When A Bargain Isn't A Bargain
Banks, building societies and insurers are hopping on the January sales bandwagon and discounting their rates and services. But are these deals really the bargains they seem to be?
Roll on Pay Day! If, like me, you're suffering from the end-of-January, `It's Eternity-Til-Pay-Day' blues, then you may need a little bit of a pick-me-up. And luckily, I have one in store for you. Or should I say, in the bank.
Weird as it may seem, banks (and building societies) actually have a lot more in common with high street shops than you might think, nowadays. Even though they don't need to get rid of last season's stock, more and more are holding their own `January sales' by slashing rates and offering `bargain' deals.
The trouble is, what looks like a bargain may not always be, in fact, a bargain. Banks are very good at making you think their rates and deals are fantastic, when in reality, they are about as competitive as my grandmother would have been in the 100 metre sprint.
Here's a quick round up of what's on offer.
Monster Mortgage Deals
As part of their `January sale', HSBC is offering a two-year variable rate mortgage at 4.99%, while Leeds Building Society has knocked more than £1,000 off the cost of its two-year fixed rate at 5.40%.
What's the catch? HSBC's deal comes with a painful sting in its tail: a £1,999 arrangement fee. This is at least twice as high as the most competitive deals in our variable rate mortgages table. However, as HSBC's interest rate is significantly lower than these deals, the fee may be worth paying - it all depends on the amount you are borrowing. (If you have a large mortgage, choosing a lower rate and a higher fee could save you more in interest over the years. Figure out the cost of the deal yourself, using this formula, or speak to a whole-of-market broker who will calculate it for you.)
Similarly, the Leeds Building Society deal isn't quite as good as it sounds. The original fee has only been cut by £700 to £299, but they can advertise a £1,000 sale because you also save £335 with a `free' valuation (so a total saving of £1,035). However, there are far more competitive rates available in our fixed rate mortgage table, so even though the fees are very low, this may not work out to be the best deal for you.
Huge Home Insurance Discounts
If you are thinking of taking out a new home insurance policy, January is a good month to do it. Most of the big insurers are falling over themselves to offer you money-saving discounts right now, as this table shows:
Insurer Deal
Direct Line
A third off buildings and contents insurance.
Halifax
Will beat any renewal quote from competitor and freeze premiums for three years. If you buy buildings and contents cover together online, you can also get up to 35% off (call 0800 169 9361 and quote ref: 'FRZE').
Nationwide Building Society
Will beat whatever customers paid for their home insurance last year, or refund the difference up to £100. There's also a 20% discount if buildings and contents insurance are purchased together (30% if purchased online).
Churchill Home Insurance
Will beat any competitor's current renewal quote by at least £30.
More Th>n
Take out buildings insurance and you get free contents insurance for life.
Tesco Home Insurance
Customers who buy home insurance receive a £75 discount on Hotpoint appliances ordered from Tesco Direct.
The trouble is, if something looks too good to be true, it usually is. For example, the Halifax, Tesco and Nationwide deals only apply to `new customers only'. Others apply strict terms and conditions: only householders who are claim-free for three or more years can benefit from the Churchill offer, while More Th>n will start charging you for contents insurance if you make a claim (although you can `win back' free cover if you do not make a claim in the following year).
What's more, home insurance policies can vary widely and there may be some nasty traps lurking in the small print of some of these `bargain' policies. On the other hand, some of the more comprehensive policies will include `extras' which could be important to you (for example, Nationwide provides cover for MP3 players and music downloads while Halifax offers a 30% no claims discount).
So before you buy, make sure you know how to tell the difference between a good and a bad home insurance policy.
Don't Be Lazy
All these tempting offers can convince you you're getting a good deal. But the fact is, there's only one way to be sure you're getting the best - and that's the Foolish way, by shopping around.
You can either do this yourself using the internet, or you can speak to a broker who will do it all for you. But whatever you do, don't just sit around and take what's offered to you on a plate. Yes, there are some great deals around at the moment, but sometimes all that glitters is not gold.
So have a care for next month's pay cheque. Compare the market and snap up the best deal you can get, not the best deal the bank tells you that you can get. Who knows? You might just save enough to ensure that, come next January, you won't be in the red, with the blues... you'll be back in the black, enjoying the real sales instead!
More: How To Buy Home Insurance | Avoid These Insurance Traps | Compare mortgages using The Motley Fool Mortgage Service