Money: Invest in the best

Shop around for financial services and save thousands. Rachel Fixsen reports in the last of a series on making the most of your money

DECIDING TO take out a pension plan or investment is only the start. There are thousands of financial products on the market and choosing which one to buy can be confusing. Some people close their eyes and pick one at random, but researching your options is important.

Failing to shop around can cost you dear. When taking out a mortgage people do tend to compare deals offered by different institutions, but many take the first investment, life insurance or pension they come across, according to research by the Consumers' Association (CA).

Mick McAteer, senior researcher at the CA, says: "Most people don't shop around because they consider financial services companies to be necessary evils - they think they'll get just as bad a deal somewhere else."

But in research conducted last year, the CA compared two sets of customers. The first simply bought financial services from High Street providers without comparing, while the second shopped around.

The study found that, in most cases, a family buying a basket of products such as a mortgage, Tessa, personal pension and life assurance would have been pounds 5,000 better off after five years if they had shopped around for better deals.

Research is particularly importantwhen buyinglife assurance. You can easily end up tying yourself in for 25 years, with heavy penalties if you withdraw early.

The difference between a good value product and a poor value one can be huge, especially with a long-term investment. For instance, the charges levied by personal pension plan providers vary so much that if you choose an expensive one, you could end up with 20 per cent less money in retirement.

Where do you start? Specialist publications and personal finance pages in the weekend newspapers are a good place to arm yourself with basic knowledge about the market. The Independent and the Independent on Sundayhave money pages containing advice and recommendations.

MoneyFacts is a monthly publication which has a wealth of information on savings, bank accounts and credit cards. Life & Pensions MoneyFacts, its sister publication, contains performance data and product information for a range of investments.

Before putting money away into your faithful old building society account, take a look at the rate of interest it pays.

You may be surprised at the vast difference between this and the interest offered by a newer account being actively marketed by another institution.

For instance, a Lloyds Bank flexible savings account gives you just 3.4 per cent gross interest a year if you have a balance of pounds 500, while Scottish Widows Bank pays 7 per cent on the same balance with its instant access telephone and postal access account.

Judging how good returns are likely to be from a more complex investment such as a unit trust is more difficult. The small print in investment advertisements constantly reminds us that past performance is no guarantee of future returns. But performance tables are, nevertheless, a good place to start.

Janice Thomson, of independent financial advisers Chelsea Financial Services, says: "It's really all you've got to go by. They're no guarantee, but one would assume that something that has good past performance has a better chance."

With stock market investments, look at performance over the past five and ten-year periods, as equities investments are unsuitable for shorter lengths of time. Check fees and charges levied by the provider, as these can eat into the returns.

Using an independent financial adviser (IFA) is a good idea if you have an important investment decision to make, for instance taking out a pension. IFAs have the resources and expertise to know what is available - and you might be able to sue them if they make a bad choice.

They are legally required to recommend the most suitable product for you.

The best way to find a reputable adviser is by recommendation from a friend. If that isn't an option for you, the phone services listed below will help you track one down.

The best advice is given by financial advisers who work on a fee basis rather than taking commission out of the product they sell you, according to CA research. But many people balk at the idea of paying fees to an IFA, and commission taken out of the product they buy seems less painful.

When buying through an IFA who takes commission, don't be afraid to negotiate, says Janice Thomson. She says: "If it's a product that is not all that complicated, ask whether there is any room for manoeuvre on it."

Whatever financial product you buy, it is important to keep it under review. Your circumstances may change and a safer investment may be more suitable or a new product might come onto the market which gives a better return.

Useful Numbers

MoneyFacts: 01603 476747. Chelsea Financial Services: 0171 351 6022.

Independent Financial Advisers Promotion on 0117 971 1177 will give you addresses of three IFAs in your area.

Money Management magazine has a list of fee-based advisers. Call 0117 976 9444 for a list of the six nearest to you.

The Solicitors for Independent Financial Advice has a helpline; call 01372 721172.