The six money-wasting products you should avoidWe reveal the money products you can do without

21 January 2012

Piggy bank and falling coins

If you have one of these products, you could be pouring money down the drain

Nobody wants to pay for things they don't need. This applies to financial products just as much as home, technology and kitchen gadgets.

Which? research shows banks and insurance firms are among the worst offenders when it comes to creating products that are poor value - whether it's insurance policies that you'll never claim on or savings products that pay a pittance.

Watchdog not lapdog

We believe that the financial regulator should be responsible for putting a stop to poor-quality financial products, which is why we're launching our new 'Watchdog not Lapdog' campaign.

At the start of next year, the current regulator, the Financial Services Authority (FSA), will split into two new authorities:

 - The Financial Conduct Authority (FCA), which will have responsibility for protecting consumers;

 - And the Prudential Regulation Authority (PRA), which will focus on maintaining financial stability.

We want to ensure that the FCA puts consumer protection at the heart of everything it does – and make sure it becomes a watchdog that keeps the financial services industry in check, not a lapdog that panders to it.

The products to avoid

We’re kicking off our campaign by highlighting six financial products we believe most consumers would be better off without - and call on the regulator to take action to ensure that products such as these are either improved or banned.

Over the next week, we'll be explaining why each of the products we've chosen represent poor value for consumers. Here's a quick taster of what's to come...

Mobile phone insurance

Which? research has found that almost nine million people have lost at least one phone in the past five years. For those with a valuable handset (the top-end iPhone 4S costs £699, for example) it's a good idea to get it covered.

However, we don't think taking out an individual mobile phone insurance policy is your best option, as the insurance sold by mobile providers and retailers is expensive.

Card protection

Card protection is a form of insurance sold by banks and other card providers. It's designed to protect you from financial loss if your debit or credit cards are lost or stolen.

A third (32%) of Which? members we asked said they have this protection. It typically costs around £37 a year. The big flaw with these policies is that while they say they cover against financial loss if you're a victim of fraud, this is protection that all cardholders already have under law.

Packaged current accounts

Packaged accounts are current accounts that charge monthly fees - typically equivalent to around £180 a year. In return they come with benefits such as car breakdown cover and travel insurance. 

Which? research shows that 18% of members have packaged accounts as their main current accounts. Packaged current account providers argue that they offer several useful products in one convenient, cost-effective package. However, Which? thinks that many packaged accounts have serious limitations.

Structured deposits

Structured deposits are a type of investment with an interest rate that's typically linked to the performance of the stock market. 

The difference between savings accounts and structured deposits is that some of your money is used to buy investments - it's their performance that determines how much growth or income you’ll receive. 14% of Which? members we asked said they have a structured deposit product.

We're worried that banks and building societies sell these complex products without independent financial advice, and often fail to make customers aware of associated risks, exit penalties or charges.

Over-50s plans

Over-50s plans are insurance policies designed to pay a pot of cash to a customer's estate when he or she dies. They are intended for anyone aged 50 to 85 who does not have a life insurance policy or other provision for a final pay-out on their death.

You typically pay a monthly premium from the age you take out the policy until you die, or until the age of 90. In return, your loved ones receive a fixed amount when you die, provided that you've contributed to the plan for at least two years. Some 3% of Which? members aged over 50 we asked said they have over-50s plans.

A Which? investigation has uncovered a number of serious drawbacks related to over-50s plans - not least the fact that they will pay out less than most people could have built up in a savings account over the same period of time.

Debt management companies

Debt management organisations negotiate with consumers' creditors on their behalf, to reduce customers' debts in a manageable way.

Fee-charging debt management firms generally target people who are in serious financial trouble. The firms sell themselves as a last resort rescue option.

However, those with financial problems should never need to use fee-charging debt management companies. Debt advice charities provide a more comprehensive, impartial service - free of charge.

More on this...

  • Watchdog not Lapdog - find out more about our campaign
  • Show your support - how you can support the campaign
  • Call the Which? Money Helpline - if you're unhappy with a financial product