We reveal ten more ways to banks boost their profits at your expense.
Earlier this week, I wrote the first part of this two-part article on the tricks banks play on us. In Banks Behaving Badly, I revealed sixteen tricks which banks and credit-card issuers use to empty our pockets.
In this second part, I uncover ten more traps which lurk in the small print of mortgages, personal loans and savings. However, the banks still have plenty more aces up their sleeves, so perhaps a third article will be needed. On with the show!
INSURANCE AND INVESTMENTS
1.Pushing inferior investment products
Banks have a terrible record for mis-selling products to investors. For example, they've been reprimanded (and frequently fined) for mis-selling mortgage endowments, personal pensions, guaranteed equity bonds, free-standing additional voluntary contributions (extra pension pots), split-capital investment trusts, high-income precipice bonds, home-income plans -- the list is endless!
Personally, I would never buy an investment product from a high-street bank, as I like my investments to be cheap, flexible and transparent. That's why a large chunk of my wealth is tied up in the cheapest ride on the stock market: a low-charging index tracker!
No stock-market fund has lower charges than this index tracker from Fidelity!
2.Selling overpriced insurance
Banks make billions of pounds each year by selling us overpriced -- and often poorly designed -- insurance policies, as I warned in How Much Are Insurers Ripping Us Off? Hence, avoid buying car, health, home, life and travel insurance directly from your bank. In fact, why visit your bank at all, when there are fantastic search engines waiting to do the shopping around for you? You'll find several of these wizards waiting to do your bidding in the Fool's Insurance centre.
MORTGAGES
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3.Fees and charges keep climbing
In Free Yourself From Fees, I warned homebuyers, homemovers and remortgagers to watch out for the various fees which attach themselves to mortgages like parasites. In particular, exit fees have rocketed, as have upfront arrangement fees, which can amount to £1,500 or more for a market-beating discounted- or fixed-rate deal. So, keep your eyes peeled for hidden add-ons, people!
4.Lenders keep plugging secured loans
I dislike secured loans. In fact, I'd go as far as to say that I hate them with a passion! That's because a secured loan or second mortgage puts you at the same risk as a home loan: if you are unable to keep up the monthly repayments, your home could be seized by the lender and sold off on the cheap to pay off your debt.
In Lessons From The Last Housing Crash, I explained how I'd seen many homeowners lose their homes because of the burden of secured loans, not homebuyer mortgages. Don't listen to Carol Vorderman: avoid secured loans like the proverbial plague!
5.Standard variable rates are too high
A standard variable rate (SVR) is the rate paid by all borrowers who aren't enjoying a special-rate deal, such as a fixed- or discounted-rate mortgage. Ten years ago, when the Bank of England's base rate was 5.75% a year, the typical SVR charged by UK mortgage lenders was 6.99%. Today, the base rate is 4.75% a year, yet the typical SVR is now 6.75%. In other words, banks have taken advantage of a falling base rate to increase their margins from 1.24% over base rate to 2% over base rate. What a swizz!
PERSONAL LOANS
Find your perfect personal loan here!
6.Still plugging overpriced loan insurance
For the six hundredth time (and I'm not kidding!): don't buy payment protection insurance (PPI) from lenders. As I warned in this article, thanks to ludicrously high commissions, PPI is a £6 billion-a-year rip-off. If you need accident, sickness and unemployment cover, buy a Best Buy stand-alone PPI policy from the likes of Ant Insurance, Best Insurance, British Insurance, Burgesses, Helpupay and the Post Office.
7.Beware of 'typical' interest rates
When you see an advertisement for a personal loan, the rate you see may not be the rate you pay, because it's only the 'typical' rate. As I revealed in this article, these typical rates can be manipulated, and no watchdog makes lenders meet the requirement to offer their typical rate to at least two-thirds of borrowers. Hence, this creates problems for borrowers, as I warned in Great Deals For Borrowers.
SAVINGS
Check out these superior savings accounts!
8.Attaching strings to good deals
If you see a headline-grabbing savings interest rate, check the small print for the catch, because there's sure to be at least one. Usually, you'll find that the rate is boosted by an introductory bonus which lasts six to twelve months, or you lose interest on your balance when you make withdrawals. To become a master saver, read Ten Tricks To Boost Your Savings.
9.Rate cuts behind the scenes
Banks like to launch headline-grabbing savings accounts with a great fanfare, rake in the customers, and then bolt the door and turn away new customers. The next step is almost inevitable: the banks start cutting interest rates on these 'dormant' or 'non-marketed' accounts. So, pay attention to your interest rate by checking it at least four times a year. Otherwise, you may find that mouth-watering interest rate could be as low as 0.1% a year before tax!
10.Too many "Don't Buy" accounts
Although the base rate is 4.75% a year at present (and widely predicted to rise to 5% in November), far too many savings accounts pay pathetic rates of interest. Anything below 4% a year is pretty awful, yet some accounts pay just 0.1% a year before tax, which comes to a quid for every £1,000 on deposit. For your reference, here's a list of Britain's worst savings accounts.
That's it from me for another week. Keep your eyes peeled for sneaky tricks, folks!
More: Use the Fool to find table-topping credit cards, mortgages, personal loans and savings accounts!