This is a follow-up article to my original 10 things the world of finance would rather you didn't know. If you want to add any 'secrets' of your own then feel free to do so in the comment box below. Enjoy and watch out....
- That you were probably mis-sold Payment Protection Insurance (PPI) as part of a credit agreement & have a claim against whoever sold it - Under a PPI policy , an agreed sum of money is paid out each month to cover all, or part, of the monthly credit payments if the policyholder is unable to work due to sickness,accident or unemployment. But these policies were aggressively and inapprporiately sold with mortgages, loans, credit cards etc .Following concerns over the mis-selling of PPI the Financial Services Authority (FSA) imposed new rules, which financial institutions are required to apply retrospectively. As a result, some banks could end up spending billions on compensatory payouts. But despite the banks being forced to write to policy holders the consumer group Which? estimates that around £5bn in mis-sold PPI is still to be claimed. If you think you could have been mis-sold PPI then you can make a claim for FREE. For more details read the Which? guide to reclaiming mis-sold PPI.
- Student accounts are honey traps - if you think your bank gives you student account incentives, overdrafts and credit cards because they like you then you are sadly mistaken. Banks know that a typical homeowner will look to their bank for a mortgage, but, perhaps more importantly they know that people tend to stick with the first bank they use. So by hooking you in as a student the banks know that you are likely to be a lifetime customer. Not only that but given that you are likely to get a degree you will hopefully be a high earner to which to flog lots more products and loans - such as mortgages. So when you start the new term your bank isn't greasing your palms, its actually basting you ready for a feast.
- How they hide fund manager failures - investment houses don't want draw attention to their failing managers or funds. So one way to rectify this is to simply merge the poor performing fund into a better performing flagship fund. It's the investment world's equivalent of kicking the mess under the rug. Investors in the poor performing fund won't mind as they'll get a share in the better performing (and probably cheaper) flagship fund. But I'm not convinced that existing flagship members would be so overjoyed if they thought about its impact for them. That's not to say all mergers are a result of failures but it's a useful tool.
- Fund managers seldom beat the index and if they do it's just luck - managers may have an investment style but it only really works if the market is working with them (i.e. momentum). This is summed up brilliantly in this piece from Moneyweek titled Fund manager performance - the proof
- Social Lending sites are not covered by the Financial Services Pension Scheme - As an alternative to leaving cash on deposit in the bank, individuals can use social lending sites to invest their money with individuals or businesses and gain a higher rate of return. These loans are repaid over a number of years and in some cases interest can be as much as 25% higher than in a normal bank account. But despite the heavy PR from the social lending firms it is important to realise that there is no compensation scheme that covers social lending companies (you are not covered under the Financial Services Compensation Scheme aka the FSCS) so investors are very much on their own if the worst happens.
- Structured Products are poor value with hidden risks - Structured products offer returns based on the performance of underlying investments. They are publiscised as being simple but they are anything but simple, being built using derivatives and notes with associated counterparty risks. In addition, the true charges of the investment is difficult to determine and investment returns are poor. The real winners of structured products are the institutions that sell them. For more information read my article 'Why you should avoid structured products'.
- Just calling your insurance company could get you blacklisted resulting in higher premiums or refusal of cover - if this concept seems completely bonkers to you then read this article on the issue highlighted by BBC's Watchdog last year. To quote them ''Deciding whether to make a claim on your insurance can be a bit of a mind field - What's covered? What's the excess? How will it affect No Claims Discounts? A quick call to your insurer should help - but beware. Even if you decide NOT to make a claim, your call could still be logged on your history, and count against you in the future''.
- Black (premium) credit cards are poor value - these are the credit cards which are often invite only aimed at the wealthy. Those apparently 'fortunate' to have one have to pay an annual fee (of a few hundred pounds a year unless they spend a fortune) for a swathe of perks such as executive airport lounge access and concierge service. But it's been shown unless you are a high earner who uses every perk they are poor value for money. Remember a fool and his money are easily parted - especially that idiot you saw waving his black card around at the bar last week.
- Haggling works, even in finance - whether it's negotiating money off your utilities bills, insurance cover or just about anything the benefits of haggling is alive and well. In the current economic climate the axis of power has swung in favour of the consumer as businesses fight for the pound in your pocket. But remember haggling doesn't mean being aggressive as I explain in my guide on how to haggle.
- If your utility company increases its prices you don't have to pay the new rate or any exit fees to switch - if your energy company increases its gas or electricity prices you can refuse to pay the new rates by telling them you wish to leave by the date the higher prices come into effect. Then make sure your new supplier contacts your old one within 15 working days to tell them you're switching. Plus if your existing supplier tries to make you pay an exit fee for leaving then tell them they are flouting Ofgem's Standard Licence Conditions 23 and 24.
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