The traps of 'budget' products from banks

Friday September 26, 2008

Banks often offer many of their financial products as being suitable for those on a budget, but sometimes this is misleading. Banks will offer products that can potentially save money yet also tempt users into being less careful with their finances. The ways this can be achieved differ between products, as each has its own way of making money for the banks.

Credit cards

Budget credit cards, such as low interest rate credit cards, are designed more for users that are easy to tempt to spend rather than for those that will control their expenditure. By offering a lower interest rate and interest free days, credit cards can lure customers into forgetting to pay off a purchase quickly. It is best to avoid thinking about credit cards as a form of credit, as this is the easiest way of racking up a debt that you could struggle to repay.

Savings accounts

Savings accounts and transaction accounts include many traps for those who are not careful. If you choose to open an account that includes a certain number of free transactions each month, be sure you know what transactions beyond that cost and always be aware of how many transactions you have made in each month. For savings accounts with high interest rates, be careful not to make withdrawals too often, as many accounts will not award interest in a month that a withdrawal has been made. Also be suspicious of claims that an account charges no account keeping fees, as it may charge other fees that make up for this.

Personal loans

When personal loans of any kind are packaged with extra features that claim to help you to save more, make sure you know how this is the case before you accept the loan. Extra features will often cost you more in fees, so any saving or convenience they bring needs to be helpful if you are to find it worthwhile. For instance, if a feature on a $10,000 loan costs you more than $50 each year in fees to save you 0.5% p.a. on your loan, you are getting swindled, as the fees will not only cancel out the saving, but make your loan more expensive overall.

Please visit our comparison pages if you would like to compare credit cards, compare transaction accounts or compare personal loans from the banks.

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