Savings accounts: savers urged to watch out for “hidden clauses” | Personal Finances | Finance
From fixed rate products to easy access options, there is a plethora of savings accounts. However, regardless of which type a saver chooses, there are “hidden dangers” that could potentially cost a person thousands of dollars.
So says a prominent personal finance expert, who recently shared some key “attentions and needs to know” when purchasing a savings product.
Fixed rate cash ISAs, bonds and retirement policies can be some of those hard-to-navigate savings products, especially if a person is a first-time saver, said Will Lenehan, the platform’s financial advisor. low cost financial advice OpenMoney.
He cautioned that there is often an array of financial jargon, fine print, and terms and conditions that accompany them.
Therefore, he stressed the importance of understanding what a person is signing up for, so that they are not caught off guard later.
The financial advisor shared several tips on what to consider when purchasing a savings product, in the hopes of helping people avoid financial traps – which he says could potentially save money. thousands of people in the long run.
Keep an eye out for hidden clauses
The terms and conditions are of course familiar to many when purchasing a savings product, and Mr. Lenehan stressed the importance of being aware of the fine print.
“Hidden clauses in financial documentation are not as common as they used to be, due to stricter regulations and the requirement for companies to be transparent,” he said.
“However, reading the fine print in your vendor’s key documents or information sheet is essential if you’re not going to be cheated or ripped off.
“The financial world is a complex juggernaut of jargon and statistics, so make sure you understand all of your savings product restrictions and associated terminology before signing up – and more importantly, you’re bound.”
He continued, “Fixed rate cash ISAs are a type of tax-free savings account that you open for a specific period, with an interest rate that depends on the length of your tenure.
“But if you take the money out of your account before the fixed rate period ends, you will lose interest as well.
“With Lifetime ISAs there are also restrictions on the age at which you can open, contribute and access retirement funds and policies, the tax implications – so watch out for these hidden clauses before giving the go-ahead. your supplier. “
Beware of hidden costs
Hidden accusations are also something that is crucial for people to pay attention to.
“Most savings products have fees and charges attached to them, but while some fees are clear up front in the documentation, be aware that others may be hidden,” the financial adviser said.
“Some vendors may charge an administration or management fee on top of their standard pricing structure, which can eat into your returns.
“They may also have an ongoing transaction fee when you first sign up, or a fee for early exit from your investment.
“You can’t make an informed savings decision if you don’t know what fees are charged and you certainly don’t want to be left behind with your investment.
“Therefore, be sure to read all the terms and conditions and the fine print in your documentation to identify any random or ad hoc charges that might not be clearly displayed. “
Set a savings goal
“Setting short, medium and long term financial goals is an important step towards financial security,” commented Mr. Lenehan.
“If you’re not working on something specific, you’ll probably be spending more than you should, which means you’ll have problems when you need money for unforeseen bills or want to retire at. the future.
“If you’re young and saving for retirement, your money is better placed in a long-term investment than in cash.
“But, if you’re looking to buy your first home in 12 months, your money will need to be readily available in the short term and not be put into a high-risk investment.
“It’s very easy to get caught up in the latest financial craze or follow in the footsteps of what family or friends are up to.
“But don’t be surprised by doing this – what’s good for them financially is almost certainly not good for you.
“By setting your own personal goals and objectives, you can take charge of your own financial destiny and you will feel confident and secure in the savings decisions you have made. “
Risk vs reward – watch out for interest and inflation
Interest rates and the inflation rate should also be taken into account, the financial adviser said.
“No investment is worth the risk unless you get a return,” he commented.
“You have one goal when you start saving and that is to make money; but before you do, be sure to do your research so you don’t get caught off guard.
“Many savings products offer variable interest rates, which means you know what rate you’re getting today – but what about next month or next year?
“Beware of easily accessible offers that pay nothing in return, or in the worst case, savings accounts that could cost you money if the inflation rate exceeds the interest earned.
“For a cash product, such as an ISA, be sure to research which provider offers the best interest rate in the market and at a fixed return.
“Or, for longer-term savings products, like a bond or retirement policy, it’s worth considering bringing in someone who has a track record of delivering positive returns on bonds. investments.
“It is important that your supplier is also covered by both the FCA (Financial Conduct Authority) and the FSCS (Financial Services Compensation Scheme) so that your savings are protected in the event of a problem. “
Consult the withdrawal and cancellation periods
“It’s quite common to get carried away with the excitement of saving money and choosing a product that you’re not entirely happy with – but what if you change your mind?
“A company that sells you savings products, such as an ISA or a retirement policy, should provide you with a cancellation or cooling off period to give you a chance to reconsider.
“But, make sure you know how long that period is, so you don’t get penalized and pay heavy fines.
“Although it may vary by product, a cooling off period must be at least 14 to 30 calendar days and will begin on the day you agree to continue service.
“Before you start saving, review the fine print or highlights from your supplier, who should tell you about your product cancellation rights and any associated fees that may apply. “
Customer service is the key
“While it is likely that you have done all the research into the facts and statistics behind your investment, you may not have taken into account the type of customer service that will be offered to you by your supplier. .
“If you’re investing hard-earned money you’ll want to make sure it’s in good hands and the danger is that a bad decision could cost you dearly.
“Most banks have their own fancy phone apps for easy access to your money ‘on the go’ and many have a live chat feature on their website for instant responses from advisers.
“But, if you’d rather have access to ‘real humans’ rather than automated online responses, make sure your provider has a customer support team that is easily accessible over the phone.
“People tend to focus on the brand name and the sophisticated branding of the company without understanding what service they are going to get before signing up, which could be quite a costly investment. “
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