What you're up against
When you're looking to buy any kind of financial product it's important to realise just how they're created.
Let's take Credit Cards as an example
The card providers spend a lot of time researching how to make more money by how to get more people using their cards. So they'll keep coming up with new cards which offer various new features.
The idea is that this will be something to launch a marketing campaign around - to make more sales.
In other words financial products are brought to us, the consumer, in much the same way as any commercial product. They'll be designed to fulfill a "need" with the aim to create a publicity campaign around how brilliantly it does this. (Financial products particularly focus on getting press coverage of their new launches in the personal finance sections of the press).
The difference with other financial products however is that with a credit card there's a fairly direct comparison you can make between them. This is not always the case. (See more on this below in Problems / Drawbacks of Best Buy tables)
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So who's making these comparisons?
There are various services which do this by comparing financial products on a like-for-like basis. Most of these are intended for professional use by Independent Financial Advisers and are fairly sophisticated.
Any new products that come onto the market are added to their computer programme. The IFA subscribes to this and enters their clients' relevant details to find out which pension, or mortgage, or whatever, will best suit their client.
However there are some services aimed at the consumer.
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Comparison Websites
There are two services aimed particularly at consumers which you may find helpful.
The first, Moneyfacts, was set up a few years ago and has
become the market leader in this field.
They compare all types of products such as bank saving account rates, mortgages, loans, credit cards and so on. They're the source of most of the best buy tables published by national newspapers.
Financial Services Authority
The government regulator for all matters financial, the Financial Services Authority, has an excellent set of comparison tables for pensions, unit trust ISAs, investment bonds and endowments.
You can access this for free at their website http://www.fsa.gov.uk/tables/index.jsp
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Problems / Drawbacks of Best Buy tables.
Unlike, say, credit cards, some products are not really that comparable. There are too many variable factors involved.
Even where there is an agreed "baseline" - for example the Annual Percentage Rates (APR) - see below - some products may have features which make them a better buy for some but not for others.
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The Headline Interest Rate
Say you're looking for a financial product eg a mortgage, the best thing to look for is the Annual Percentage Rate - not just the "headline interest rate".
The headline interest rate is the rate used to gain the public's attention and sales. The problem with it is that it does not include the things which might be making you pay more in other ways e.g. tie ins to the lender's more expensive insurance cover. Or penalties to make you stay with them after the very low interest rate no longer applies.
When you look into all the conditions attached to the financial product with the lower rate eg the penalties - it may turn out to be better to go for the one with an apparently higher interest rate.
You need to look for things like; what will happen at the end of the low interest rate term? For example do you have to stay with the same mortgage lender who is suddenly only offering you a very uncompetitive rate unless you pay a big penalty to leave?
The same type of considerations will apply to many different financial products. They all tend to be operated by the usual suspects who have a long history of making more money by screwing that little bit extra from the innocent buyer.
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The APR
The APR (Annual Percentage Rate) is designed to show the true cost of a financial product. It includes the cost of any "hidden" charges.
So, say for example that there are two lenders with the same Headline Interest Rate for a 25 year loan. One of them may force you to pay for a mandatory survey of your property every ten years but not exactly make it clear when you take out the loan. However the calculation of APR should include the cost of this.
The APR takes all the costs into account: the application fee, the mortgage lenders valuation and so on.
So don't just look at the "Headline Interest Rate". Ask the lender for the APR on a particular loan.
Oddly the best buy mortgage tables you'll see in the press and on some websites often don't mention the APR but focus instead only on the "headline interest rate".
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BUYER BEWARE
Whenever buying any financial product always check the terms and don't hesitate to ask "stupid questions" so that you're clear on exactly what it is you're getting involved with.
You'll probably just have to get out the old stubby pencil and work it out for yourself. Or, depending on what you're looking for, you may want to consider using an IFA. If you do use an IFA try to do this on a fee not commission basis - so there's no doubt they have your best interests at heart. (It may seem more expensive but in the long run it's likely to save you a lot of money).
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