We show you eight sneaky financial tricks that you should avoid at all costs!
There are many small-print financial booby traps that we write about regularly here at lovemoney.com. However, there are a lot of terrible tricks we don't write about that often, so today I'm going to look at eight big ones that rarely or never make it into articles. (A couple of them haven't got into finance articles yet simply because they're too new.)
1. Credit card PPI
Starting with a new one, I've received a growing number of complaints about desperate measures being taken by desperate lenders during the recession. The one that's come up most is the tendency to sign you up for payment protection insurance even when you declined it during the application.
Whenever you apply for a credit card, check the contract thoroughly. Ensure that no protection insurance is included without your permission.
Here at lovemoney.com, we think PPI is a rip-off. But if you do want this protection, it still pays to cancel it from your lender because it's 10 to 20 times cheaper to buy it from an independent provider!
So if protection has been added, write to your lender and cancel it. If you originally asked for it, you have 14 days to cancel for a full refund. If you're past the 14-day deadline, you can cancel and stop remaining payments.
If you didn't originally ask for it, make sure you get a full refund for all the payments you've made. Some lenders will fight back and claim you did ask for it. Don't take this. If they refuse to budge, complain to the Financial Ombudsman Service.
2. Hidden tick boxes
Financial services use sophisticated techniques to get you to sign things that you wouldn't have wanted to. One technique that's becoming more common is to hide important tick boxes in the Privacy Policy.
To take an example, the small print in some unsecured loans hide the tick boxes which allow you to opt out of being contacted by third parties. The lender then rejects your application and passes your details to an expensive secured-loan lender that calls you to sell its products. If you sign up, the unsecured-loan lender gets a fat commission and you, in all probability, have taken out a loan that you shouldn't have.
3. Energy penalties
Energy suppliers are gradually changing their contracts for the worse. Watch out for exit fees and for being tied in with large discounts that you won't receive unless you remain with them for a long time - trapping you in to any price rises during the period.
(Using our energy comparison service you can see the tariff rates, discounts and exit fees very easily: in the results page, click on 'More details'.)
4. Cross-selling
This is one of the oldest sales techniques. You go to your bank manager or adviser for some information or even just to pay in a deposit, and you're cross-sold all sorts of products. Don't sign up then and there. These products will be the ones for which that salesperson gets the most commission, which is received because it's the most profitable product for the company, and that means it's less profitable for you!
If you can't help thinking that it sounds attractive, search for articles about it on this site or ask for a second opinion using Q and A before you take it out.
5. Introductory savings bonuses
Most people understand that if a bonus on a savings account runs out in six months then they can expect their rate to drop at that time by at least the same amount. Hence, most people go for accounts with no bonuses or with bonuses lasting 12 months or longer.
Thing is, just because an account has a bonus, it doesn't mean the rate will stay the same. If the rate is 2.5% with a 1% bonus for 12 months, it's now 3.5%. However, the lender could reduce the rate of 2.5% gradually (or immediately) even within the first 12 months. Your rate can still go down to 1% in that time and after one year it can go down even further.
Typically, banks keep rates up only until they've drawn in their target amount of deposits, regardless of whether there's a bonus. Banks often hit their targets and lower the rate within just a few months; sometimes it takes effort to keep earning interest and to stay ahead of inflation!
6. One more card trick for the pile
We must have a full deck of tricks used in credit cards by now. Here's another one.
More and more card companies are advertising a headline APR, but applying it to purchases only. What they don't tell you in the big print is that the APR is even higher for balance transfers. This is happening even with cards that are selling themselves as 'balance transfer' cards.
7. "Money back plus 20% -guaranteed!"
I'm not talking about dodgy phishing emails. Regular banks sell investment products that promise you'll get at least your money back in five years, even if the stock market sinks, whilst also promising that you'll get the stock market's return plus, say, 20% if it rises. Can't you smell the fish?
It sounds amazing, but the clue is that you can't work out how the bank makes money, can you? This has got to be one of the cleverest products in the world, perhaps alongside how bookies guarantee their own profits on sports betting, regardless of which side wins.
The technical name for these products is guaranteed equity bonds (GEBs), but each provider comes up with its own name. Just run away when someone talks about money-back guarantees on investments, because 100% of the time it comes at a high (and often very-well hidden) price. Read Avoid these scandalous savings accounts if you're still in any doubt.
8. We'll buy your debt!
This scam has become a lot more popular since the finance crisis started. Companies are offering to buy and sell on your debts, and then write them off for you. They're even advertising in newspapers. However, they can't buy and write off your debts like this. Not only will you have paid the company to buy your debts, but you will still be liable for the debts to your original lenders.
More: The credit card you'll never pay off | Watch out for lenders' sneaky tricks!
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