Don't Always Trust The Best Buy Tables!
Why the 'best buy' isn't always the best choice.
This article was first sent to Fools in an email as part of our Summer Lolly campaign.
With a wealth of financial products available at the moment, shopping around for the best deal can feel like an impossible task.
Thankfully, comparison sites like The Fool have popped up to help you find the best deals of the moment.
But although comparison sites are an invaluable tool, you also have to bear in mind that what may be a best buy on paper may not actually be the best deal in practice.
Here are three cases when `best buy' isn't always the best choice.
Savings sherlock
Savings are sexy at the moment, and with savings rates so tempting, there couldn't be a better time to start stashing that cash.
Looking at our own best buy tables, if I wanted to put £1,000 in a savings account (excluding term deposits) that paid the best rate, our search engine places Heritable Bank's 60 Day Notice Issue 2 at the top spot.
The account pays a mouthwatering 6.6% AER, a whole 1.6% above the current Bank of England base rate. However, as the name gives away, you need to give 60 days notice in order to make a withdrawal. In addition, the rate includes a 0.6% bonus, which expires after a year.
A better account which pays a slightly less attractive rate is the High Interest Savings Account from Kaupthing Edge. The account does pay a lower rate of 6.55%, but for a concession of 0.05%, you can get penalty free access to your cash at any time, plus the interest rate is guaranteed to be at least 0.3% above the Base Rate until February 2012.
Keep your eyes on the ISA
It's a similar story for ISAs. Choosing the right ISA is important, because not only are you likely to put a bulk of your savings in one, but transferring your funds between providers can sometimes be a hassle (as I found out to my own detriment). So, unless you're really on the ball you'll be less likely to switch your ISA than you would a standard savings account.
The top pick is West Bromwich's 90 Day Notice Fixed Rate ISA, which pays 6.37% AER for one year on balances from £1,000. However, not only do you need to give 90 days notice in order to make a withdrawal, but should your ISA balance fall below the minimum level, you'll have to settle for a lower interest rate of 2%.
For instant access, the top rate you'll find is 6.25%. Barclays Tax Haven ISA pays this rate - but again however, you have to watch for the small print as after a year the rate drops to 5.25%, pushing it back down the best buy tables.
HSBC's e-ISA also pays a rate of 6.25%, but unlike the Barclays version, won't automatically drop after a year. However, two points worthy of note. Firstly, this ISA does not allow transfers in. So, if like many ISA savers, you have accumulated a fair bit over the years, you will not be able to take advantage of the rate on your full ISA balance.
Secondly, you must have a HSBC current account in order to qualify, which could prove more hassle than it's worth.
The highest paying catch-free ISA on the market is IceSave's Cash ISA, which pays 6.1% AER, allows instant access to your money and lets you transfer money in from other providers.
Credit cards with catches
One other example where best buys won't necessarily be best is credit cards. With credit cards in particular, the best deal is not just as simple as the APR you pay or length of the deal, and you will often need to do your research to find a card which suits you best.
For example, using our search engine to find the best 0% balance transfer card puts the Capital One Balance Transfer And Purchase credit card in the top spot. The card offers 0% on balance transfers until December 2009 (a 3% fee applies) - that's over 16 months interest free. A very sweet deal.
However, on closer inspection, the 0% purchases deal which comes attached with the card only lasts four months before interest starts to accrue. This means that if you use your card for spending as well, any money you pay towards the card after the first four months will pay off your 0% balance transfer debt first, leaving the interest on your purchases to build up. This is a trick known as negative payment hierarchy.
For this reason, if you want an all-purpose card you can use for both spending and balance transfers, the more succinctly named Capital One Platinum credit card has a slightly shorter balance transfer period until 1st November 2009. In my opinion though, this provides better value, because if you can afford to sacrifice one month of your balance transfer deal, Capital One will give you an extra 11 months of 0% on purchases - hence solving the negative hierarchy problem.
Hopefully these three examples will have shown you the importance of shopping around and reading the finer details, even if it does sometimes require a magnifying glass.
It's boring I know, but by making sure you're not blindly following comparison tables, you can really make sure a `best buy' really is the best deal for you.
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