Some financial products can really help you make the most of your money. Here are ten of the all-time best.
Last month I wrote about The top 10 worst financial products ever! where I warned you against the dregs of the financial underworld.
But - believe it or not - the financial services industry has a better side. In fact, if you know how to make savvy money decisions, you could do very well out of it.
Let's take a look at the cream of the crop with the top 10 best financial products for 2010. I'll also outline at couple of risks associated with each one to prevent things going wrong.
1. Interest-free balance transfer credit cards
What better way to kick your debts into touch than a generous 0% balance transfer credit card? This allows you to put a temporary stop on interest giving you time to attack your debt. The best on the market is still the 16-month deal from Virgin Money. There's a 2.98% transfer fee, but the money you save in interest should easily cover it and more.
The risks: If you haven't managed to clear your balance during the introductory period the higher typical APR could cost you a fortune. Make sure you move to another 0% deal pronto.
2. Interest-free purchases credit cards
0% on purchases credit cards are a great way of spreading the cost of your spending without having to pay interest for a time. The top choice here is Tesco Clubcard Credit Card where you have a whole year to pay your purchases back (and earn Tesco clubcard points too!)
The risks: If there's still a balance left on your card as the year end approaches, move it fast.
3. Cashback credit cards
Cashback credit cards allow you to earn money back on spending. In other words, you get paid to shop! We like the American Express Cashback credit card which offers a high introductory cashback rate of 5% for three months (up to a maximum of £100) with rates of 0.5% to 1.25% thereafter. The Egg Money Mastercard is another best buy which pays a flat rate 1% and is more widely accepted than Amex.
The risks: These cards only makes sense if you pay your balance off in full each month otherwise interest charges will wipe out your cashback.
4. High interest current accounts
When savings accounts offer dismal rates, turn to high interest current accounts instead. The best ones - such as the Alliance & Leicester Premier Direct Account and the Abbey Bank Account Preferred In Credit Rate - are paying fantastic rates of 6% on balances of up to £2,500.
The risks: These rates only last a year and you'll earn a rubbish return on balances over £2,500.
We all love anything that saves us tax. ISAs fit the bill by providing a tax-free return on your cash (or on shares if you're a bit more adventurous). You can earn 3% with the Abbey Direct ISA on balances of £9,000 plus (including ISA transfers). Balances below this amount earn just 2% so you'll need to look elsewhere.
The risks: Keep an eye on the rate. If it starts to lag behind the competition transfer your ISA to a best buy. Don't forget money withdrawn from an ISA can't be replaced if you've used up your allowance.
Index-tracking funds are a cheap and easy way to invest in the stock market without having pick shares yourself. The fund simply mirrors or 'tracks' the performance of the index it's based on by investing in all the shares which are quoted. Exchange traded funds (ETFs) are similar to trackers, but are often cheaper and both can be held in an ISA wrapper making them tax-efficient.
The risks: The charges vary, so don't pay over the odds by choosing an expensive fund. And remember a tracker will never outperform the market.
7. Self-invested personal pensions (SIPPs)
SIPPs are the superior successor to traditional personal pensions. You'll have more investment opportunities and control of your own retirement planning. Newer low-cost online versions have now put SIPPs within reach of the masses. To find out more read How to choose the right SIPP.
The risks: Don't pay for a more expensive 'full' SIPP unless you intend to use the extra features it offers. Full SIPPs are for sophisticated investors who want to buy more exotic assets.
8. Life insurance
Life insurance allows you to protect your family from financial hardship if you're no longer around. The great news is policies are low-cost relative to other insurances. Find out more in Life insurance now even cheaper!
9. Income protection insurance (IPI)
IPI covers around 50% to 65% of your income if you're unable to work as a result of accident or illness. The policy will keep on paying out until you return to work or retire. Check out Protecting your income if things go wrong for more details. I think IPI is better than critical illness cover where conditions have to be of a specific severity before the policy will pay out even if you can't work.
The risks: Check the exclusions to find out exactly what you're covered for. You may have difficulty getting cover for pre-existing medical conditions.
10. Offset mortgages
Finally, I'm a big fan of offset mortgages where your savings are used to offset your mortgage debt so you pay heaps less interest. Offset mortgages make even more sense now savings rates are so low. Find out how much it could benefit you using this offset mortgage calculator.
The risks - some deals are better than others. Make sure you speak to a broker at lovemoney.com before you apply.
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