Avoid, avoid, avoid. Don't touch these with a kevlar barge pole
In these tough times, there are some pretty stupid things you can do with your cash, but Nick Webb lists six of the worst
Buy now and pay nothing for a year - but after that, you'll pay, and pay, and pay
Sunday September 07 2008
WOULD you wear a Glasgow Rangers jersey in Finglas? Stick your fingers in a toaster? Or worse still, drink a 1997 claret? Damn right you wouldn't.
But you might just make some equally stupid errors with your personal finances. Here's our list of all the worst mistakes you could make with your money. For the sake of your bank balance, don't touch any of these with a kevlar- tipped barge pole.
Payment Protection Insurance
Payment Protection Insurance (PPI) is the dumbest, most unnecessary and biggest rip-off of all the financial products out there. If it were an animal, it'd be fluorescent green with red eyes and have a giant poison squirter to warn you away.
Banks, buildings societies and credit card firms love them to bits. You can see why. They cost an arm and a leg. A €10,000 Halifax loan over five years will cost an extra €1,437 with pointless "credit care" PPI added on. It'd be cheaper to give a false name and address!
Payment protection insurance has more terms and conditions than a lapdancing club.
These policies shouldn't be taken out by self-employed, part-time or contract workers because the insurers won't cough up.
Forget about back pain or losing your job within 90 days or getting certain types of cancer or heart problems. It's small print bolognese with a vengeance.
Store Cards
Store cards or credit cards with a Harvey Nicks or Marks & Spencer logo are stupid beyond belief. The interest rate on these cards is way, way out of whack with normal credit cards, so you'll pay a huge amount over the odds in interest.
Buying a shiny suit in Debenhams may be cheap... but not on the Debenhams store card, which has a rate of up to 19.9 per cent. That's more than double what you'd pay on AIB's Click card.
Harvey Nicks and Marks & Spencer's store cards have nasty 18.9 per cent rate, with the Brown Thomas Mastercard lumbered with a 15.9 per cent rate. Lashing €1,000 onto one of these cards could cost you up to €199 in interest compared to just €85 with an AIB Click card.
Guaranteed Equity Bonds
God help you if there's any spare money under the sofa. Brokers will plague you with all kinds of slick offers. Avoid Guaranteed Equity Bonds like the plague. These are turkeys.
Essentially these bonds offer you limited upside on stock market performance with your initial capital protected. So if markets crash over the next five years you get your money back.
Sounds nice and safe. But don't believe the hype. The money may be safe but inflation will have eaten away a big fat chunk of the initial investment over the lengthy term of the bond (often up to five years). An investment of €1,000 over five years could be worth just €850 after inflation does its damage.
Also most guaranteed equity bonds don't add in the dividend payments to the final sum. This could amount to a 20 per cent boost to your investment... but it ends up in the promoters' pockets.
Credit card borrowing
Interest rates on credit cards are more than double those on bog standard personal loans.
Having €10,000 on one of the awful Ulster Bank standard visa cards could attract nearly €1,800 in interest payments. Taking out a €10,000 personal loan to clear that debt is miles cheaper -- even with Ulster Bank.
First Active, which is owned by Ulster Bank, will charge €680 in interest on that €10,000 loan. That's a saving of over €1,100 in a few penstrokes. Better for you than a litre of echinacea.
Extended warranty
Don't be hustled by the salesman. Extended warranty isn't a good idea. It won't give you peace of mind. The only thing likely to be broke... is you.
Extended warranty means that if you pay extra the shop will have your washing machine, telly or whatever replaced or fixed free of cost. However, it's bloody expensive.
Argos has some particularly rubbish offers through Allianz. Jewellery cover starts at 99¢ for something costing €3 for two years. It could be the worst product in the history of retailing.
Watches can be insured for two years at a stonkingly expensive €59.99 for a €400-time piece. It'll cost €99.99 to insure a €375 telly for two years.
Most products are automatically covered by the manufacturers' own guarantee -- usually for the first year. A survey by consumer bible Which? found that 81 per cent of washing machines didn't break down over six years -- while the majority of those that did break down, failed in the first year, during the period when they were covered by the manufacturer's guarantee.
Store Credit
Buying stuff on the "never never" or through in-store finance is worse for you than throwing shapes at Russia.
If the interest-free loans are paid off on time -- usually within six months, then all is fine. But if not, you'll be crucified.
Land of Leather sofas and furniture can be bought with an in-store loan. Buy a leather sofa now and you can pay nothing for a year. But you'll pay and pay and pay after that.
With a rate of 23 per cent and a three-year lock-in, a €1,499 sofa will cost €2,496 -- nearly a grand more. Even a really bad Ulster Bank loan (and they're really bad) is way cheaper. Going the Ulster Bank way would mean your sofa would only cost €1,884.96 over the three years. That's a stupendous €611 less.
Dixons or Currys' in-store finance has loan rates that can hit up to 29.9 per cent if you don't pay the loan off on time. That's about four times as expensive as some of the cheapest loans offered by Tesco or First Active. Something bought for €699 could end up costing €1,086 over almost five years. Scary stuff.
- Nick Webb
