Top 10 money mistakes

We’re all feeling the effects of having to tighten our purse strings and cut our spending.

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But by falling foul of a few careless money mistakes, you can be needlessly throwing money down the drain. Here we take a look at the 10 most common financial pitfalls and how you can put a stop to them…

1. Renewing with your existing car insurance provider

Car insurance is one of those inevitable outgoings that we just have to be prepared to fork out for. But while it won’t be cheap, why pay a penny more than you have to?

When it comes to the time of year to renew your policy, it’s tempting to be apathetic and accept your current provider’s new quote. But ‘auto-renewing’ rather than shopping around, is likely to see you lose out.

By just taking a few minutes to get quotes from other providers, you could make big savings – the average made in a year is £384.64, according to our latest figures at MoneySupermarket.

So check out our car insurance channel and make sure your insurance price doesn’t drive you around the bend.

2. Using a claims management firm to reclaim mis-sold PPI

Thousands of unsuspecting people fell victim to the PPI mis-selling scandal that resulted in banks having to put millions aside to pay their customers back.

However, greedy claims management firms have seen this as an opportunity to make a quick buck and are intent on making people believe that they must use them if they are to make a successful claim.

This is not the case. By contacting the bank or provider where you got your loan, you will be taken through the process and can easily reclaim the money yourself. 

And that means  ALL the money without a big slice taken out by these firms. Read more in our article ‘How I got a £1,300 PPI refund.’

3. Exceeding your agreed overdraft limit or going overdrawn without permission

Overdrafts are a great help if you need that bit extra at the end of the month. But just remember – it’s not actually your money and every penny will have to be paid back. It should simply be used as a safety net.

Agreed overdrafts may or may not charge interest depending on the account. But you could get into really deep water if you go over your arranged limit.

This might happen, for example if you have a direct debit due to come out and there isn’t enough in your account to cover it.

It will still be paid by the bank, but you will then be charged – often a daily fee – for as long as you remain in unauthorised overdraft territories.

At Barclays Bank for example, you will be charged a reserve usage fee of £22 for the first five consecutive working days from the day you venture beyond your agreement.

One way to keep tabs on your spending is to set up text alerts which many banks now offer. This will warn you when you are getting close to your limit so you have sufficient warning to pay money in.

4. Not using your full ISA allowance

An ISA allows you to save a certain amount tax-free every year. For the current tax year, this amount is £11,280.

This entire amount can be held in stocks and shares, or £5,640 can be held in cash with the rest in stocks and shares.

A poll run by MoneySupermarket leading up to the current tax year which began on April 6, revealed that only 37% of people had used their full ISA allowance with a mere 13% investing in a stocks and shares ISAs.

Failing to use your full ISA allowance means you are missing out on valuable tax-free savings. For example, Cheshire Building Society is currently paying 3.35% on its Direct Cash ISA (issue 3) and Santander isn’t far behind paying 3.30% on its Direct ISA Issue 9.

5. Falsifying your insurance application to reduce your premium

It can be tempting when applying for insurance to omit certain details in a bid to keep your premium down. But not telling insurers the full story can cost you dear in the long run.

Insurers have whole teams dedicated to checking the fine print of your application on claiming so is if there are any errors – even if they are genuine mistakes – it could be deemed invalid.

6. Getting a 0% offer on a credit card and missing a payment

There are some great 0% deals available on both purchase and balance transfer credit cards at the moment.

However, it’s imperative you make your agreed repayment every month. Miss one and you’ll loose the 0% perk – which could see you spiral into debt once the interest kicks in.

For example the market-leading M&S credit card for purchases offers an introductory period of 15 months interest free.

But with a hefty representative annual percentage rate (APR) of 15.9% (variable), missing a payment could really damage your bank balance.

Those seeking a credit card to transfer existing debt on to could benefit from Barclaycard’s Platinum Credit Card with Extended Balance Transfer. This allows you to pay no interest for a generous 22 months.

However, if you have to pay the representative APR of 17.9%, missing a payment could leave you worse off than you could have been had you left the debt where it was.

7. Overlooking when your bonus rate expires on your savings account

With the Bank of England base rate held at 0.50% for more than three years, getting the best savings rate is more important than ever.

But most easy access savings accounts come with a bonus rate which expires, typically after 12 months – so you will have to be vigilant and move your money when that time comes.

Coventry Building Society for example, has a market-leading rate of 3.15% on its easy access account on balances below £25,000 which allows up to four withdrawals a year.

However, this attractive rate includes a bonus of 1.15% for the first year, meaning the rate of interest you could earn after this would substantially drop.

Therefore, it’s important towards the end of this period to keep your eyes peeled for the best savings account and move your money to ensure your cash keeps working hard for you.

If, however, you would rather stash your cash away and not have to worry about looming bonus end-dates, opt for a savings account without a bonus.

For example, the West Bromwich Building Society Websave Plus 2 pays a generous ‘clean rate’ of 2.81% in interest.

While this is slightly lower than Coventry’s rate, you wouldn’t have to worry about losing out after a certain time as, while it’s important to remember the rate is variable, the interest paid would stay the same.

8. Not paying your energy bills by direct debit

Energy companies offer discounts on your bill if you opt to pay by direct debit rather than in lump quarterly sums by cheque.

This is in return for the fact they are getting a reliable payment – and if you overpay, this will be shown as credit on your account.

As well as securing a discount, paying by direct debit means you won’t encounter any nasty surprises such as a large bill landing on your doormat.

It also means you know exactly what is going out of your account every month so you can budget more effectively.

9. Underestimating the value of your home’s contents

When buying insurance, it can be tempting to underestimate the price of the contents of your home to keep your premium down.

However, if you were to put in a claim, the insurers would only pay out up to what you were covered for, so it really is worth paying that bit extra on your premium to make sure you don’t end up severely out of pocket further down the line.

Use our contents insurance calculator to find out what the true cost of your contents would be and read Jessica Bown’s article on inadequate home cover for more information.

10. Only paying the minimum off your credit card

To make credit cards work in your favour you have to use them responsibly, otherwise you could find yourself up to your eyes in debt.

Paying only the minimum off your credit card each month, for example, is a dangerous game.

If you borrowed £502 on a credit card – which doesn’t sound like an extortionate amount – and paid the average interest of 17.31% it would take a shocking 15 years and five months to clear the debt, with the interest alone costing you £658.

So do your best to pay off more than the minimum each month, or better still, clear the balance entirely.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.   We’re free, independent and compare all UK credit cards, as well as offering exclusive deals you can’t get anywhere else.

Contact MoneySupermarket.com at Moneysupermarket House, St David’s Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011.

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