What a waste: 10 financial products to make you scream

In these dark economic times, banks and insurers are keener than ever to get you to part with your cash. But a lot of what's on offer could leave you out of pocket. Kate Hughes reports

Money is tight and getting tighter. Some financial products will help you through tough times, protecting you if you lose your job or fall ill, perhaps, or offering fair rates on savings. But then there are the products to avoid – the ones that snatch your hard- earnt cash and give you precious little in return.

Here is a run-down of the 10 financial products that should set the alarm bells ringing, and the better alternatives which are available.



Payment protection insurance

PPI is currently facing a huge mis-selling scandal, and it's easy to see why. The product is sold against all sorts of debt, from mortgages to personal loans, and promises to cover your payments if you become unemployed, have an accident or fall ill. It sounds like a great idea, but the cover is only for the repayments on that particular loan, and lasts one or two years. The price of single-premium PPI is usually added on to the loan, so you pay interest on it as well, while the cover is expensive and there is evidence of sales people purposefully misleading customers. A far better alternative to PPI is an income protection policy, which also covers you against accident, sickness or unemployment, but will pay out a proportion of your entire income until retirement if necessary.



With-profits funds

Another product constantly in the spotlight, with-profits seem to offer a very low-risk investment through a process known as "smoothing" – holding back money earnt in good years from stock market returns to cover the bad years. Between 10 and 20 million people hold a with-profits investment – via, for example, endowments, pensions and annuities – but due to high charges and poor performance, returns are now often lower than savings account rates.

"It's difficult to get out of these policies because of the penalties involved," says Martin Bamford at independent financial adviser Informed Choice. "Instead, create a diversified investment portfolio with exposure to all asset classes."



Pet insurance

Unexpected veterinary bills can be huge, so insuring your cat or dog for a few pounds a month seems an easy decision. But there can be significant problems with this type of cover and increasing numbers of policyholders are seeking help from the Financial Ombudsman Service. Many policies don't cover health problems common among certain breeds, and impose an upper age limit of just seven years. Even the policies that aren't so restrictive can be prohibitively expensive.

The alternative to insurance is to put away the amount you would otherwise have paid in premiums into an instant access savings account.



Healthcare cashback plans

Even if you don't go private, medical treatment can be expensive – as anyone who has had to splash out on dental work, eye tests and prescriptions, say, can testify. Take out a healthcare cashback plan and, for your monthly fee, the provider will refund part of the cost if you have to pay for dental or optical care – but not much else. While that's fine if you spend a lot on this type of healthcare, and could offer savings, think carefully about buying into one of these schemes if your health needs are more varied.

Alternatively, private medical insurance is more expensive, but covers you if you fall ill or need medical treatment. A PMI policy will foot the bill rather than paying you back some of the costs.



Extended warranties

When buying goods such as TVs, washing machines or stereos, you will probably be offered an extended warranty on the product, which covers the cost of repair or replacement if things go wrong. But household products have a manufacturer's guarantee anyway, and the cost of the cover is often expensive. If you want an extended warranty, bear in mind that you don't have to buy the one that the retailer offers. "It is now also possible to buy warranties that cover a number of appliances, such as all the electrical equipment in your kitchen," suggests Consumer Direct, the government-funded consumer advice site.



Individual voluntary arrangements

IVAs offer consumers the chance to escape crippling debt by employing a company to negotiate for you to pay a smaller amount and stop future interest charges. It's another brilliant idea – except for the fees.

Those people who are already struggling with insurmountable money problems are being charged upfront by middlemen to deal with their creditors (while others recover huge fees from the creditors). But debt charities like the Consumer Credit Counselling Service do this for free.

So why pay a debt-management company, adding to your money woes, for a service that a not-for-profit organisation can offer you genuinely free of charge, along with impartial assistance, and achieve the same thing?



Equity release

The theory behind equity release is that you sell part of your home in return for cash, and carry on living there, for the rest of your life if you wish. These schemes come in two varieties: either you sell the property or part of it and stay there, usually rent free, or you take out a loan which is repaid when the house is sold.

"The problem is that these schemes are usually incredibly expensive and you only get mere fractions of what the house is worth back,"warns Martin Lewis at advice site Moneysavingexpert.com. "Even those people with no heirs are giving up a huge chunk of their accumulated wealth to have some extra cash now. The easiest, most cost-effective way to release cash from your home is to downsize."



Card protection plans

At first glance, these policies look like another good idea. For a premium as small as as £10 or £15, all your cards can be cancelled with a single phone call if they are lost or stolen. You are insured against around £1,000 of fraudulent use before you register the loss, and as much as £50,000 after the notification. The policies can also offer a cash advance or travel ticket replacement if you're away from home.

But the chances are that you are already covered anyway. Once you have registered the loss of a card, you are no longer liable for any fraudulent transactions, and the retailer and bank thrash it out between themselves. Meanwhile, travel insurance policies usually cover tickets and lost cash up to a fairly generous limit if they are stolen overseas.



Packaged current accounts

High-street banks are keen to wean us off free accounts and on to ones with a monthly fee. To do this, they offer a number of extra facilities for premium account holders, including free travel insurance, discounts on services from the bank and preferential rates on savings. Fees are anything upwards of £5, usually around £15 a month. If you don't take advantage of these services – perhaps because you have already paid for them elsewhere – the fee won't be worth it and you will be better off with a no-frills free current account.



Store cards

They may look like normal credit cards, but store cards can also offer you discounts on purchases, as well as the temptation to pay off the debt at a later date. Don't do it. They are hideously expensive, typically charging 25 per cent interest or more on your outstanding balance, despite the plummeting Bank of England base rate. Furthermore, you can only use them with that retailer or its partners, while these cards will also track your purchases, gleaning information about your shopping activities and habits.

They aren't to be confused with credit cards linked to supermarkets such as Sainsbury's, Tesco, Marks & Spencer and others, which offer interest rates and conditions in line with other credit cards.

Avoid store cards altogether. The incentive discounts may seem appealing, but unless you are extremely disciplined, you will end up paying for them many times over in interest. If you can't buy what you want with money you actually have, rather than on credit, wait until payday or just don't buy it.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Voices
Mosul dam was retaken with the help of the US
voicesRobert Fisk: Barack Obama is following the jihadists’ script
Arts and Entertainment
Loaded weapon: drugs have surprise side effects for Scarlett Johansson in Luc Besson’s ‘Lucy’
filmReview: Lucy, Luc Besson's complex thriller
Arts and Entertainment
tvExecutive says content is not 'without any purpose'
News
A cleaner prepares the red carpet for the opening night during the 59th International Cannes Film Festival May 17, 2006 in Cannes, France.
newsPowerful vacuum cleaners to be banned under EU regulations
PROMOTED VIDEO
Travel
Flocking round: Beyoncé, Madame Tussauds' latest waxwork, looking fierce in the park
travelIn a digital age when we have more access than ever to the stars, why are waxworks still pulling in crowds?
News
London is the most expensive city in Europe for cultural activities such as ballet
arts
Arts and Entertainment
Jeremy Clarkson has rejected criticisms of his language, according to BBC director of television Danny Cohen
tv
Extras
indybest
Arts and Entertainment
Judi Dench appeared at the Hay Festival to perform excerpts from Shakespearean plays
tvJudi Dench and Hugh Bonneville join Benedict Cumberbatch in BBC Shakespeare adaptations
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Application Support - Enterprise Java, SQL, Oracle, SQL Server

    £45000 - £55000 per annum: Harrington Starr: A well-established financial soft...

    Service Desk Analyst (Graduate, Helpdesk, Desktop, Surrey)

    Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...

    Service Desk Analyst (Graduate, Helpdesk, Desktop, Surrey)

    Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...

    Junior Quant Analyst - C++, Boost, Data Mining

    £25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

    Day In a Page

    Air strikes? Talk of God? Obama is following the jihadists’ script

    Air strikes? Talk of God? Obama is following the jihadists’ script

    The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
    Ebola outbreak: Billy Graham’s son declares righteous war on the virus

    Billy Graham’s son declares righteous war on Ebola

    A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
    Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

    Not even Jeremy Clarkson is bigger than the BBC, says TV boss

    Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
    Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

    Nick Clegg the movie

    Channel 4 to air Coalition drama showing Lib Dem leader's rise
    Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

    Philip Larkin: What will survive of him?

    Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
    Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

    Waxing lyrical

    Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
    Texas forensic astronomer finally pinpoints the exact birth of impressionism

    Revealed (to the minute)

    The precise time when impressionism was born
    From slow-roasted to sugar-cured: how to make the most of the British tomato season

    Make the most of British tomatoes

    The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
    10 best men's skincare products

    Face it: 10 best men's skincare products

    Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
    Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

    Mackay, Moody and another grim day for English football

    The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
    La Liga analysis: Will Barcelona's hopes go out of the window?

    Will Barcelona's hopes go out of the window?

    Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
    Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

    We know all too much about the cruelty of Isis – but all too little about who they are

    Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
    Neanderthals lived alongside humans for centuries, latest study shows

    Final resting place of our Neanderthal neighbours revealed

    Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
    Scottish independence: The new Scots who hold fate of the UK in their hands

    The new Scots who hold fate of the UK in their hands

    Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
    Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

    Blight club: Britain's ugliest buildings

    Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape