Savers urged to watch out for ‘hidden clauses’ on savings products ‘Read the small print’

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From fixed rate products to easy access options, there are a whole host of savings accounts out there. However, whatever type a saver chooses, there are some “hidden dangers” which could potentially cost a person thousands of pounds.

That’s according to a leading personal finance expert, who has recently shared some key “watch-outs and need-to-knows” when taking out a savings product.

Fixed rate cash ISAs, bonds and pension policies can be amongst those savings products that are tricky to navigate, especially if a person is a first-time saver, Will Lenehan, financial advisor at low-cost financial advice platform OpenMoney said.

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He warned there is often an array of financial related jargon, small print and terms and conditions that come with them.

Therefore, he has highlighted the importance of understanding what a person is signing-up for, so they’re not caught-out later down the line.

The financial adviser shared several top tips on what to consider when taking out a savings product, in the hopes to helping people to avoid financial pitfalls – which he said could potentially save thousands in the long-term.

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Keep an eye out for the hidden clauses

Terms and conditions are something many people will of course be familiar with when signing up to a savings product, and Mr Lenehan has stressed the importance of being aware of the small print.

“Hidden clauses within financial documentation aren’t as common as they used to be, due to tighter regulation and the requirement for firms to be transparent,” he said.

“However, reading the small print within your provider’s key facts documents or factsheet is vital if you’re not going to be short-changed or ripped off.

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“The financial world is a complex juggernaut of jargon and statistics, so make sure you understand any restrictions connected to your savings product and the associated terminology before you sign-up – and more importantly, you get tied in.”

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 term.

“But if you take the money out of your account before the fixed rate period ends, you’ll also lose the interest.

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“With lifetime ISAs, there are also restrictions on the age you can open, contribute and access funds and pension policies, tax implications – so watch-out for these hidden clauses before you give your provider the green light.”

Beware of hidden charges

Hidden charges are also something it’s crucial people watch out for.

“Most savings products have some fees and charges related to them, but whilst some fees are clear up-front in documentation, be aware that some others might be hidden,” the financial adviser said.

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“Some providers can charge admin or management fees on top of their standard charging structure, which can eat into your returns.

“They may also have ongoing transaction costs when you first sign-up, or charges for exiting your investment early.

“You can’t make an informed savings decision if you don’t know what fees are being charged and you certainly don’t want to be left out of pocket with your investment.

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“Therefore, make sure you read all the T&C’s and small print in your documentation to identify any random or ad-hoc charges that may not be clearly displayed.”

Set a savings goal

“Setting short-term, mid-term and long-term financial goals is an important step towards becoming financially secure,” commented Mr Lenehan.

“If you aren’t working towards anything specific, you’re likely to spend more than you should – meaning you’ll run into trouble when you need money for unexpected bills, or want to retire in the future.

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“If you’re young and saving for retirement, your money is best placed in a long-term investment as opposed to cash.

“But, if you’re looking to purchase your first home in 12 months time, your money will need to be easily accessible short-term and not put into a high-risk investment.

“It’s very easy to get embroiled in the latest financial craze or follow in the footsteps of what family or friends are doing.

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“But don’t get caught out by doing this – what’s right for them financially is almost certainly not right for you.

“By setting your own personal goals and objectives, it puts you in charge of your own financial destiny and you’ll feel confident and secure in the savings decisions you’ll have made.”

Risk vs reward – watch out for interest and inflation

Interest rates and the rate of inflation are also something to be conscious of, the financial adviser said.

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“No investment is worth the risk unless you’re getting a return,” he commented.

“You have one goal when you start saving and that’s to make money; but before you do so, make sure you do your research so you’re not caught out.

“Lots of savings products offer variable interest rates, which means you know what rate you’re receiving today – but what about next month or next year?

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“Beware of the easy-access deals that pay nothing in return, or worse case scenario, savings accounts that could lose you money if the inflation rate exceeds the interest earned.

“For a cash-based product, such as an ISA, make sure you research which provider is offering the best interest rate in the market and at a fixed return.

“Or, for more long-term savings products, such as a bond or pension policy, it’s worth considering using someone who has a track record in providing positive returns on investments.

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“It’s important that your provider is also covered by both the FCA (Financial Conduct Authority) and the FSCS (Financial Services Compensation Scheme) so that your savings are protected in case something goes wrong.”

Check out cooling-off and cancellation periods

“It’s quite common to get caught up in the excitement of saving and choose a product you’re not quite happy with – but what happens if you change your mind?

“A company selling you saving products, such as an ISA or pension policy must provide you with a cancellation or cooling-off period to give you a chance to reconsider.

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“But, make sure you know how long this period is, so you’re not left penalised and paying hefty fines.

“Whilst it can vary depending on the product, a cooling-off period must last at least 14-30 calendar days and will begin the day you agree to go ahead with the service.

“Before you start saving, check out your provider’s small-print or key facts document, which should tell you about your rights for cancelling the product and any associated charges that may apply.”

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Customer service is key

“Whilst it’s likely you’ll have done all the facts and stats research behind your investment, you may have not considered the type of customer service that you’ll be offered by your provider too.

“If you’re investing hard-earned money, you’ll want to make sure it’s in safe hands and the danger is that a wrong decision could cost you dearly.

“Most banks have their own fancy phone apps to conveniently access your money ‘on-the-go’ and lots have a live chat function on their website for instant answers from advisors.

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“But, if you’d rather have access to ‘real humans’, rather than online automated responses, make sure your provider has a customer support team who are easily accessible on the phone.

“People tend to focus on the brand name and fancy branding of the company without understanding what service they’re going to get before they sign-up, which could result in a rather costly investment.”

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