Thursday 7th August 2008
by Bob Bardsley
Know Your Money Editor
When it comes to shopping around for the latest financial products, electrical goods and even groceries, these days there's likely to be a best buy table or entire website dedicated to highlighting the most competitive prices. But can it really be that easy? And how do the best buy tables determine which product really is the best?
Earlier this week, Know Your Money readers might have seen the advice from energywatch on how to save money on your utility bills. The independent watchdog for the utilities market itself recommends the use of accredited price comparison sites in order to detect the best tariff for your area. But it notes that its own price checker "uses only simple calculations" in light of the complexities of different kWh unit rates for different products from the various suppliers in the UK. Bearing in mind that energywatch was created as part of the Utilities Act in November 2000 to provide market advice to UK consumers, it may seem odd that it directs visitors off of its own site and on to the independent price comparison sites.
Who should I trust?
Generally speaking, a price comparison site's main function is to provide information to its users about the cost of a product from numerous different providers. As such, it might seem only logical to assume that the guidance given is likely to be trustworthy. But it's the completeness of the advice that might be an issue - such as if you compare credit card balance transfer rates. Many lenders offer zero per cent interest on credit card balance transfers. However, a more useful price comparison site might point out how long you can use the card before you start incurring interest on the transferred balance, as well as whether there is a handling fee - typically between two and four per cent - charged on the incoming balance.
Such concerns might seem particularly prudent in light of warnings from Nationwide that many financial services providers count repayments towards the cheapest borrowing first, meaning the zero per cent element of the outstanding amount owed would be cleared as a priority, with new purchases incurring interest as soon as they were made. Know Your Money users might be familiar with the site's own method of highlighting the duration of any special offers, helping visitors to be aware not only of the interest they will be paying as soon as they take out new borrowing, but helping to compare credit cards as a long-term means of accessing funds.
Is it important?
Depending on why you want a new credit card, mortgage, loan or current account - as well as other financial services - it might be more or less important to consider the long-term implications of the product you obtain. If you compare credit cards, it may be possible to get a deal which allows up to 56 days interest-free following a purchase being made, effectively giving you two months to clear the balance. In contrast, a card with a 28-day repayment window might have charged you four weeks of interest on that same purchase.
Similarly with savings accounts, headline rates might seem tempting, but if your money is inaccessible the account might not be suited to your needs. Recent research by Sainsbury's Finance found that 26 of the top 50 savings accounts - more than half of those studied - restrict the accountholder's access to their funds or their rights to make future deposits in some way. The limitations applied range from age-specific accounts to those which require at least £100 to be taken out at any one time. Other criteria applied include a minimum deposit requirement of £100 on payments into the account, penalties for taking cash out and a maximum number of separate withdrawals which may be made in a set period.
So which is best?
As energywatch suggests, the complexities of some products might mean that a best buy table is unable to provide all of the details on the different tariffs, rates and conditions applied to a specific product. On top of that, different services might interact with each other in unexpected ways - paying by Direct Debit might save many people money as energywatch advises, but paying on a zero per cent credit card with cashback might actually make some money back on the bill. Perhaps the wisest approach is to use best buy tables as guidance to compare credit cards, loans, insurance or accounts from different providers, but it might also be worth checking the small print before signing up, just in case a penalty clause or limitation has been missed.
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