Some financial products can be a waste of time and cash, with little or no returns. Aisha Iqbal reports.
With the cost of living putting pressure on many households’ budgets, it’s more important than ever that consumers are buying financial products that are good value for money.
But according to consumer campaign Which?, there are plenty of products out there that you are better off without.
The watchdog has put together a list of the top 10 money-wasting financial products to avoid in 2014.
Richard Lloyd, executive director of Which?, said: “There are still far too many financial products on the market that are risky or offer poor value for money and some that are being mis-sold to consumers.
“We want the financial regulator to take tough action and crackdown where it finds evidence of poor practice.”
The top 10 financial products to avoid in 2014, according to Which?, are:
Many electrical products are already covered by a manufacturer’s warranty, the Sale of Goods Act, or home insurance. Extended warranties can be expensive compared to the cost of the item you’re insuring. A previous Which? investigation found that some staff made exaggerated claims about what was covered. Find out more about your automatic rights if you have a faulty product and how to claim under the Sale of Goods Act.
Charity credit cards:
These are not the most efficient way to donate. You would need to spend £129,600 on a typical charity credit card in just a year to donate the average given to charity by UK donors (£27 a month). Consider taking out a top cashback credit card and donating the money you get in cashback. Though a charity credit card will donate automatically, you can give more if you are willing to donate the cashback yourself.
Gift cards or vouchers:
If the company goes bust there’s no guarantee consumers will still be able to use them, so – if you’re buying vouchers of a high-value, or from a retailer you’re not confident in – cash or cheque may be a safer bet. If you have vouchers for a company that’s gone bust you don’t have any formal rights to get a refund, but you can still ask to get your money back.
Healthcare cash plans:
Someone with fairly low level health needs could end up paying more in premiums than they get in benefits. It may be better to self-insure by putting money away in a best rate savings account.
ID fraud protection policies:
The benefits are often not worth paying for as consumers are covered by their banks for losses due to fraud. Consumers can check for any unusual activity on their £2 statutory credit report. ID fraud protection policies have been mis-sold in the past in some instances.
Expensive tracker funds:
Some funds charge three times more than the cheapest to manage investors’ money which can have a big impact on returns. Consumers should switch providers if they’re paying over the odds.
Structured deposit schemes:
These are sometimes sold without proper advice and charges are not made clear. The Financial Conduct Authority (FCA) has called for firms to improve how they design and sell the products. Which? has called for a stop to misleading promotions and want a ban on banks getting commission on them.
Over-50s insurance plans:
These plans often pay out less that you could save yourself. Which? looked at over-50s plans from 14 providers and found a 60-year old non-smoker, paying monthly premiums of £15, would qualify for an average payout of £3,334 after 30 years, but it would only take 15 years to beat this by investing in a cash Isa with 3% interest on average.
Paid-for debt management:
Debt charities such as StepChange offer good and impartial advice for free, so there’s no need to pay for this service.
People are already protected against being a victim of fraud, and the extra benefits such as key cover can often be found cheaper elsewhere. Your bank should refund you for unauthorised transactions made on your credit or debit card unless it can prove you have acted with ‘gross negligence’.
The ‘steer clear’ list
A rundown of those top 10 financial products you don’t really need:
Charity credit cards
Gift cards or vouchers
Healthcare cash plans
ID fraud protection policies
Expensive tracker funds
Structured deposit schemes
Over 50s insurance plans
Paid-for debt management
Visit www.which.co.uk for more details.