When you’re looking to invest your money in current savings accounts, high interest savings accounts or pension products, you will frequently be offered add-on financial products too.
However, a recent Which? report has condemned some of the most commonly sold add-on financial products as at best useless, and at worse a total rip off.
Most will leave you out of pocket and some can even adversely affect your credit rating.
Which? urges consumers to be cautious when purchasing any form of add-on financial product and encourages people to do their own research rather than relying on a salesman’s patter, which will obviously be swayed firmly in favour of his employer.
So, be on your guard and think carefully before signing on the dotted line when you’re offered any of the following products. Which? magazine’s four worst offenders, in no particular order, are:
1. Structured investment products
When Lehman Brothers collapsed back in 2008, approximately 6,000 investors were left with nothing.
Structured investment products can be very expensive, very complex, and extremely confusing to the inexperienced investor. These products are often heavily promoted by banks, building societies or their affiliates.
In Which? magazine’s opinion you would be better advised to put your cash into an ISA or LISA account instead, especially if you anticipate needing easy access to your cash.
2. Identity fraud cover
Another popular product sold to customers by banks and savings account providers is ID fraud cover.
Fraud ID cover is supposed to provide you with protection in the event that your personal details are obtained by fraudsters who are then able to hack into your account and siphon money from it.
Although the cost of this insurance is only about £70 a year, it’s probably not worth the expense, as most losses as a result of ID fraud will be met by your bank and are already fully covered under the bank’s own insurance.
3. With-profits endowment plans
Although many with-profits endowment policies were notoriously mis-sold during the 1980s before compliance legislation was passed to protect investors, some companies still push them as a good way of making a long-term investment today.
Endowment policies are usually linked to interest rates, which have been at an all-time low for the last few years and an area showing no signs of rallying any time soon.
As an example of how poorly these plans perform, if you took out a full cost, with-profits endowment 10 years ago and invested £500 per annum in it, your investment would now only be worth £4,892.
These plans also incur high charges and you would be better off investing your money in an ISA.
4. Packaged accounts
Banks try to hook new customers by offering current savings accounts with extras and benefits, such as high street shopping vouchers, free travel insurance, and the like.
However, it’s worth bearing in mind that these accounts can cost you up to £300 every year for benefits that you probably won’t even use. In fact, if you were to calculate the interest return you would receive on your account balance, it would probably not even cover the cost of having the account!
Be wary too of re-vamped accounts where the banks suggest you move from your old-style (free of charge) account to an all-singing, all-dancing new one – at a monthly cost! These accounts are rarely worth the cost and you’d be better off with a bog-standard current account.
When looking for a suitable investment opportunity for your hard-earned cash, always chat to an experienced financial adviser and be sure to avoid falling foul of unnecessary financial add-ons.