10 simple financial products
The Government wants to introduce a new set of 'simple' products that don't come with reams of small print. But there are already several products out there which are fairly uncomplicated.
The Government is on the verge of announcing a new set of 'simple' financial products. If they do it right, it should drive down prices by making comparison easier, while also reducing terms and conditions buried in the small print. Years of research have shown me time and again that simple products are usually better value, because customers can't be bamboozled by them so easily.
Here are 10 simple financial products that already exist that everyone should have.
Income payment protection insurance
This is not payment protection insurance, despite the similar name. It gives you much better protection for a longer time at a far better price.
As insurance products go, a good long-term income protection insurance policy is reasonably straightforward. Buy a policy that will pay out when you can't do your own job or one like it due to accident or ill health, and you will receive an income for as long as you specified at the beginning, which could be 20 or 30 years, or until you get better.
Naturally there are exclusions, and terms and conditions, but the Government hopes an even simpler income replacement product will be available later under its new initiative.
Life insurance
Life insurance is often worth hundreds of thousands of pounds to claimants, but it's still one of the simplest products to understand and to claim for. The small print compared to car insurance, home insurance or travel insurance is tiny and much more straightforward. With few exceptions, if you die within the period you specified at the beginning, your family will get the promised payout, which will help them pay the bills.
Prices are very low if you shop around, but watch out for insurers adding on far less simple and more costly insurances, such as critical illness insurance. If you've bought life insurance and enough income protection insurance, you shouldn't need critical illness cover too.
Compare life insurance policies
Easy access savings accounts
Everyone needs a simple emergency savings account where they can put in and withdraw money whenever they want and earn at least a few percentage points of interest.
However, these are not totally catch-free. The accounts don't meet the Government's own definition of 'simple' because in order to keep a reasonable interest rate you have to switch roughly once a year due to the prevalence of bonuses and variable interest rates. So while easy access accounts can be relatively straightforward, they are not quite as simple as they could be.
The Government wants a more simplified set of savings accounts to change this.
Compare easy access savings accounts
Easy access Cash ISAs
These are identical to easy access savings accounts in almost every way. The main differences are that you don't pay tax on your interest earned and there are limits to the amount you can put in them each year, which will rise to £5,760 from 6th April.
Inflation-beating savings accounts
All most of us require of savings accounts for the longer term is that they're safe and that they preserve our wealth against rising prices. That's why savings accounts that promise to beat inflation even after tax are the daddy of long-term savings accounts.
Unfortunately, since Santander has now withdrawn its long-running inflation-matching product (an in-branch, advised-only share ISA that matches the Retail Prices Index) I now know of no such accounts available at the time of writing, but they show up periodically, so keep an eye out for them.
Index trackers
If you want to make a profit on your money rather than keep up with inflation, you have to take more risk. One of the best ways to do this is using simple index trackers, which are low-cost funds that track the stock market.
By investing monthly in these funds you'll buy more shares when prices are cheaper and safer (after crashes) and fewer when prices are too expensive and risky (think the dotcom bubble). What's more, by simply tracking the market you can expect to beat the vast majority of fund managers and private investors over the long run.
Unfortunately, finding the right wrapper for index trackers is not as straightforward, since you have to buy them either through a fund provider, fund platforms, a stocks and shares ISA or pension.
Peer-to-peer borrowing
Peer-to-peer services such as Zopa and RateSetter offer borrowers fewer booby traps than most lenders and you can get some of the best prices for your credit risk. They even do 'soft searches' when you apply for a loan, which means they don't leave a mark on your credit record.
You still need to pay your bills though, since they use debt collection agencies like all the other lenders.
Compare peer-to-peer borrowing rates
Peer-to-peer lending
You can lend your money to others on Zopa and RateSetter, and benefit from an investment that is very easy to understand (lend your money to borrowers and earn a profit after costs and bad debt) and which fits nicely between inflation-beating savings and index trackers in terms of risks and potential reward.
Compare peer-to-peer savings rates
A cashback credit card
If you have no debt and can always pay off your monthly balance in full, a no-fee cashback credit card is more simple and more rewarding than a 0% on purchases card or a reward card. You make your everyday purchases, pay off the card in one month, and earn real cash.
That's not to say these cards don't have things to watch out for, but if you take these simple precautions, you should be fine.
Budgeting software
I saved this one to last, since I can hear your yawns about budgeting from miles away and didn't want to put you off the article. You wouldn't expect your employer to try to run a business without a budget (you could easily lose your job when the cash runs out), so why don't you run your household with one?
There are lots of ways to go about budgeting and plenty of tools to help. Search google for a free budget planner and check out lovemoney's own free MoneyTrack service to help plan your spending and achieve your financial goals.
More on lovemoney
Why some current accounts are better than savings accounts
Top Cash ISA catches to watch out for
Why cashback credit cards are the best cards
Why making credit card overpayments will actually cost you!
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