Introducing the dirty dozen of personal finance
By Damian Clarkson     17th October 2007

The financial world is riddled with financial products that are great value for banks, but a blatant rip off for the consumer.

The problem is these hideous nasties are covered with so much marketing and PR fluff that it's difficult to differentiate between them and the actual good deals out there.

To help you identify the runts of the litter, EveryInvestor has compiled its 'dirty dozen' of the finance world.

Bundled PPI
Some of you may already be aware of this, but bundled payment protection insurance (PPI) is such notoriously bad value that it still deserves top billing in our products to avoid.

PPI can provide vital protection for someone who finds themselves unable to pay off a loan due to unexpected financial difficulties. If you decide you'd like such cover, make sure you never, ever purchase it direct from your lender as this can cost more than five times the price of a standalone policy.

As an example, adding PPI to a £10,000 loan over four years at NatWest will add £2,297 to your debt, but purchase a separate but similar policy from British Insurance and it will cost you just £364.

Compare our payment protection best buy with your lender's quote

Small personal loans
When you take out a personal loan under £7,500, lenders will charge you a dramatically higher interest rate in order to make it profitable for them. While you may see APRs of 6.3% advertised, it's not uncommon for lenders to hike this as high as 11.4% on smaller loans.

You can get around this in two ways: First, get your loan completely interest free by putting the debt on a credit card offering a lengthy introductory interest free period on new purchases (the 15 month Halifax Purchase card is the best place to start), and then transferring the balance accordingly before the 0% interest period expires.

If you can't be bothered to switch constantly, you can put the debt on a credit card offering a life long low interest rate, which won't be as cheap but is still better than a personal loan.

Compare the best 0% on purchases credit cards here

First Direct current account
A few months ago, First Direct started forcing many of its current accountholders to pay a £10 monthly charge. Now the bank has decided to stop paying credit interest to all current account holders as of 1 November, meaning accountholders are being forced to give their bank an interest free loan.

Clearly it's now time for customers to vote with their feet and move somewhere that is both free and pays a decent rate on credit, like A&L's Premier Direct.

Compare top current accounts with our best buys

Package accounts
These accounts sound like a good idea in principle: You're going to need a bank account anyway, so why not get one that comes with loads of free perks? The problem is that banks massively exaggerate the true value of benefits on their accounts to lure you in, while their hefty fees and uncompetitive rates mean they're almost always a bad deal.

On top of that, the benefits offered with the card are so widely varied that you will almost certainly not use all – or even most – of them.

The price you're paying for those benefits really becomes apparent when you compare it to some of the market leading credit cards. OK so they don't have all the bells & whistles, but they do charge lower rates on debt and pay your more for credit, which is pretty much what you want from a bank account, isn't it?

Compare the costs of packaged bank accounts

Football saving products
Despite their billing as a great way to show your loyalty, football savings products are really an incredibly bad deal that will never benefit you or your club as much as the banks.

By offering rates that are literally half those of the market leaders, banks are essentially profiting off your affinity to a certain club. And for this reason alone they should be relegated to the rubbish pile (along with those dodgy half-time pasties, but that's another story).

For example, basic football saving accounts from Norwich & Peterborough and Britannia Building Society offer rates ranging between 3.05 and 3.2% for small amounts (although it does rise the more you set aside) and also provide a 1% (£10) donation to your club for every £1,000 you invest in a year. Now compare that to the 6.3% on offer with the ICICI Hisave and Alliance & Leicester DirectSaver accounts, and it's clear the real winner certainly isn't your beloved club.

Compare the leading savings accounts here

Showroom finance deals
If you're in the market for a new car, avoid showroom finance like the plague and pay for it with a personal loan instead. Price comparison site uSwitch estimates that 180,000 new cars will be purchased with showroom finance deals next month, wasting £175 million in the process.

The average showroom loan rate is 10.76%, while both Moneyback Bank and Youpersonalloan.co.uk offer personal loans at 6.3%. Don't get taken for a ride.

Compare the best personal loan rates here

Store credit cards
Many people are lured into opening store credit cards with the promise of first purchase discounts and/or free gifts, only to be hit with massive interest rates -the average store card charges 24.3%, but some are as high as 30%.

Yet despite their terrible value for money, these cards are growing rapidly in popularity - and increasing debt accordingly. Consumer debt service Clear Start says we owed £3.15 billion on store cards by 2004.

If you do make regular purchases from a store, make sure you aren't paying interest at an astronomical rate. Opt for a card offering a low rate for life, or with an extended interest free period on new buys.

Compare 0% on balance transfers credit cards offers here

Insurance from your travel agent
Never simply assume that you will get a great deal on travel insurance from your agent simply because you got a good deal on your holiday package.

According to the Treasury Select Committee, policies bundled along with your holiday are 91.8% more expensive than those offered by the most competitive insurers. Worse, your cover may be woefully insufficient as well as expensive.

Recent research found that around 17% of those who bought insurance from a travel agent claimed they were not asked if they had a pre-existing medical condition, whilst 13% said that their travel agent had not explained what their travel insurance did or did not cover.

Shopping around for travel insurance online will only take a few minutes, and it's almost certain to save you a packet. Read more about saving money on cover here.

Get a quote and compare travel cover here

Rip-off credit card charges
You could probably argue that all credit card charges are a rip-off (aren't they making enough money off that exorbitant interest rate?), but since banks are unlikely to remove them any time soon, a strategy of avoidance is the best way to keep costs down.

Drawing cash with a credit card is always a bad idea, as not only are you charged a fee of up to 3%, that debt also earns interest at nearly twice the normal rate.

Banks also make a killing by charging you up to 3% every time you use your card abroad. You can avoid this by opening an account with either the Post Office or Nationwide.

Premium Bonds
Another product that sounds like a great idea in theory, but fails miserably in practice. National Savings & Investment's Premium Bonds promise the chance to become a millionaire while the money you invest earns tax free interest.

But it only offers a pathetic 4% rate, so your money really isn't doing much of anything - NS&I's cash ISA is a far more attractive prospect 6.3%.

And the heavy price you pay in lost interest comes with little chance of reward: Provided you invest the minimum £100, you stand a one in 70 million chance of winning one of the monthly £1 million prizes. For the smaller prizes of £50 upwards, your odds are 240 to one, which equates to a win every 20 years.

Extended warranties
Extended warranties offer to cover the cost of repairs of any appliance one the existing manufacturers warranty has expired. Unfortunately they're extremely expensive and seldom prove value for money. A five-year guarantee on a £200 washing machine could cost well over £100, yet a recent report showed that 81% of washing machines needed no repairs in the first six years.

DIY energy
OK, so this doesn't count as a financial product, but using renewable energy to cut your monthly gas bills is such a bad deal that it deserves a mention in this list.

Because the government has slashed the maximum grants for renewable electricity form £15,000 down to £2,500, you could end up more than £5,000 in the red even after you factor in the savings on energy.

Both you and the environment will be far better off donating to a carbon offsetting programme every month instead. Read more about it here.

Compare energy prices in your area with our switching service

Always read the fine print
So there you have it, 12 products that really should come with a big "do not touch" sign tacked on the front. Obviously there are many products out there that offer genuine value to you, the consumer, it's just that companies aren't inclined to point them out to you.

Your best weapon is to always read the fine print of any deal. In finance, that old saying "what the large print giveth, the small print taketh away" has never been more true.

Article produced by EveryInvestor.co.uk