While we don’t want to speak ill of the finance industry, like a 5-year old with a sweetie tin, you have to keep an eye on it, otherwise it can misbehave. Sometimes it can feel like an ongoing game of ‘whack-a-mole’, in which you just get rid of one bad product and another one pops up. With this in mind, we’re updating our piece on the five ways you’re being rinsed by the finance industry – though you may still see a few favourites in there.
It’s not so much that there is anything wrong with the basic concept. Peer to peer lending, disintermediating those big banks, power to the people and all that, that’s all fine. It’s more the way it’s being sold. We’ve found a couple of the innovative finance ISA groups flogging this as a ‘cash-like’ product. It isn’t. And worse, you’re not paid much for the risk you’re taking.
There’s also the uncomfortable way that innovative finance ISAs act as if they’re on the side of the people, hoofing it to the nasty old finance industry. We’d argue that the finance industry are offering a more compelling return in many cases and investors are better protected – innovative finance ISAs don’t have the protection of the Financial Services Compensation Scheme. Proceed with considerable caution.
2. The big bad energy companies.
Government and regulators have become so frustrated with the intransigence of energy companies that parliament is currently debating a bill that would introduce caps on the amount energy companies can charge. In particular, they are cross that so many customers remain on Standard Variable Rates. Theresa May says the bill will “force energy companies to change their ways”.
In the meantime, it takes 10 minutes to walk through a comparison site to plug in your details and find a better deal. The average person can still save north of £200 by doing this.
Credit cards used to the real baddy of the finance industry, with rates of around 10-20%. Many have mended their ways and it is usually easy to transfer the debt on a 0% balance transfer. Today, the big problem is overdrafts. Overdrafts from some of the mainstream banks are now in excess of 50% of the balance.
This is higher than distressed credit or even some payday loans. The FCA is likely to turn its attention to these mainstream overdraft fees, but in the meantime, don’t pay them. Change bank accounts, get a loan, get a balance transfer credit card, find any cheaper option you can.
Yes, this is here again. In fact, a recent FCA report found that insurance companies are failing to implement new rules to increase transparency and encourage shopping around. So, don’t let them win. Stick a note in your diary a month before contracts expire and take 10 minutes to shop around on a few comparison sites to see what other deals are out there. We had one report of a medical insurance premium increasing by 50% year on year, with no improvement in the cover and no change in the circumstances of the insured. They’re sneaky. Watch out.
Yes Bitcoin, we’re talking about you. Or the company that’s just on the verge of finding rocks of gold in the Peruvian desert. Or the one that’s about to covert pebbles into US Dollar bills. It’s nonsense and it will lose you money. Invest properly, for the long term, in a diversified collective fund and don’t muck about with single stock investments unless you really, really know what you are doing. Bear in mind that the finest investment minds, who spend all day every day analysing investments still get it wrong around 30-40% of the time. Yes, the potential returns are seductive, but you’re far more likely to lose all your money.
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