Paying monthly for insurance, high credit card interest, too much energy credit and other money mistakes

With research revealing that paying monthly for insurance could land you with interest rates of almost 50%, we explore five money mistakes costing us all dearly.

Do you ever kick yourself for making a financial mistake? If so, take solace in the fact that you’re far from alone.

Every year, Brits are throwing millions of pounds away repeating the same financial blunders.

Here, we look at five of the most common money mistakes – and suggest ways to avoid falling into these traps.

Financial mistakes even the experts make

1. Paying monthly for insurance

According to research from consumer champion Which?, those who pay their car and home insurance in monthly instalments (rather than as an annual lump sum) could face a premium of up to 45%.

With some of us simply unable to pay the full amount upfront, Which? has labelled the practice a “tax on being poor” and is urging the Financial Conduct Authority to intervene.

Unsurprisingly, the research found considerable differences in the premiums insurers charge on those who choose to pay monthly.

Across the industry, the average interest rate on monthly car insurance premiums is 22.33% and the average for home insurance is 19.83%.

However, Which? also highlighted the example of insurer iGO4, which imposes a whopping 45.1% APR on those who pay monthly.

If you’re unable to pay for your insurance as a lump sum, you could consider putting the policy on a credit card that offers a 0% introductory period on new spending.

This way, you’ll receive the lower price for paying annually and can then make payments to your credit card company.

2. Saving with big-name banks

When we’re looking for a savings account, many of us feel reassured by a big name.

If a bank or building society has been around for hundreds of years, we perhaps believe that it is less likely to fail – although the financial crash of 2008 did challenge that notion somewhat.

Alternatively, some of us keep our money with a high-street bank out of habit because we’ve done so for decades.

However, large banks rarely offer market-leading savings accounts, with smaller building societies and app-based competitors often paying far more generous rates.

As these app-based banks and savings institutions often have lower overheads than their high-street competitors, they can often pass these savings to their customers.

Remember, all UK banks and building societies offer the same protection through the Financial Services Compensation scheme.

As long as an organisation is a member, you’ll be reimbursed for up to £85,000 per person should a registered firm fail.

Opinion: ‘exclusive’ rates are turning savings best buys into a closed shop

3. Forking out for multiple streaming services

According to research from Uswitch, revenue from online streaming more than doubled in the UK between 2018 and 2023, rising from £0.98 billion to £2.47 billion.

So, what’s behind the massive surge?

First, streaming services are increasing in price, which inevitably means more profit for providers.

For example, Disney+ last year hiked prices on its Premium subscription from £7.99 to £10.99 per month.

Likewise, Apple TV+ launched at £4.99 per month in 2019 but has since risen to £8.99.

Second, many of us have gotten into the habit of paying for multiple services at the same time.

Often, we sign up for a seven-day free trial and never bother to cancel or continue to fork out simply to watch one series.

You can read one loveMONEY writer’s stance on the perils of paying for multiple streaming services in this opinion piece.

4. Paying exorbitant credit card interest

With the cost-of-living crisis and stagnant wages, many of us are facing problem debt.

Research from The Money Charity has found that interest payments on personal debt in the UK are now £78.7 billion per year – a staggering £215 million per day.

And credit cards can be one of the biggest culprits, especially if we don’t use them sensibly.

According to research from Finder, the average interest rate for a credit card is now 35.61%.

Let’s say you have a debt of £2,000 on your credit card. If you’re paying this rate of 35.61% and making repayments of £100 per month, it would take you 29 months to clear your debt, and you’d pay £844 in interest.

You could, however, avoid interest entirely by shifting your debt onto a balance transfer card that waives interest during an introductory period.

In this scenario, you could clear your debt in 20 months – although you’d likely need to pay a transfer fee to do so, which is often in the region of 3-3.5% of the debt transferred.

At the time of writing, MBNA offers the market-leading balance transfer deal, with up to 32 months interest-free.

The longest 0% balance transfer cards

5. Building up a credit with our energy suppliers

If you’re paying your energy bills by direct debit, it’s perfectly normal to build up a credit during the warmer summer months when usage tends to be less.

The theory being that this will help us cover winter heating costs.

However, there’s a catch – if we allow ourselves to build up too great a credit, we risk missing out on potential interest-earning opportunities.

Take a look at your energy account. If you’ve built up considerable credit, it may be worth requesting a refund and then moving this money into a market-leading savings account.

Many experts advise you to check your credit levels in November because this is when your credit balance should be at its peak.

If your credit exceeds two and a half months' worth of bills, you may have overpaid.

Under the terms of their licencing agreements, energy companies must justify the direct debit amounts set for their customers.

If your direct debit is too high (and you’ve accumulated excessive credit), your supplier must refund the money.