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Wednesday, 3 October 2012

How to shop around for financial products

If you're thinking about saving or investing, getting a mortgage or buying insurance there are plenty of places to compare current deals - and standard documents to help you shop around. You can then buy based on information only, or get advice. Buying with advice usually offers you more protection.

Where to start shopping around

A good place to compare financial products is on the website of the Financial Services Authority (FSA). The FSA regulates the sale of most financial products and publishes information as well as up-to-date comparison tables for some products, for example savings accounts (including ISAs), mortgages, pensions and pension annuities.

You could also try:

  • the personal finance sections of newspapers (usually on Wednesdays or weekends)
  • specialist consumer magazines
  • text television - Ceefax, Teletext or digital services often have up-to-date interest rates and share values
  • the internet - to find particular products or general advice and comparisons
  • charities and non-profit organisations - eg the Pensions Advisory Service provides free general information on personal and company pensions
  • talking to different product providers about their own product range

What to look for when shopping around

A lot depends on the type of product you're looking for, but it's important to bear in mind:

  • whether you'll have to pay administration fees
  • any conditions - eg how long you're committed for or cancellation penalties
  • whether there's a 'cooling off' period after you've bought in which you can change your mind
  • the financial return you'll get and when
  • whether it really fits your particular needs
  • the investment risk - eg what happens if the stock market crashes or you don't keep up with payments
  • whether you'll be liable to Income Tax, or Capital Gains Tax on your profits

Government standards to help you compare

'Stakeholder' products - savings and pensions

Savings and investment products that call themselves 'stakeholder' products meet government standards on reasonable charges, flexibility and the information you are given. Again, these aren't government recommendations, but offer a useful benchmark for comparison. Stakeholder products can include:

  • deposit accounts
  • child trust funds
  • pensions
  • medium term investment products (eg unit trusts)

Documents to help you shop around

Key features

Under FSA rules, for most investment-type products you should receive a standard format 'Key features' document before you buy or if you ask for a quotation. This document explains the features, costs and risks of the product, and, if relevant, says whether it's a stakeholder product.

'Keyfacts'

In the case of mortgages you get a keyfacts document 'About this mortgage' (sometimes called a 'keyfacts illustration' or 'KFI'). This summarises the features and costs of the mortgage you're interested in.

Buying with or without advice

You can buy financial products based on information alone or after getting advice and a recommendation.

If you buy without advice and the product turns out to be unsuitable or you receive a poor service you have less protection than if you'd bought with advice.

Additional links

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