Most of us will be guilty of buying something we don’t need at some point - but while the odd item of clothing is harmless, signing up to a financial product you don’t need and won’t use will prove a far bigger waste of money.
Here are five financial products to steer clear of:
1. ID theft cover
The potential financial and emotional trauma of falling victim to ID theft can be wide reaching. Fraudsters take the identity of a stranger and use it to borrow money in their name which can be devastating for the victim when they come to apply for credit and get refused - sometimes years after the event. This insurance is designed to restore your good name with credit reference agencies, for anything between £50 to £80 a year. But before you sign on the dotted line, it’s important to recognise that you can do most of this yourself if trouble strikes.
You can also take steps yourself by keeping an eye on any loans taken out in your name by checking credit reports for just £2 using one of the three credit reference agencies - Experian, Call Credit and Equifax.
Crucially, your bank is responsible for fraud losses unless you have been negligent.
What can I do if I am a victim of identity theft?
2. Mobile phone cover
Hundreds of thousands of mobile phones are stolen every year. The most common risk is that phones are left unattended in pubs and bars - when a quarter of all thefts take place.
Getting cover for a smartphone seems like the right thing to do since they cost hundreds of pounds to replace. Yet so many of these policies are riddled with exclusions that makes it difficult to make a claim.
It's worth checking if your gadgets are covered by insurance outside the home - either through your home insurance or a stand-alone policy. Alternatively, source quality cover through an insurer you can trust.
Nine essential iPhone and iPad security tips
3. Structured products
These stock market-linked bonds were marketed to cautious savers as a way to gain higher returns than on cash accounts without the risks usually associated with shares.
Returns rely on a series of stock market targets being met. Some promised as much as 60% over five years, but only ever returned the original sum invested.
Not all structured products are bad, but spotting the good ones requires an expert. Yet they are often so complicated that some of the people selling them don't even understand them. Seek professional help with investments if you’re unsure.
4. Extended warranties
Be wary of extended warranties, especially when you’re buying Christmas presents.
This type of insurance is designed to cover the cost of repairs should anything go wrong with electrical purchases, such as washing machines, fridge-freezers or televisions.
Sales staff are paid commission for flogging this cover. But don’t get caught out.
The warranty can cost almost as much as the product and as technology improves, a model can quickly become obsolete. Replacing a faulty item might work out cheaper in the long term.
Are extended warranties worth the money?
5. Packaged accounts
Banks and building societies package up current accounts with so-called benefits and charge a monthly fee. Complaints about such accounts which typically include travel insurance and breakdown cover have more than doubled in the past year.
Between March 2015 and 2016 the Financial Ombudsman Service looked at over 44,000 new cases. This was more than double the number in the previous year and equated to over 850 complaints a week.
These accounts can cost up to £300 a year; a needless cost if you don't use the extras and benefits of the accounts.
In many cases it’s more cost effective to single out the “extra” that you do use, and buy it independently.
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