Saturday, December 19, 2009

2009 : Top 10 worst financial products.

Sarah Modlock |  Sat 19 Dec 

It's bad enough that we have been at the mercy of a global credit crunch and in the depths of recession for most of this year, but we also had to contend with financial products that made life harder instead of easier.

1.  Credit card cheques

If there is one financial product that I would like to see completely banned, it's credit card cheques. They are pure debt traps, designed to make money for card companies. Credit card cheques look almost exactly the same as ordinary bank account cheques and can be used for payment where credit cards are not accepted. They usually charge at the same rate as cash withdrawals - typically 26% or more. You will also pay an immediate handling charge of around 3% per cheque. With most lenders, you will also be charged interest immediately instead of having the 45-59 day interest-free period given for purchases. The good news is that in March card companies were banned from sending out unsolicited cheque books to customers - apart from putting temptation in the way of customers, this exposed them to fraud.

2.  Fake pound coins

As notes became much harder to forge, the crooks turned to pound coins this year. The Royal Mint found that the number of fake coins rose by 27% in the last sampling, affecting an estimated £37.5m - or one £1 coin in every 40 - in circulation. If you live in Northern Ireland, London or South East England, you will be breaking the law if you handle them, even unwittingly. The Royal Mint says that if you find one, you should not attempt to spend it but rather hand it to the police. Unfortunately, you won't get a valid replacement.

3.  Mortgages

The Bank of England's base rate may have dropped to a 315-year low at 0.5% this year, but that didn't mean that all mortgage lenders felt obliged to reduce their interest rates too. Most dropped rates eventually, but usually at a much slower pace than the Bank and often not as low. Then fixed rate deals disappeared, borrowers could not get decent deals when their existing fixed rate loans expired and the dreaded arrangement fees - many of which are non-returnable if you're turned down for the mortgage - have soared.

4.  Store cards

Now and again a store card with an unbelievably high APR hits the headlines. This time last year it was Argos with its 222.7% interest. But throughout the year, store cards remain a complete rip-off. The current high street offerings are around 29.9%. A recent undercover investigation by Which? found that an indebted graduate was handed £2,750 of credit from six stores, despite him having earned less than £1,000 this year.

5.  Dodgy debt advice

We've needed debt help more than ever in 2009 and there are some excellent free sources of help such as CCCS, National Debtline and PayPlan. But people in need were also scammed by companies claiming they could 'buy' debts and make repayments easier. This is not possible to do without the permission of the original creditor, so people found they had signed up debts to a new company but still owed the original lender. Nasty.

6.  Savings accounts

As the base rate of interest dropped, so did the returns offered on savings accounts. Many people were moving money between accounts faster than bank robbers to try and catch the good deals. Sales of safes went up as others decided to forget the banks and keep their cash at home.

7.  Payment Protection Insurance

So unpleasant it had its own big investigation by money watchdog the Financial Services Authority, which found that PPI was being bolted on to credit cards and loans, often without the customer being aware, and at considerable extra cost. To make matters worse, the policy rarely paid out in the way it was supposed to, when the customer needed it most.

8.  Gym membership contracts

They become popular every January as we burn off the festive calories but gym memberships have come under scrutiny this year. It seems that the contracts issued by many gyms are full of binding small print which locks you into paying monthly fees even if you need to leave the gym or become injured or ill. The Office of Fair Trading forced one chain of gyms - Total Fitness - to re-write its contracts this year. Read the details before you sign up.

9.  Payday loans

These are designed to provide workers with a very short term emergency loan until they get paid. But the rates of interest are as much as 2600% and people who cannot repay them promptly end up in a spiral of expensive debt. In addition to the terrible costs, affordability checks are rare and some of these firms are not based in the UK and have no contact information, so who knows what they could be doing with your bank information?

10.  Home information packs

From April this year anyone selling their home had to have a HIP in place before putting their property on the market. But at around £500 a time, there have been nothing but negative noises about HIPs, including claims that they have made the market more sluggish. One estate agent chain claimed that as many as half of its sellers were not bothering to get a HIP and risking the £200 fine. It was also revealed that buying a HIP through your estate agent would cost you as much as 50% more.