost your long-term resilience."

Look for deals on debt

Debt levels typically rise in the run up to Christmas, with people putting the cost of presents, food and festive parties on credit cards, says Suter.

"Anyone with high cost debt should try to switch it to a better deal rather than waiting, as while you're hanging around for Brexit and to see what interest rates are doing you'll be racking up more interest," she says.

The average credit card interest rate is 25% but for those with a decent credit score there are much lower rates available as well as 0% balance transfer deals, Suter says.

As for avoiding falling back into debt, O'Connor says research shows keeping as little as £1,000 aside can help with urgent, unforeseen spending requirements.

Graduates should also check the rate of inflation, says Suter, as the interest on the loans of those who started at university from 2012 onwards is linked to the retail prices index (RPI). This is based on an annual reading in March.

"This means that if inflation spikes in March, graduates will have to pay higher interest on their loan in the following year – even if the inflation rate just jumps in that one month," she explains.

"Frustratingly though, there's nothing you can do about this, but you should be prepared for any hike – and hope for a low inflation figure in March to cut the cost of your loan."

However, this does not affect the monthly sum students pay as the interest is only added to the end amount and research from the Institute of Fiscal Studies has shown that the majority of students will never pay back their loan in full.

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