Top 10 useless financial products Which? experts name the products you don’t need

04 June 2010

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Structured products aren't always as safe as they seem

People could be wasting thousands of pounds on financial products they simply don’t need, according to consumer champion Which? Money Quarterly magazine.

Experts who worked on the title, currently available at newsagents nationwide, have identified ten financial products that are usually useless – and which could leave you seriously out of pocket.

1. Mobile phone insurance

Mobile phone insurance can cost up to £100 a year, with mobile phone operators typically offering the worst deals. Before shelling out for specialist mobile phone insurance, find out whether your phone is covered under your home contents insurance policy. Many people don’t realise their handset is protected in this way and, as a result, end up wasting more cash by ‘double insuring’ their phones.

If your phone isn’t already included on your home insurance policy, adding this cover should be straightforward - and probably more affordable than buying insurance separately.

2. Payment protection insurance (PPI)

PPI has been the subject of a prolonged mis-selling scandal. Not only have thousands of consumers been sold PPI without even being asked if they want it; others – for instance, self-employed people or those with pre-existing medical conditions – have been sold payment protection insurance although there is little chance it would cover them in the event they needed to claim.

What’s more, PPI is expensive. Adding payment protection insurance to a £7,500 personal loan, to be repaid over five years, could cost an extra £2,000 - £3,000.

Which? experts recommend that consumers choose income protection insurance as an alternative to PPI. Meanwhile, if you have been mis-sold PPI, you can reclaim your premiums online using our free tool.

3. Extended warranties

Extended warranties are generally too expensive to ever be worthwhile. They are usually offered on big ticket items such as electrical goods – but extended warranties can cost up to half as much as the item they are intended to cover!

It makes much more sense to ensure your purchases are covered under your home insurance policy.

4. Secured loans

Taking out a secured loan is risky because, if you fail to meet your repayments, you could lose your home.

In addition, although the interest rates on offer from secured lending companies tend to look low, secured loans can end up being very expensive. This is because the interest rates on secured loans are often variable, and the loans usually extend over long periods of up to 25 years.

Unsecured loans – or personal loans – are a better option for borrowers because they pose less risk to your property and come with fixed rates of interest.

5. Debt management plans

Debt management plans can cost thousands of pounds in the long term – but if you are struggling financially you could get free help with managing your debts from a charity such as National Debtline, the Consumer Credit Counselling Service or Citizens Advice. Read the Which? Dealing with debt guide for more information.

6. Structured products

Which? experts believe structured products are confusing, complex and costly. Perhaps more importantly, they are not as safe as they seem. 

Some people who had bought structured products backed by Lehman Brothers lost their money when the bank collapsed in 2008.

Check out the Which? Structured products advice guide for further information on why you should avoid these investments.

7. ID fraud insurance

Many people are worried about identity fraud – but ID fraud insurance, which can cost around £70 a year, may be bad value for money.

Most losses you might incur as a result of identity fraud will be covered by your bank or credit card provider, so you may want to think twice about paying for a policy.

8. Store cards

The interest rates charged on store cards are massively uncompetitive in comparison with the market’s leading credit card deals.

While you could borrow interest-free using a 0%-on-purchases card, maintaining an average balance of £1,000 on a store card charging 29.9% APR would cost you nearly £300 in interest over a year.

9. With-profits funds

Investing in with-profits funds may mean you are charged high fees, and some with-profits funds have performed very badly over the last few years.

If you’d invested £5000 a year in a full-cost with-profits endowment during the past decade, you could actually have lost money – ending up with as little as £4,982!

Putting your money in a stocks and shares Isa is a better option, according to Which? Money experts. You can read more about these in our Stocks and shares Isas advice guide.

10. Packaged bank accounts

Finally, we think you should steer clear of packaged bank accounts. These current accounts come with benefits such as travel insurance and breakdown cover, but can cost up to £300 a year – and unless you use all of the extras offered by a packaged deal, it is unlikely you’ll get good value for money.

It usually makes more sense to opt for a Which? Best Rate current account and then purchase any additional products you need separately.

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