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10 rip-off products you should ditch
By Nathalie Bonney
We are all guilty of spending money on things we don't need from time to time. It's fairly easy to find ways of justifying our non-essential spending, and sometimes a cream cake from that pricey little patisserie needs no justification at all - even though, strictly speaking, some cheap biscuits from the supermarket would do the job.
However, we also often spend money on things we don't particularly want, but think we might need. Think of some of the dull financial products you've got that you're not sure are really worth paying for. The problem is, how do you know which products you should keep and which ones to ditch?
To help you decide, here is a list of the top 10 most useless financial deals on the market.
1. Payment protection insurance
But while the concept is good, the product itself has plenty of flaws.
Firstly, a lot of PPI is sold as 'single premium policies' - this is where a lump sum is added to the amount you have borrowed. The result is that you have to pay interest on your insurance premium as well as your loan.
PPI is also fairly expensive. For example, based on a five-year £7,500 loan, monthly repayment with PPI costs £201.61 - £52.37 more than the monthly repayments of £149.24 without the cover. At the end of the term, you would have paid £3,142 for your PPI, adding 30% to your final bill.
Not only does a PPI policy come with a hefty price tag, but it's also full of exclusions compared with other protection insurance products. "The small print is very small, so to speak, and it's difficult to claim," warns Bob Perkins, technical manager at IFA firm Origen Financial Services.
For example, the conditions most people claim for, such as back pain and stress, are generally not covered, and if you are on a short-term contract, work part-time or are self-employed, then you may not be eligible to claim on your policy at all.
PPI policies aren't long-term either: most don't pay out for more than 12 months (although some pay up to 24 months), so if you're not able to return to work within a year, your payouts will stop.
Instead of paying for this cover, check with your employer to see what kind of sick pay it would offer you should you become ill or suffer an injury. If you don't feel it's sufficient, you could consider taking out an income protection insurance policy, which is a more comprehensive insurance product that would not only pay out until you return to work or retire, but would also cover common conditions such as back pain and mental health problems.
2. Extended warranties
However, Cathy Neal, senior researcher at Which?, explains that in most cases the time period offered by extended warranties is still short enough for manufacturers and retailers to feel fairly confident that they won't need to make a payout. "They pretty much know that nothing is going to go wrong in that time," says Perkins.
He cites his own example of buying a TV last month: "The shop offered me a five-year extended warranty. I asked it: 'Are you telling me that after five years it's going to break?' If it does, then I'll have to pay for either a repair or a new TV anyway, so what's the point of buying a warranty as well?"
In addition to the manufacturer's guarantee, under the 1979 Sale of Goods Act, retailers are liable to pay for any repairs or replacements to items they have sold that develop faults or don't function properly within a short time of their purchase. For products expected to last longer, traders could be liable to compensate you for up to six years.
A lot of extended warranties only cover mechanical breakdown and not general wear and tear. So read the small print, and watch out for exclusion clauses. The only way to address unfair exclusion fees is through the courts - where retailers and manufacturers alike rely on the reluctance of consumers to go through this process.
Also watch out for cashback warranties, which promise to refund all of your premiums if you don't claim on the policy for a fixed period. These may sound great, but they require customers to register within a short time of buying the warranty. If you miss the deadline, you could lose your right to the cashback at the end of the term.
3. Mobile phone insurance
Mobile phone insurance costs around £6 to £7 a month but tends to pay out only if your phone is stolen. Also, depending on the level of cover, the excess ranges from £10 to £30. For expensive smart phones, such as iphones, this is only a fraction of the total cost of the handset, but considering that you can buy most standard phones for the total excess, it represents much worse value for money for the average mobile phone owner.
"This insurance is only worth it if you lose your phone on a regular basis," says Neal from Which?.
Phone salesmen will invariably tell you that insurance is essential, but just as cover for your dishwasher and TV might be included under your home contents insurance, your mobile phone is likely to be protected under this policy too. Look for an 'all-risk' home contents policy.
Although it will cost slightly more, this will cover items such as mobile phones and mp3 players, even when they're not in your home, and will insure against accidental damage and loss as well as theft.
4. Packaged accounts
The average monthly fee for a packaged account has risen over the last 10 months from £11.50 to £13.20 a month or £158.40 a year, according to a report by Dr Merlin Stone, a professor at the University of the West of England.
On closer inspection, the perks on offer might not look that great either. It's unlikely all the extras will be of use to you, and for those that are, the level of cover or service won't be the most comprehensive. Travel insurance, for example, may exclude certain countries.
In a recent Moneywise poll, we asked our online users if they thought packaged accounts were worth the cost: 88% said no. For the 12% minority, however, specific benefits mean it's worth paying the monthly fees.
For example, Linda M explains: "My daughter is asthmatic, which the insurers [with the bank] have no problem with. I have previously found insurance companies to cover her, but at a cost equal to that of my annual charge with the bank, so I'm one of the few who benefit from paying the monthly fee."
But she concedes that the other extras are "of little benefit" to her.
5. ID theft cover
Banks are especially astute when it comes to marketing these products. If you've been in the unenviable position of having to call up to cancel stolen bank cards or report fraudulent activity, after the tea-and-sympathy act, the operator will often take the opportunity to tell you about the particular provider's ID theft-cover package.
If you've been a recent victim of theft, and are therefore feeling a little more vulnerable than usual, signing up to this kind of cover might seem like a sensible move. But is it really worthwhile?
Premiums cost approximately £7 a month; however, any loss as a result of theft is covered under the Banking Code, which costs you nothing.
So what do you get for the extra £7? With ID cover, you can see your credit record, and you'll be alerted if someone has checked your credit report or committed any fraudulent activity. It also offers you expert advice from trained professionals.
"But banks can't really do much more than you can do yourself," says Neal. For example, the Government's fraud prevention service, CIFAS, provides free advice, and you can check your credit report for a one-off £2 fee with one of the three main credit agencies, Experian, Equifax or Callcredit.
If you want regular access to your report it will cost you around £10, but bear in mind that even with this service no agency can repair your credit status.
6. Store cards
Argos, for example, charges 27.9% interest on its card after the initial period (usually 56 days), and even the most competitive store cards such as Evans and Debenhams charge 17.9% and 19.9% interest respectively. This is a hefty price to pay, and an unnecessary one, especially as you can get a credit card with an interest rate as low as 6%.
While discounts off initial purchases and special bonus points and vouchers sounds great, they may not offset what you could end up paying in interest.
Opting for the minimum monthly repayments of approximately 4.13% will also add considerably to the cost - because you're paying off your total bill for longer, the retailers can charge interest for longer as well. For example, if you bought a Playstation 3, together with a couple of extras, for a total of £349.97 on an Argos store card, you would end up paying a staggering £611.28.
Why not choose a 0% purchase credit card instead? And if your application is unsuccessful, look for the credit card with the lowest possible interest rate - or acknowledge that you're being refused a competitive deal because you're likely to rack up too much debt and you're better off avoiding credit and store cards altogether.
7. Credit card cheques
The average APR for credit card cheques is 28.74%, according to UK payments association Apacs, yet YouGov research shows that 86% of customers who have credit card cheques don't know what fees their provider charges.
The good news is, following a consultation, the Government has decided to ban credit card cheques.
8. Wedding insurance
Websites such as wedding-insurance.co.uk claim insurance will give you the "peace of mind" of knowing that your big day is covered. Depending on whether the wedding's a buffet-and-pub do or a carriages-and-crystal-confetti affair, cover will cost from £24.50 up to £199.99-plus. But the main reason for cancelled weddings - the bride or groom getting cold feet - isn't covered.
"Contents insurance will often cover some of your wedding costs," adds Neal. "And anything over £100 that you pay for by credit card will be protected by section 75 of the Consumer Credit Act."
9. Paying for debt advice
If you find yourself in debt, or struggling to make repayments, first contact your provider to notify it of the situation. It can offer you advice and, depending on your circumstances, may even agree to suspend payments or come to some sort of delayed payment arrangement.
Debt advisers the Consumer Credit Counselling Service, AdviceUK, National Debtline and Citizens Advice Bureaux all offer free advice.
National Debtline also warns its users of claims management companies. These firms promise to get your debt written off by claiming your credit agreement is unenforceable and negotiating 'compensation' for you. But it's extremely tricky to prove this, and while they will charge you a large up-front fee to check each agreement, there's no guarantee that they'll successfully manage to challenge the agreements.
Look out for copycat websites too, which use similar domain names to the above free advisers.
10. Credit cards used in the wrong way
There are right and wrong ways of using a credit card. If you buy expensive goods with a credit card, any amount over £100 is protected. But regardless of how confident you feel about paying off your credit card balance, you should never use your card to get out cash, because of the high charges involved.
Credit cards can be used to withdraw cash, purchase items and repay balance transfers, but you will pay different rates of interest on each of these. This is because most credit card companies ensure you don't pay off the most expensive debt first. All credit cards - bar Nationwide's and Saga's - employ a negative payment hierarchy: this means that the debt with the highest interest is paid off last, thereby accruing more interest at the highest rate.
The most essential rule to follow is to pay off your balance in full each month. If you know you can't do this, look for a 0% purchase credit card, and try to clear your debt during the interest-free period or consider a 0% balance transfer deal.
Three other ways to waste your cash
Cashpoints that charge: These are placed in convenient locations such as pubs and corner shops. It can be tempting to use these if you're short of cash, but it's hard to stomach paying £1.50 just to get your money out, when other cashpoints provide the service for free.
Booking fees on tickets: You can't avoid these all together, but the type of card that you pay by and the delivery method will cut the cost. You can keep prices as low as possible by picking up the tickets yourself and paying by a Visa Electron card, which attracts a lower fee.
Premium telephone numbers: 0844, 0845, 0870 and 0871 telephone numbers cost up to £1.50 a minute. As well as being a lot more expensive than local numbers, you'll frequently find yourself put on hold, which will rack up the final bill even further. Use saynoto0870.com to look up alternative local - and cheaper - rates.
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