FOOL'S EYE VIEW

How To Lose £5,000 This Year!

By Cliff D'Arcy
April 25, 2006

Many years ago, my then boss warned me, "Only he who does nothing, does nothing wrong." I grew to like this saying, because it acted as a handy excuse when things did go wrong, as they inevitably did.

However, I think that this proverb doesn't really apply in the realm of personal finance, because doing nothing is often the worst thing that you can do. Indeed, faithfully sticking with the same products for year after year is almost always a terrible move, because financial firms rarely reward loyalty.

So, without further ado, here are ten things which, together, could cost you five grand or more over the coming twelve months...

1. Let your mortgage gather dust

Perhaps the most costly financial mistake of all is to stick with the same mortgage deal, or with the same mortgage lender, instead of looking around for a cheaper loan. Nevertheless, according to a report last year from friendly society Royal Liver, half of all mortgage borrowers (50%) have never changed their mortgage lender, and two out of five homebuyers (41%) claim that they'll never switch.

Alas, not changing over your mortgage every few years or so will cost you a fortune. For example, Best Buy mortgage rates are currently around two percentage points lower than the typical standard variable rate (the rate paid by all borrowers who aren't enjoying a special-rate deal). On a £100,000 interest-only mortgage, reducing your annual interest rate by 2% means a saving of £2,000 a year.

With around 8,500 different home loans to choose from, it pays to take expert advice. That's why we'd recommend getting an independent, no-fee mortgage broker to search the whole market for you, such as award-winning Fool partner London & Country Mortgages.

Check out the great rates in our Mortgage Centre!

2. Choose the wrong personal loan

As I warned in This Blunder Will Cost You Thousands, there are huge savings to be made by shopping around for a low-cost personal loan. For example, borrowing £8,000 over four years without rip-off payment protection could cost you as little as £924 in interest.

However, choose the wrong lender and the same loan could cost you almost £400 more in extra interest. Adding payment protection sees your bill climb to a whopping £3,234, which is £2,310 more than a Best Buy unprotected loan, or over £800 a year more. Ouch!

Choose your perfect personal loan today!

3. Pay interest on your credit cards

Earlier this year, I checked the interest rates charged by over three hundred different credit cards. My research revealed that the average annual interest rate on purchases was 15.6% APR, while rates for cash withdrawals were up to 10% a year higher. Given that the Bank of England's base rate is currently 4.5% a year, credit-card issuers are charging borrowers well over the odds to carry balances on their plastic.

My advice to these cardholders is simple: transfer your existing balances to one of more than fifty cards which charge no interest on balance transfers for an introductory period of between five months and a year. On a balance of £3,000, this could save you upwards of £450 over the course of a year; you can learn the tricks of this trade in Beware Of Bad Balance Transfers.

Check out our delightful deck of 0% credit cards!

4. Automatically renew your home and motor insurance

According to the latest quarterly survey from the AA, the UK's biggest insurance broker, the average annual premium for home buildings and contents insurance is £360 a year. However, shopping around could see this quote fall to £227, which is an annual saving of £133.

For comprehensive motor insurance, the average premium is £758, with the shop-around premium being £464, which saves you a further £295 a year. (For non-comprehensive car insurance, the saving is even greater: a whopping £411 a year.)

Prune your premiums with a visit to our Insurance centre!

5. Overpay for your overdraft

Recently, I gave a money makeover to a couple who'd complicated their lives by having money whizzing each month between three different bank accounts. Sadly, they often miscalculated how much they had in each account, with the result that they paid up to £700 a year in unauthorised overdraft charges. Aaargh!

I urged them to open one Best Buy bank account, to be used for all of their income and outgoings. For example, the Alliance & Leicester Premier Direct account offers an interest-free overdraft of up to £2,500 for a year, followed by a rate of 5.9% EAR. In addition, it pays 5% AER on credit balances up to £2,500.

Check out the ace accounts in our Banking centre!

6. Save in a second-rate account

Let's say that you and your spouse/partner have £6,000 in a mediocre savings account which pays, say, a modest 3% a year before tax. After 20% savings tax, the net rate falls to 2.4%, so this sum would earn annual interest of just £144 a year.

Then again, a smart couple with £6,000 to spare could each put £3,000 in a savings account known as a cash mini-ISA, the best of which pay tax-free interest of 5% a year. Hence, transferring £6,000 from a taxed savings account to Best Buy cash mini-ISAs could means boosting your annual interest from £144 to £300 a year, which is an annual gain of £156.

Here are the deals in our cash mini-ISA centre!

7. Stick with your gas and electricity suppliers

Most of the UK's 25 million households have never switched gas and electricity supplier, even though energy prices have risen by about two-thirds (67%) over the last two years. Switching to cheaper tariffs or suppliers doesn't involve any rewiring or re-plumbing, yet can save you upwards of £200 a year.

Bash your energy bills with Fool Partner uSwitch's free price-comparison service!

8. Overpay for your telephone calls

For years, I blindly handed over around £300 a year to BT for my home-telephone calls. However, these days, I pay BT the basic line rental of £132 a year, but all of my calls are routed through an override provider such as www.1899.com, which charges 3p for any UK call beginning with "01" or "02", no matter what the time of day, or how long the call lasts. My latest BT bill has no calls on it, and I'm spending roughly £12 a month less on call charges (£144 a year) by using alternative call providers.

9. Stay loyal to your life insurer

Choose the wrong life insurance policy and you could give yourself a 25-year headache. That's because millions of us buy life insurance from banks or mortgage lenders, which often charge premiums three times higher than those levied by Best Buy policies. For example, paying £75 a month for an overpriced policy, instead of £25 for Best Buy protection, would cost you £600 a year, which totals a massive £15,000 over twenty-five years! Before you buy another life insurance policy, check out my five tips to find cheaper cover.

Lower your life insurance costs in our Insurance centre!

10. Fall for a scam or two

If you really want to lose money hand over first, perhaps the best way is to fall for one of a multitude of financial scams. For example, you might get duped by an advance-fee fraud, boiler room, fake lottery or pyramid or Ponzi scheme.

Read How To Spot A Scam and Ten Ways To Get Ripped Off to learn the hallmarks of these cons, and remember that any proposal which promises to double your money in a short time is guaranteed to do one thing and one thing only: empty your bank account!

Finally, the choice is yours: you can keep doing nothing, or take steps to make yourself richer today. Only you know which option you're going to take!

More: Use the Fool to find better bank accounts, credit cards, household bills, insurance, mortgages , personal loans and savings accounts!