Clear out: Here’s how to ditch the financial duds that may trash your cash
With winter out of the way, now is a great time to go through your finances and get rid of any unwanted products.
Some financial items may look as though they are essential, but can leave you at risk of over-paying, overinsuring or wasting money on something that you do not need.
Here we look at some of the duds you can afford to ditch.
1. Packaged bank accounts
A packaged bank account offers benefits such as travel insurance and breakdown cover in exchange for a monthly fee.
Fees vary and can be as high as £28 a month.
While some accounts offer good value, not all do. Some people may also find they are not eligible for the perks they are paying for.
Georgie Frost is consumer advocate at website GoCompare. She says: ‘Packaged accounts are OK if you use the features, but costly if not.’
For example, the NatWest Reward Black account offers worldwide travel insurance, breakdown cover, mobile phone insurance, home emergency cover, plus discounts on holidays and airport parking – and even a concierge service. But it costs £336 a year.
If you are only using one or two of the features, you are better off with a standard no-fee bank account – and then buying the services you need as standalone products.
Banks are currently competing hard for current account customers. There are some competitive free offerings such as First Direct 1st Account, TSB Classic Account, Nationwide FlexDirect, Halifax Reward and M&S Current Account.
‘I wanted a free account with rewards, not perks’
Nick Proud gave packaged bank accounts a wide berth when looking for a new current account earlier this year.
The 43-year-old lives in Gloucester with wife Hayley, 36, and their five-month-old daughter Betsy.
He says: ‘I used to have a Halifax Reward account but when the monthly reward dropped from £5 to £3, I decided to look elsewhere.
Search: Nick Proud with wife Hayley and daughter Betsy
‘I avoided accounts offering so-called perks and focused instead on free current accounts offering decent rates and rewards.’
Nick applied online for TSB Classic Plus on February 8. Within 11 days, the account was up and running. He says: ‘The switch went smoothly and as a friend suggested this account I also benefited from the £75 recommend-a-friend offer – and she did too.’ That offer has since been withdrawn.
Nick gets £5 monthly cashback for having two active direct debits coming out of the account – and a further £5 reward for using his debit card at least 20 times each month. He also gets 3 per cent interest on balances up to £1,500.
If you have had an easy-access savings account with a high street bank and have not switched for some time, the likelihood is that you will be earning a pittance in interest.
For example, HSBC is paying 0.05 per cent on Flexible Saver while Lloyds and NatWest are paying 0.2 per cent on Easy Saver and Instant Saver respectively.
Anna Bowes is a director of rates scrutineer Savings Champion. She says: ‘If you have £10,000 in HSBC Flexible Saver, you would earn just £5 a year in interest. By switching to the best-buy easy access account available – RCI Bank paying 1.3 per cent – you could earn £130 a year.
‘Equally, if you were happy to tie up your money, you could earn 1.85 per cent on a one-year fixed-rate bond from Wyelands Bank and 2.31 per cent on a three-year bond from RCI Bank. This would provide annual interest equivalent to £185 and £231 respectively.’
THIS IS MONEY’S FIVE OF THE BEST SAVINGS DEALS
Shops are quick to sell you the benefits and rewards you will get if you sign up for a store card. But if you get one, there is a risk you will end up paying high interest charges on any uncleared balance.
Frost says: ‘If you are not the sort of shopper who resolutely clears their credit card bill, you may find you are paying 50 per cent more interest than you would if you used a regular credit card.’
For example, Burton, Dorothy Perkins, Evans, Outfit and Wallis cards all charge interest of 29.9 per cent.
Frost adds: ‘If the cards give you other benefits, such as purchase discounts or early access to sales, you should calculate if they are worth paying the extra interest for. If not, consider switching to a regular credit card.’ For example, MBNA All Round credit card charges 19.9 per cent.
Andrew Hagger is finance expert at money website MoneyComms. He says: ‘If you have a £1,500 card balance with interest at 29.9 per cent, you will pay £448.50 a year in interest. With a credit card at 19.9 per cent, you would pay £298.50.’
‘My store cards charged 30% interest – so I got rid of them all’
Mother-of-three Natasha Barr used to have a handful of store cards in her purse, but ditched all of them when she realised the eye-watering rates of interest she was being charged.
The 48-year-old finance assistant from Bournemouth in Dorset had store cards from New Look, Dorothy Perkins and Next until a few years ago – and was paying interest at rates approaching 30 per cent.
Disciplined: Natasha Barr ditched store cards from New Look, Dorothy Perkins and Next
She says: ‘At the time, the cards seemed like a good idea as I got some big discounts on purchases and was offered all sorts of rewards and benefits. But when I realised I was paying rates near to 30 per cent, I knew I had to get rid of them.’
It took Natasha almost a year to clear all her store cards. ‘It was not easy,’ she says. ‘But I was disciplined about paying down my debts and also moved some borrowings to interest-free credit cards.’
When you make a white goods purchase – for example, a fridge or TV – there is a good chance that when you get to the till, someone will try to sell you an extended warranty.
These cover the cost of repairs but they are often overpriced and full of exclusions.
According to consumer group Which?, buying a three-year warranty for a £350 washing machine can set you back an extra £139.
Sarah Coles is a personal finance analyst with broker Hargreaves Lansdown. She says: ‘If you fall for the reassurance offered by extended warranty cover, you can end up paying up to half of the product’s original cost again.’
Most stores will cover you anyway for the first year of a product’s life if anything goes wrong – some will cover you for two.
Coles adds: ‘Consumer rights give you a decent amount of protection because goods should be of satisfactory quality, fit for purpose and last a reasonable length of time. In some cases, this means you have the right to a replacement or repair for up to six years.’
Another option is to ‘self-insure’ where you set aside money yourself to pay for any repairs.
If you have wanted to find out your credit score – to get an idea of how likely you are to obtain credit – you may have signed up to a subscription service from major credit reference agencies Equifax, Experian or Callcredit. But these can set you back around £15 a month.
Most credit information is available for free. Equifax offers you a report and score free of charge at ClearScore while Experian offers a similar service via the MoneySavingExpert Credit Club.
Free information from Callcredit is available via Noddle. While paid-for credit subscriptions provide fraud alerts, a close eye on your free credit report should alert you to any suspicious activity.
Callum Meadows used to pay around £10 a month for a credit score subscription from Experian.
But he has now ditched it in favour of a free credit report from ClearScore.
The 23-year-old chemistry technician, from Calne, Wiltshire, first took out a subscription with Experian after running up big credit card debts as an 18 year old. He recalls: ‘I was offered a credit card with a big credit limit and I spent a lot of money quickly.
‘I was incredibly lucky to have parents who helped me out. Fortunately, I was able to get back on my feet financially by the time I was 21. But my credit score was obliterated.’
Keen to find ways to improve his credit rating, he signed up to a monthly subscription with Experian. But he forgot about it until 18 months ago.
He cancelled the direct debit and used the free service from ClearScore.
Callum says. ‘I like the fact that I can log on whenever and love features such as the cyber coach which guides you through ways to improve your credit score.’
Mobile phone cover
Mobile phone insurance is often offered as an ‘extra’ by in-store sales staff. They will promise a speedy replacement if your phone is stolen, goes missing, or is damaged.
But it is expensive and policies are notorious for exclusions.
Insurance from O2 can cost up to £15 a month and with EE and Virgin Mobile up to £14.
While buying cover from a network provider is usually the quickest way to get your phone replaced, it will set you back around £160 a year for an iPhone.
You could also face an excess of up to £125 if you need to make a claim.
Specialist standalone insurance from Protect Your Bubble and Insurance2go may be a cheaper alternative.
TopCashback is offering £21 cashback on gadget insurance from ZugarZnap and up to £8.40 on insurance with Buymobilephoneinsurance.
You could also look at adding ‘possessions away from home’ to your home contents insurance – for as little as £16 a year.
Standard energy tariffs
Millions of households remain on their energy supplier’s expensive standard tariff.
The difference between a standard tariff and an energy ‘best buy’ can be huge.
For example, you can currently get a 12-month fixed tariff from Powershop for £823 a year, yet the average standard tariff from one of the big six providers is £1,138.
GoCompare’s Frost adds: ‘The message is simple: ditch and switch off the standard variable tariff.’
In some cases, you will not need to change supplier to lower your bill. You may be able to move to a cheaper tariff with your current provider.
Child trust funds
Since the introduction of Junior Individual Savings Accounts in November 2011, Child Trust Funds, their predecessors, have fallen out of favour. Coles of Hargreaves Lansdown says: ‘In some cases, the funds offer savers lower interest rates than equivalent Jisas. Investment-based Child Trust Funds are often more expensive and provide less choice.’
If your child was born between September 2002 and January 2011, it is worth seeing whether a switch from a child trust fund to a Jisa makes financial sense.
Payment protection insurance
The announcement of a cut-off date of August 29, 2019, for outstanding payment protection insurance claims has prompted a fresh wave of promotions from claims management companies offering to help – and take a slice of your compensation.
MoneyComms’ Hagger says: ‘These firms offer to take care of the process for you – on a “no-win, no-fee” basis.
‘But they can end up taking 30 per cent plus of what you are entitled to for little work.’
It is relatively easy to put in a claim yourself – and get 100 per cent of any compensation due.
Check out free online tools from Which? and MoneySavingExpert.