Beware the finance sales: you can't take a mortgage back

Banks have joined the cut-price frenzy on the high street, but buying the wrong product might prove an expensive mistake
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The Independent Online

You can hit the new year sales, but they can hit you back harder in the pocket.

Lured by the promise of a bargain bonanza, it's easy to splash cash on cut-price goods you don't really want or overindulge and bust a carefully planned budget.

And that's just as much the case with financial products as it is with clothes and electronic gadgets.

Giant "sale" signs currently hang in many bank branch windows (HSBC and NatWest) to grab the attention of shoppers, while garish online ads promise "new year relief" (Lloyds TSB's credit card) and "half-price bank account plus!" (HSBC again, with a packaged current account).

This trend for banks, building societies and other lenders to launch an annual sale of discounted home loans, current accounts, credit cards et al was kicked off by HSBC in 2005. Since then, a growing number of rivals have caught on to the potential for pulling in new customers with "cheap" offers, and then cross-selling more expensive products. The question is, though, are the "special deals" really worth buying?

Take the Lloyds TSB credit card, which offers an annual percentage rate (APR) of 15.9 with 0 per cent on balance transfers for nine months, and 1 per cent cashback for three months.

"It's hard to get enthused," says Stuart Glendinning of price-comparison website Moneysupermarket.com. "It is no 'turkey' but it doesn't tick all the boxes either.

"Arguably, a 1 per cent cashback would have been useful in December and January, but applying for it now means you will have it in February, so the big spending period has been missed."

Better cashback cards are on offer from Morgan Stanley and American Express, he adds.

HSBC's "bank plus" packaged current account offers half-price fees for six months - reduced to £6.47 from £12.95 - but this is dismissed by financial analyst Moneyfacts. "I'm not sure this will win over many customers, as packaged accounts are only worthwhile if you really use the benefits [such as worldwide family travel insurance with sports cover]," says spokes- man Andrew Hagger. "If you don't use them all, avoid."

Mortgage deals, in particular, have provoked a great deal of criticism. "January sales in financial services are largely a gimmick and should always be viewed with some scepticism," warns Nick Gardner at broker Chase de Vere Mortgage Management. "Some deals are good, some not so good - but just because a bank says a product is on sale doesn't mean it's a bargain."

James Cotton of broker London & Country agrees: "After all, if you take out a mortgage in the sales, you can't just take it back."

Not all offers in the new year finance sales have met with such a lukewarm reception. Barclays bank, for instance, has launched a regular savings account - linked to a separate current account - which pays a very generous 12.5 per cent.

According to calculations by independent financial adviser (IFA) AWD Chase de Vere, monthly maximum contributions of £250 would earn you gross annual interest of £203.94.

"There's no disputing that 12.5 per cent is a fantastic rate and a great deal for the many Barclays customers who aren't looking to switch current accounts," says AWD spokeswoman Sue Hannums. "But like most of these current account-linked deals, they are very rarely worth moving for. Even with all the competition, Barclays continues to offer a bad deal on its current account: it pays 0.1 per cent on balances in credit and [charges] high rates on its overdraft."

Any special offer with personal finance products must not be judged in isolation, says Simeon Linstead of the price-comparison website uSwitch.

"Consumers must compare products to determine which are best for their own circumstances. It is very easy to get caught out by a special offer with a strong sales strapline, without really examining the small print or whether you can get a better product elsewhere."

To help you shop with discretion, here's our guide to getting your money in shape in 2007.

* Work out how much you owe from your festive excesses and draw up a budget to get this debt cleared as quickly as possible. Pay down the most expensive debt first.

* You may be better off transferring your credit card balances to a 0 per cent deal. Also consider consolidating your debts into one low-cost unsecured loan. But do your sums first to make sure any early "exit" penalty doesn't erode the financial benefits of switching.

* Pay off, and cut up, any store cards.

* Make the most of your tax-free £3,000 mini cash individual savings account allowance.

* Check the interest you are currently being offered on any existing savings accounts - as well as your current account - and shop around for a better deal where necessary.

* Take this opportunity to think about long-term savings: pensions remain one of the best options because of the tax relief on offer. Review any existing pension schemes you have - ask your employer how its occupational scheme is performing - and think about increasing contributions.

* Instead of just renewing your insurance policy when it runs out, scour the market to ensure you get the best deal on your motor, home and holiday cover.

* Take the sting out of rising utility bills by changing your gas and electricity supplier. Make a pledge to be more energy efficient.

* Cancel any monthly direct debits for services that don't represent value for money. Gym membership, for example, is only worthwhile if you really use it.

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