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The worst financial products for 2013

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On 03 January 2013


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We look at some terrible financial products that you should avoid at all costs.


Here at Lovemoney we work hard to highlight the best financial products on the market so you can keep as much of your money as possible.

But sometimes it’s also worth looking at the really poor products – the ones that are way too expensive. You might already have a market-leading savings account, but if you also have a lot of money in a rip-off unit trust, you could be burning up most of the benefit you’re getting from the savings account.

So let’s take a look at some of the worst products out there. And if you have any of them yourself, get out fast!

1. The most expensive loan

Payday loans have attracted a lot of stick in the last couple of years, and rightly so. The interest rates are way too high and some lenders have engaged in various dodgy practices such as marketing expensive loans to students, and overly aggressive debt collection.

That said, some payday loans are more expensive than others. The priciest one I could find was the TXT Loan which charges an annual interest rate of 4,474%. So if you borrowed £100 for just 15 days, you’d have to pay £15 in interest. Ridiculous!

If you’re tempted to take out a payday loan, check out our article, The best alternatives to payday loans to see if there is a better option for you.

Also, don’t forget that people with good credit ratings can borrow for as little as 5.2% a year with Tesco’s personal loan.

2. An appalling savings account

Sadly, most savings accounts are paying pitifully low interest rates these days but an account from the West Brom Building Society still stands out from the crowd as being especially weak.

The only good thing about the Direct Easy Access account is the minimum balance which is nice and low at £1. But whatever the size of the deposit, you’ll only earn 0.05% a year in interest which is ridiculously low. Bluntly, I can’t see the point of this account – there are plenty of current accounts which pay a higher interest rate.

I should that I’ve come across two other savings accounts that only pay 0.05%. These are the first direct savings account and the Leeds Building Society Albion Web Saver. However, the first direct account also pays a 1% bonus on any savings cash that is transferred from another provider, while the Leeds account pays higher rates on balances greater than £2500.

So the West Brom account is clearly the worst in my view.

For a guide to the best savings accounts, check out The best instant-access savings accounts, The top fixed-rate savings bonds and The best notice savings accounts.

3. The worst credit card

Credit cards can be fantastic financial tools if you use them correctly. Indeed, as long as you pay your bill in full each month, you won’t have to pay any interest.

However, the reality is that around two thirds of credit card balances in the UK are currently bearing interest*, so a lot of people are paying chunky sums of money to the credit card providers.

The average credit card interest rate is around 18%, but of course, as that’s an average, some cards charge much more. Indeed the most expensive card is that Black Diamond Visa card which has a 59.9% interest rate for some users.

Admittedly, this Black Diamond card is aimed at people with poor credit ratings, but the 59.9% interest rate is still way too high given that other ‘poor credit’ cards charge a lot less. I’d have to be very desperate before I applied for a Black Diamond card.

Read about our favourite cards in The best credit cards for 2013.

4. Expensive investments that are supposed to be cheap

At Lovemoney we’ve often extolled index tracker funds as a great way to invest in the stock market.

The best thing about index trackers is that they’re normally very cheap. For example, if you invest in the HSBC FTSE All Share Index fund, you’ll only have to pay an annual charge of 0.25%. But if you invested instead in the Halifax UK FTSE All Share Index Tracking fund, you’d pay an annual charge of 1%.

Now that may not seem a big difference at first glance, but over the years, higher charges can make a substantial difference to your long-term performance. What’s more, I’ve actually been kind to the Halifax by using the Annual Management Charge figure (AMC). When you invest in a tracker, there are several other costs that won’t normally be included in the AMC, so you’ll end up paying more than 1%.

The Halifax fund isn’t the only expensive index tracker fund out there. Both the Marks & Spencer 100 Companies Fund and the Lloyds Scottish Widows UK Tracker Fund also have 1% AMCs.

So there’s no single ‘worst’ index tracker fund, rather a cluster of rip-off options. If you’re selecting a tracker for yourself, make sure you focus on cost and steer clear of any fund that is charging more than 0.5% a year. Fidelity’s clever ‘Compareyourtracker’ tool can help you do that.

5. Poor current accounts

When you look at current accounts, I think you should focus on three factors:

- The interest rate you’ll receive on any cash balances

- Charges for overdrafts

- Customer service

As with tracker funds, there is no one account that is clearly the worst, but I’ve found five accounts that charge at least 19% a year for an authorised overdraft and also pay you no interest whatsoever on credit balances.

Here they are:

Account

Interest rate for credit balances

Interest for authorised overdrafts

Natwest Select Account

0%

19.89% (£100 interest-free)

RBS Select Account

0%

19.89% (£100 interest-free)

HSBC Bank Account

0%

19.9%

Bank of Scotland Classic Account

0%

19.94%

Lloyds TSB Classic Account

0%

19.94%

So I’d definitely steer clear of any of the above accounts. If you’re wondering where to find the best current accounts, take a look at the top current accounts in last year’s Lovemoney Awards. You’ll find accounts that offer great customer service and also deliver when it comes to paying interest to account holders.

So there you have it – a whole bunch of financial products that are pretty awful and well worth avoiding.

*Source: British Bankers’ Association

More from Lovemoney:

Top five financial products to start the New Year

Three ways to get an interest-free loan

The best credit cards for 2013

Tesco Bank slashes personal loan rate

How to make your money last the whole of January

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