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Finding the best deal online
By Hannah Ricci
Whether you are in the market for a personal loan or credit card, mortgage, savings account or insurance policy, your first port of call is probably a best buy table. These tables on price comparison websites, such as Moneysupermarket.co.uk and Moneyfacts.co.uk, have revolutionised the way we buy financial services. Gone are the days of trawling several providers on the high street to get different quotes. Now it's simply a case of entering a few details online and with a click of the mouse the best deals on the market appear on your computer screen in seconds. More and more of us are finding better value deals on our financial products.
So you'd be forgiven for thinking best buy tables are just that: tables showing the best deals. However, some digging around by Moneywise reveals they may not be quite what they seem.
Consumer champions? These sites have built up a reputation as consumer champions, presenting us with impartial, independent information that we can easily access and compare; they monitor rates and new deals, basically doing the shopping around for us. As they have become a vital way of finding the best-value deals for both the press and thousands of consumers on a daily basis, financial services providers that reach the top spots in best buy tables can afford to slash their huge marketing budgets and simply sit back and watch the business roll in.
Behind the scenesAlthough price comparison sites may appear to work in the same way - you search for a particular product and the site returns the best deals that meet your criteria - each site operates and earns revenue in a different way. This became evident when Moneywise carried out the same search across several comparison sites, only to be presented with different sets of results. Surely the best buy deal would feature at the top of every table? Well, this is not the case.
Some sites charge commission to providers when customers click on their product in the table, some charge commission when you apply and others only if you purchase a product. The sites are reluctant to reveal how much commission they receive, but it's thought to be anywhere between £30 and £120. The commission levels often vary within the same site, which means that certain products and providers get promoted over others because of the commercial relationship these providers have with the site. It's also a similar situation with advertising, which price comparison sites rely heavily upon.
Scouring the marketAlthough these commercial relationships cloud the impartiality of best buy tables, the big players certainly search a large chunk of the market. Moneyfacts lists 115 savings providers, 125 mortgage providers and 50 personal loan providers, while Moneysupermarket uses around 500 providers across its site and Insurancewide.com trades with 95% of the UK online insurance market.
Access to such a wealth of information is good for consumer choice. But the impartiality and comprehensiveness of the smaller sites is also under scrutiny because of their commercial ties. Confused.com, for example, is owned by insurer Admiral, while Comparethemarket.com is owned by the Budget insurance group.
"Best buy tables are the single most influential factor in a consumer deciding what product is right for them, so it is dangerous that many continue to view them as an impartial source of information," says Mike Lazenby, Kent Reliance Building Society's chief executive. "Price comparison sites should be regulated by the Financial Services Authority (FSA)."
This concern is echoed by the independent research and policy organisation, The Resolution Foundation. It didn't go as far as pushing for regulation, but instead called for a voluntary code of practice for price comparison websites.
How to bag a bargainSo what does this mean for consumers? Price comparison sites do provide a valuable service, helping us shop around for financial services; the arduous alternative is to call all the providers yourself.
However, try to avoid relying solely on one best buy table. The key to ensuring you always get the best deal - whether a mortgage, credit card or insurance for your pet - is to use a number of sites, backed up by some research of your own.
SavingsWe all have different banking needs, so the key is to identify yours, then search for the product to match.
First, decide how much you want to save each month and whether you have an initial lump sum to put in. Think about what you're saving for - a rainy-day fund, a house deposit or a nest-egg for the kids. This will help you clarify whether you need easy access to your money or want to let it grow over a period of time. Also, consider how you would like to access the account - by post, phone, online or visiting a branch.
The first port of call for savings should be a cash ISA (individual savings account) because we can each save up to £3,000 a year tax-free, whereas growth on other savings is taxed at your marginal rate. If you've already used your ISA allowance for 2007/2008, your choices are broadly a fixed-rate savings account, where rates are currently very competitive but your money will be tied up for anywhere from six months to five years, or a more flexible notice or no-notice account.
Credit cards and loansWhen searching for a good credit card or personal loan, your primary concern should be to find the lowest rate, so you're not paying more than you need to for the debt. There are a few other factors to beware of, however. The first is that you may not be eligible for the best rates if you have a poor credit history. Also, personal loans are often rated by 'typical' APR, but there is no guarantee that you will qualify for this when you apply, as advertised APRs are only offered to around 60% of borrowers.
Another point to bear in mind is that the deals for personal loans tend to be rated for round sums, such as £5,000 or £10,000, and you may not get the same rate if you want to borrow £7,500, for example.
With credit cards there's no one card fits all, so it can be useful to have several cards for different uses. If you plan to use your card for spending, look for a card with 0% on purchases, but if you have an existing debt on a credit card, look for one with 0% on balance transfers. These 0% deals are for a set period, usually 12 months, so you'll need to remember to switch cards when the deal ends to avoid being stung by a high rate.
MortgagesMortgages are complex products and repayments are most people's biggest monthly expense, so it's particularly important to understand the product to ensure you get the best deal. Mortgage best buy tables are very simplistic - while a search on two sites will give you an overview of the market, it's up to you to determine whether a deal is right for you. There's no point taking out a flexible mortgage, for example, if you don't plan to use the features, and offset mortgages are only a good idea if you have a lump sum in savings.
It can be tempting to opt for the lowest rate, but it's important to look at what the loan will cost you over the whole term, taking into account arrangement fees, higher lending charges and early repayment penalties. You'll also need to consider how you want to repay the loan and how long you want to be tied into the deal.
Insurance Insurance can be a tricky product to buy - it's important to look at a range of factors and not get sucked in by the headline rate because this is unlikely to be the final price you pay.
To carry out a true comparison you'll need to compare like with like, so start by writing a checklist to identify the features you need from your policy. For example, for home insurance it might be £200,000 rebuild cost and £10,000 contents cover, including cover away from home, while for travel insurance your requirements might include winter sports cover, £500 travel money and £1,000 baggage cover.
Price comparison sites search both direct insurers and brokers, and it's worth carrying out searches on three sites to get the widest range of results. For motor insurance, always check Tescocompare.com as it includes RBS brands that are excluded from other sites.
Check the small print for exclusions that could sting you in the event of a claim - a common one for holidaymakers is claiming for an accident after a few too many sangrias, only to find they're not covered if the accident happened while under the influence of alcohol.
When you're happy that a few of the deals match your criteria, phone the providers to negotiate the price directly. They will ask a few more questions at the application stage, so the final quote will often be higher than the price on the comparison site, but they will be eager to secure your business so will often be prepared to better your renewal quote or beat the deal offered by a competitor.
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