Consumers these days are faced with a myriad of financial products, all of them with their own rules and pitfalls. In this case, it’s not difficult for even the most conscientious of savers and spenders to slip up – and lose out. Here are the top 10 financial traps and how to steer clear of them:
1. Failing to shift your savings when the bonus rate has expired
Interest rates have remained at their slump of 0.5 per cent since March last year, which translates into paltry returns on easy access accounts. One tactic that banks and building societies employ to ‘turn heads’ is an upfront bonus rate that applies, typically, for the first 12 months. When this expires, your rate can plummet so make sure you log the date and shift your savings to the next best deal.
2. Doing nothing when your fixed rate bond matures
If you opted to tie your savings up in a fixed rate bond which is coming up to maturing, doing nothing will see your interest rate literally fall off a cliff. The top paying four-year bond in June 2006 for example, was from Cheshire Building Society which paid 5.28 per cent. Failing to take action now that has expired could see your money moved into an account paying just 0.1 per cent.
3. Not switching your credit card balance when the 0% deal expires
These days, interest-free periods for balance transfers on credit cards can last up to 15 months. But time flies too, so make sure you are ready to switch again to a new 0 per cent card before your balance hits interest rates of anything between 17 per cent and 18 per cent. Bear in mind a balance transfer fee of up to 3 per cent will usually apply– and that you’ll need to give yourself time for the application to process.
4. Opting to pay your insurance monthly, not annually
As has always been the case, the more money you have, the cheaper things are – and this is the same with insurance. It’s a little known fact that if you opt to pay your insurance monthly, you will be charged a hefty rate of interest by the insurer. Cough up the annual premium in one lump and you won’t be charged any.
5. ‘Protecting yourself’ with PPI
Payment protection insurance – shortened to PPI – is an insurance that is sold alongside credit cards, store cards, loans and other debt agreements. It means that if you can’t make monthly repayments because of an accident, illness or being made redundant, payments will step in for a given period. But it’s worth remembering that PPI can be expensive, it comes with deferment periods before payments kick in and is littered with exclusions. Consider other options such as income protection. Find out more in our article ‘How to cope when financial disaster strikes.’
6. Buying an extended warranty
An extended warranty is a guarantee that a product you are buying will be fixed free of charge for a given period – but you may not need it. Firstly, most electrical appliances come with a one-year manufacturer’s guarantee anyway and secondly you will already be protected under the Sale of Goods Act 1979, which states all appliances must be of satisfactory quality and fit for purpose.
7. Getting stung with early repayment charges on your mortgage
The best mortgage is not always the cheapest. Tying yourself into a cheap fix for a set time will always come with penalties to match if you opt to redeem the loan early. If you are a free spirit, or just don’t know where your life will take you any time soon, opt for a lifetime tracker deal with no early repayment charges.
8. Omitting conditions on your health insurance
You can drive down the cost of income protection, critical illness or life insurance very easily by omitting existing medical conditions. But while your monthly premiums will be cheaper, it’s likely to be a false economy of the worst kind – your insurer simply won’t pay out on a claim if they find out you failed to disclose important information.
9. Paying unnecessary ATM fees
These days, withdrawing cash from an ATM is generally free – even if the machine does not belong to your bank. But ATMs that are independently owned – often found in pubs, shops and garages – can charge up to £1.75 for accessing your own hard-earned cash. Get organised in advance and give these ATMs a wide berth.
10. Automatically renewing your car insurance
It’s so easy to just do nothing when your car insurance comes up for renewal but investing just a few minutes to see if there are cheaper deals available can save you a fortune. Last year for example, 10 per cent of car insurance customers, who gave a best alternative price, saved over £206 at Confused.com.
