Financial products to avoid

Which? reveals the top 10 money-wasting financial products that you’re better off without. 

With the cost of living putting pressure on many households’ budgets and people feeling the squeeze, it’s more important than ever that consumers are buying financial products that are good value for money.

Which? has found a number of financial products that consumers should avoid:

  1. Extended warranties – many electrical products are already covered by a manufacturer’s warranty, the Sale of Goods Act, or home insurance. A previous Which? investigation found that staff made exaggerated claims about what was covered.
  2. Charity credit cards – not the most efficient way to donate to a cause, you would need to spend £129,600 on a typical charity credit card in just a year in order to donate the average given by UK donors (£27 a month). You’d be able to give more by taking out the best cashback credit card and donating the cashback.
  3. Gift cards or vouchers – if the company goes bust there’s no guarantee consumers will still be able to use them, so cash or cheque maybe a safer bet.
  4. Healthcare cash plans –someone with fairly low level health needs could end up paying more in premiums than you get in benefits and in our scenario would be on average £1,023 down over five years. It may be better to self-insure.
  5. ID fraud-protection policies – the benefits are often not worth paying for as consumers are covered by their banks for losses due to fraud. People can also check for any unusual activity on their £2 statutory credit report. This is a product that has been mis-sold in the past.
  6. Expensive tracker funds – some funds charge three times more than the cheapest to manage investors’ money which can have a big impact on returns. Consumers should switch providers if they’re paying over the odds.
  7. Structured deposit schemes – these are sometimes sold without proper advice and charges are not made clear. Some schemes don’t achieve the returns that they advertise and aren’t likely to. We want the Financial Conduct Authority to ban misleading adverts and to stop banks getting commission for recommending them.
  8. Over-50s insurance plans – plans often pay out less than you could save over the same period. A 60-year old non-smoker, paying premiums of £15 a month, would qualify for an average pay out of £3,334 after 30 years, but it would only take around 15 years to beat this by investing in a cash Isa with 3% interest on average.
  9. Paid-for debt management – debt charities such as StepChange offer good-quality and impartial advice for free, so there’s no need to pay for this.
  10. Card protection – people are already protected against being a victim of fraud, and the extra benefits such as key cover can often be found more cheaply elsewhere. Another product that was mis-sold.

Which? executive director, Richard Lloyd said:

“There are still far too many financial products on the market that are risky or offer poor value for money and some that are being mis-sold to consumers. We want the financial regulator to take tough action and crackdown where it finds evidence of poor practice.”

Notes to editors: 

  1. To see a copy of the full magazine article please visit the downloads section.
  2. The average monthly amount donated to UK charities (£27) is taken from the ‘UK Giving 2012’ report from the Charities Aid Foundation.
  3. The cost of the healthcare cash plans is based on the cost of someone with fairly low level health needs over five years with the five biggest providers [source: Mintel, 2012]: Simplyhealth, Westfield, BHSF, Healthshield, HSF Health Plan.
  4. The average pay out for over-50s plans is based on calculations using our scenario of a 60 year old non-smoker with 14 providers: RIAS, Engage Mutual, Shepherds Friendly, Legal & General, Sainsbury’s, Post Office, Saga, LV=, Standard Life, Tesco, Aviva, AA, ASDA, Sun Life Direct (AXA).

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