Let’s start a list of useless financial products

 

While some financial products can truly by lifesaving, not all of them are. Some of them are truly useless in my opinion, and I can’t figure out why people even consider purchasing them.

 

- Personalized cheques ($60)

 

I can never figure out why anybody would pay extra money to have personalized checks. I understand that some people feel the need to express themselves, but I can’t imagine form of payment being a good medium for it. We already have plenty of questionable ways to express ourselves -  bumper stickers and stick figure families on your cars. But personalized cheques? Whom are you trying to impress with your dolphin-themed cheques? Your local ATM machines? Most cheques you send through mail to pay bills (if you’re one of the seventeen remaining people that do it) get deposited automatically without people even looking at them.

 

 

On top of everything personalized checks cost money. In my mind, you might as well burn $60 (the average cost to order customized cheques) and be done with it. Or send it to me, I’ll find a better use for them.

 

- Overdraft protection ($5/month or more)

 

Overdraft protection works like this: If you run out of money on any given day but another expense comes in, the bank still processes the payment and charges you a small fee per day until your bring up your balance (in addition to your monthly fee). In reality, you’re paying your bank a fee to cover your ass.

Here’s a simple solution - keep an eye on your bank accounts, and make sure you have enough money to cover all expenses. Granted, we all been there. I’ve bounced a few checks myself when I was broke and an unexpected utility bill would show up out of nowhere. But in every single case, it happened because I wasn’t paying attention - and paying your bank more money to cover your butt is a terrible solution. A better solution is to start paying attention.

Ideally, you want to have enough money in your account to pay for all your monthly expenses at the beginning of the month. This way you never have to worry about dipping below the liquidity line. But if you’re not quite there yet, figure out when your bills clear your account and be proactive.

 

- Mortgage life insurance

 

I’ve already covered mortgage life insurance in one of my earlier posts. It’s designed to pay off your mortgage if the mortgage holder (you or your spouse) suddenly passes away. Sounds like a good idea?

In reality, mortgage life insurance protects your bank more than it protects you and serves as an additional revenue source for your bank.

- Mortgage life insurance is not flexible enough.

- It is generally way too expensive when compared to a simple term life insurance.

- You can run into problems with collecting money from it.

 

- Christmas dinner prepayment plans

 

Recently, I’ve seen an ad on TV for prepaid Christmas dinner. The plan is pretty simple - the company debits your account once a month twelve times straight, and once Christmas comes it delivers a beautiful dinner to your door - complete with turkey, wine, gravy, and all the other fixings. Sounds delicious, but is it a good financial product?

 

 

First of all, you’ll be greatly overpaying for this dinner. Not only you pay for all the products at inflated prices, but you also pay company profit (they wouldn’t do it just for nothing, am I right?), and marketing costs including the cheesy ad on TV. Second, you’re basically hiring somebody to take money from your account and put it aside for later use. Isn’t that something you can easily do yourself?

Simple solution: figure out the cost of your Christmas dinner, divide the amount by twelve, and setup an automatic bank transfer into this savings account. Takes about 10 minutes! Twelve months later you’ll have the money ready for your Christmas dinner without overpaying for it. Same result at much lower expense. In our family, we take the exact same approach with gifts and presents, and it works out beautifully!

 

- Extended warranties

 

Last time I bought an MP3 player at a local electronics store, I was surprised to be offered extended warranty for it. Seems to me they now offer extended warranties even on smallest items imaginable - from toasters to shoelaces. The salesperson explained in lengths how extended warranty protects my investment (by the way, it’s not an investment!). Being a big financial nerd, the whole premise of extended warranty is laughable to me:

 

 

- Most products these days are fairly reliable, especially if you go after higher quality brands and do your homework. They might not last you a lifetime and get passed on to your kids (not that they’ll want it anyway), but most likely they will last past the date the warranty expires.

- Most likely, you already have extended warranty with your credit card (provided you pay for things with credit cards). Most cards issued today automatically double the manufacturer warranty offered for the product making extended warranty somewhat useless.

- A lot of stores offer hassle-free return policy that once again makes extended warranty useless. If you have Costco membership, you can bring any item you’ve purchased back if you’re not happy with them, and they’ll refund your purchase without asking questions. No need for extended warranty.

Overall, extended warranty on smaller items became yet another highly profitable revenue source for stores and provides very little benefit to an everyday consumer. To me, extended warranty on cheaper items is one of the most useless financial products.

 

I’m sure you can think of few more. Share them in comments!