There are products that regular lovemoney.com readers are well-trained to avoid, but there are others that are still not viewed sceptically enough, in my opinion.
These five products aren’t the worst products in the world. Indeed, they are suitable in the right circumstances. But they are over-rated and over-bought.
1. Reward cards
Let’s buy the same quality products for a much greater price, because we’ll get 500 points! That’s a big number, so it must be worth it!
I’ve never been a big fan of reward credit cards. At selected retailers you get, typically, a pat on the back of up to 0.5%, which you can spend at the same stores.
However, reward credit cards tie you to stores that are usually more expensive. Discounted shops (which offer no rewards) and online retailers will almost always sell you the same or similar product more cheaply.
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What’s more, you can get cashback credit cards that pay 0.5% to 1% on all purchases, regardless of where you buy. Some come with introductory offers that boost this to 5% for the first few months, such as the terrific American Express cashback card. This makes a lot more sense than reward credit cards. You can then spend your cashback wherever you like, too.
Some of this logic can be applied to points cards or reward cards (i.e. the non-credit card versions). You may as well have them because they are free, but remember to shop around, rather than rush to get your 1,000 points. What’s a point worth anyway? We often don’t know. I’m sure that’s why many stores measure it in points, not pennies.
2. Cash ISAs
Cash is king, they say, which surely means that we should keep all our money in cash?
Cash ISAs are a great way to save. They’re tax-free savings accounts and the interest rates remain good. However, they’re over-rated in that thousands of people who have lots of savings continue to put it all in cash every year, when probably they should be investing (rather than saving) a portion of that money for the long-term.
3. Green and charity products
It's easy to convince yourself that if you want to be good you should buy green and charity-linked financial products. Sadly, this is not true.
It’s like the syllogism about my dog being a cat, because they both have four legs. A better comparison is the politician’s syllogism:
We must do something!
This is something.
Therefore we must do it!
It’s incredibly rare that I stumble across a green product, e.g. a ‘green’ mortgage, or a charity-linked financial product, e.g. a charity credit card, that is a cost-effective way to be ethical.
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The best thing you can do is go for the cheapest product (or, in the case of charity credit cards, get the best paying cashback card). With all the savings you make, donate the difference to a charity or a green cause. Your contribution will be much bigger. What’s more, you’ll have a greater choice of where your contribution goes. Finally, you’re able to add Gift Aid (a charitable top-up from the Government) more easily.
4. Regular-savings accounts
With an interest rate that high I can’t lose!
Just like all the products mentioned in this article, regular savings accounts can certainly be good if you pick the right one and depending on your circumstances.
However, it’s all too easy to see a high interest rate and presume you can’t do anything better with your money. But these accounts limit your contributions to no more than £100 - £500 per month, so you must still decide what to do with your other savings if you have a lump of cash sitting somewhere.
Furthermore, you’re sometimes forced to take out linked products. And these products can be so diabolical they make a farce out of the high interest rate you’re earning. If you’re lucky, you’ll be asked to take out a linked current account with great terms and conditions. Keep an eye out for those rare accounts, but otherwise watch out for the small print that whittles away at your interest rate.
Remember also that these accounts are not easy access, which is a facility that is often under-rated, too.
5. Packaged current-accounts
Wow, I wouldn’t normally buy all this stuff, but it’s a bargain, so I will!
I could come up with a syllogism about this, too, if I was inclined. But I’m not.
There are people I know who’ll buy three-for-two offers for, say, £4 when all they’re able to use is one, which they could buy for £2. I sometimes believe they wouldn’t even have bought one if there was no deal on. What a waste.
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Packaged current accounts are the same. For a monthly or annual fee, you get a current account with benefits. Often (but not always) all the elements of the packaged account combined come to a cheap deal. However, just like the three-for-two thing, that doesn’t mean you should buy it.
The account may come with seven or eight benefits, the most substantial of these can include such things as travel-accident insurance (but not normally full travel insurance), mobile-phone insurance, extended-warranty cover, breakdown cover and an overdraft-limit warning service.
However, the small print is often inferior than if you bought separately. What’s more, you probably don’t need all the stuff that they’re offering. Most of the time it makes more sense to take care of yourself and your belongings, and to buy separately the one or two items that you truly need.
To make these accounts seem more attractive, banks’ll throw in the most unnecessary financial products they can find, such as cardholder protection and identity-theft protection. Most of us should be satisfied with being careful. When that fails, we have excellent protections under the law without the banks’ interference.
Banks will also offer discounts or reward points when you book through the bank’s travel service. This might sound good, but it will usually be cheaper elsewhere.
As I said, whether you should take out, or continue to use, any of these products depends on your own circumstances, but please think about it.
This is a lovemoney.com classic article, originally published in July 2008 and updated