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FOOL'S EYE VIEW
There's no doubt in my mind that a good grounding in personal finance is one of the most financially rewarding lessons in life. Unfortunately, very few of us learn enough about money management from our parents or during our schooling. Still, I didn't learn the golden rules of personal finance until I was about thirty, so it's never too late to start! One problem with our general lack of financial education is that we're at the mercy of wily advertising and marketing types. Powerful financial advertising lures us into buying the wrong financial products, leaving us poorer as a result. To help you to become a craftier consumer, here are ten everyday products to be wary of! Banking and borrowing Badly behaved bank accounts About three out of four adults with a current account bank with one of the Big Four banks: Barclays, HSBC, Lloyds TSB and RBS/NatWest. If you have an old-style bank account with one of these four banks, or even one of their smaller rivals, you're probably getting a raw deal. That's because you're most likely earning 0.1% a year before tax on credit balances, while paying annual interest rates of 30% or more on unauthorised overdrafts. The simple solution to this swindle (which costs us billions each year) is to switch to a Best Buy account; learn more in Bag A Better Bank Account Today. You'll find several cracking current accounts in our Online Banking centre! Cruel credit cards Recently, I've taken to calling credit cards "the crack cocaine of personal finance", because we can't get enough of them! Indeed, we owe over £56 billion on our plastic, which costs us about £130 million a week in interest. Crikey! Borrowing on credit cards, even for short periods, is horribly expensive. That's because they charge sky-high interest rates - up to 30% a year - with a typical rate being around 16% APR. One easy way to dodge these excessive rates is to switch your debts to one of the scores of cards that charge no interest on balance transfers for an introductory period. These so-called 0% cards give you a breather of up to a year free of interest, which allows you to pay off your debt far faster. Learn more about this trick in Beware Of These 0% Card Traps. You'll find a whole deck of great 0% cards in our Credit Card centre! Mean mortgages By the end of August 2005, British homeowners owed a record £932 billion to mortgage lenders. With about 11½ million mortgages in the UK, this comes to about £81,000 per loan. However, some borrowers are paying as little as 4% a year for their home loan, while others are paying more like 7%, with the overall average at around 5½ a year. Mortgage lenders make billions every year from homeowners who can't be bothered to switch to a lower rate. If you'd rather pay closer to 4% than 7%, look into remortgaging today, either by getting a better deal from your existing lender, or shopping around for a better deal. Learn more in Cheaper Loans Mean Happier Homes. You'll find many handsome home loans in our Mortgage centre! Poor-value personal loans Borrowers waste billions of pounds each year by buying personal loans from high-street banks. On a loan of £5,000 over three years, the difference between a Best Buy loan and a bog-standard loan from one of the big boys can be £1,000+ in extra interest. For the record, the smart way to find the cheapest loans is to shop around online - learn how in Five Tips To Choose A Loan. Get Britain's cheapest loan in our Personal Loan centre! Saving and investing Indecent investments As I explained at the end of this article, UK investors are losing out big-time because we pay far too much for investment management expertise. Which would you rather pay to an investment firm: 2% a year or ½% a year, all other things being equal? Sadly, 99% of investors choose the first option, perhaps because they (falsely) believe that higher charges translate into superior returns! Hence, we're paying billions of pounds in unnecessary investment management fees. Personally, I prefer to invest in cheap, simple, tax-free investments, as I explained in Three Ways To Win With Shares. Avoid tax and high charges with an index-tracking ISA! Pathetic pensions Given that I've been working for about eighteen years, but have only accrued just over nine years of pensionable service, there's a big hole in my pension planning. Hence, I intend to shovel money into a low-cost personal pension - probably a Stakeholder plan - for the long term. The good news is that from 6 April 2006, known as pensions A-Day, I can put my entire earnings into my pension, if I wish. I don't think I'll need to do this just yet, but the earlier I pay in my contributions, the longer they have to grow! Check out the Stakeholder and Self-invested Personal Pensions in our Pensions centre! Shoddy savings accounts In case you hadn't noticed, some of us Brits are very well-off! For example, collectively, UK residents have £541 billion on deposit, which comes to about £21,600 per household. (At this point, it's okay to mutter, "Where's my share gone?".) What's more, the savings ratio - the proportion of our take-home pay that we save - is on the rise, up from 4.1% at the end of last year to 5% halfway through 2005. The bad news is that 99.9% of savers stash their cash in the wrong accounts. Most adults ignore the wonderful tax savings that cash mini-ISAs offer, while almost all of us can't find a Best Buy no-notice savings account to save our lives. I reckon that, between us, we could earn an extra, say, 2% a year by moving our money to higher-paying savings accounts, which would mean £10 billion more interest each year. Learn how to do this in Five Steps To Smarter Saving Check out the great rates on offer in our Savings centre! Other big bills Cheeky car dealers Before joining the Fool, I spent many years working with many of the UK's leading motor finance houses, so the horrors that lurk in Britain's showrooms are all too familiar to me! If you don't haggle, you'll pay top whack for your car. Also, if you don't keep your wits about you, you may be sweet-talked into buying a whole host of over-priced finance and insurance products, too. You can learn the rules of the road by reading these three easy ways to cut the cost of car-buying! Don't pay over the odds for a car loan - check out these low-rate lovelies, instead! Expensive electricity and ghastly gas If you've never changed gas and electricity suppliers, I guess that your energy bills are, on average, about £200+ a year higher than they need to be. What's more, with oil and gas prices rocketing, Britain's biggest suppliers are raising their prices through the roof. Hence, it's never been more important to shop around for your energy needs. Although I've repeated this message many times, I've still got a lot of preaching to do, as two-thirds of households - about sixteen million homes - have yet to try switching. There's no need to be afraid, as it's usually a simple administrative process - I've switched twice in recent years, and had no problems doing so. Also, going green can save you a pretty penny; learn about becoming more energy efficient with Save Energy and the Energy Saving Trust. Take a minute to see how much you could save, with the help of Fool Partner uSwitch! Painful protection policies What do all of these insurance policies have in common: life, critical illness, health, income protection, mortgage protection, motor, payment protection and travel insurance? Answer: most policyholders buy their cover from the good old high-street providers, which impose premiums around three times as high as those charged by Best Buy providers. While working in financial marketing in the Nineties, I described this over-charging as the Rule of Three, and this rule of thumb still works well today. Naturally, if you don't want to get taken for a ride when you buy insurance, it's vital to shop around. Some of the worst offenders in this category include: life insurance, where the wrong policy can cost you an extra £10,000 or more over twenty-five years; travel insurance, where tour operators and travel agents can charge up to ten times as much as a Best Buy provider(!); and the dreaded payment protection insurance, which costs about five times as much as it needs to, and earns lenders and insurers around £4½ billion a year! Prune your premiums across the board: get a quote from our Insurance centre today! Finally, I'd guess that sorting out all of the above would take a typical householder perhaps ten hours a year or so. That's not much effort, when you think that it could save you thousands of pounds every year. So, put your finances in order and earn yourself a fat-cat salary today! More: Get better bank accounts, credit cards, energy deals, insurance cover, investments, mortgages, pensions, personal loans, and savings accounts via the Fool!