Financial comparisons? We don't know what we are doing
When it comes to picking a financial product, the majority of us don't actually know what we are doing.
When price comparison sites first appeared, I was hooked. Who wasn’t? We flocked to them in droves. Millions of us.
These sites marked a major shift in power from greedy financial services companies, to the likes of you and I.
It meant that, say, when our car insurance came up for renewal, we could compare our quote against the entire market, to see if we were getting a good deal.
Better still, we could do it in just 15 minutes. It put us in the driving seat. And when we discovered we could save hundreds of pounds by switching to a rival, we put our foot down.
In the dim and distant days before price comparison sites, we had to pick up the phone and compare quotes one by one.
Power to the people. I’ll vote for that. But with one proviso. The people - you and I - have to know what we are doing.
And unfortunately, many of us don’t.
Sites for sore eyes
Although nine out of 10 of us make an effort to compare the features offered by different products, according to new research from Defaqto.com, there is a snag.
Half of us don’t know what those product features actually mean.
How can we compare stuff we don’t understand? With difficulty.
Comparisons are invidious
Given the complexity of financial products, this is hardly surprising. I write about bank accounts, credit cards, savings, mortgages and insurance for a living, and I have as much difficulty comparing, say, rival motor insurance quotes as everyone else.
Do I want motor legal protection? How big a voluntary excess should I pay? Should I protect my no-claims discount? Are there charges for cancelling? What is the maximum no-claims discount? Is it cheaper to pay my premium in one go?
Would that new-fangled black box “telematics” insurance really save me money?
Many people cut through the confusion by simply choosing the cheapest policy, but cutting corners is always dangerous, especially with cars.
Which Cash ISA is king?
Say you’re comparing a Cash ISA. Should you go for the Cheshire Building Society’s table-topping best buy 3.35% even though it is mostly comprised of a 2.35% bonus that ends on 30 November 2013?
Or the Post Office Premier Cash ISA which pays just 3.01%, but with a smaller bonus of 1.26% that lasts for 18 months?
Or what about credit cards? Do you want a 0% balance transfer card? Or a combined 0% balance transfer and new purchases card? If so, what’s the balance transfer fee? What APR do you pay when the introductory rate is over?
Do you want cashback? Rewards? Will you use it abroad?
And will you qualify for the best card rates anyway, given that ugly stain on your credit rating?
Is this how you want to spend your life?
I would rather explain why Kim Kardashian is famous than compare different energy usage tariffs or the value of benefits on competing packaged current accounts.
You can’t blame price comparison sites for this. But it means you can’t put all your faith in them either.
The price ain’t right
The biggest danger is that people simply buy the cheapest product on the list. Motor insurers and other financial services companies know this, and do all they can to slash their costs, by stripping out product features and imposing hidden charges.
It ends up in a race to the bottom.
The last time I used a price comparison site was to hire a car. Inevitably, I chose the cheapest. So cheap, that when I turned up at the airport car hire desk, nobody had heard of them.
I was eventually pointed to a courtesy bus and was taken on a tour of the industrial estates of Malaga before being dumped outside some backstreet car rental operation that doubled as a money-laundering front for the lapdancing club next door.
Next time I booked a hire car, I went direct to a big name with a desk slap-bang in arrivals.
Dare to compare
Before you venture onto a price comparison site, do your research first, to make sure you know exactly what you want to buy. Then check the results carefully.
Is the world a better place for price comparison sites? Yes, no comparison. But only if you understand exactly what you are comparing.