Compare When Shopping for Financial Products
You wouldn't buy laundry detergent without comparing features and prices among brands. Or a smartphone. Or a car. But most Americans either don't comparison shop for financial products -- such as credit cards, car loans, and mortgages -- or conduct only limited searches for the best price or terms. For example, the FINRA Investor Education Foundation's National Financial Capability Study found that nearly two-thirds of all credit card holders report they didn't compare offers to find the best rates or conditions.
Comparison shopping for financial products makes good sense -- and can save you money -- whether you're looking to save and invest or to tap a new line of credit with a credit card or loan. Here's how to get started.
Know where to look
Be sure to look beyond the claims made in advertising and other promotional materials when you compare financial products and services. Many times, ads will use charts that suggest a particular product is superior to its competitors. The information might be accurate, but remember, it may be biased, too. When you see such comparisons, always ask yourself whether they're relevant to you and your financial situation. Marketing materials can be a good place to start, but their primary purpose is to promote a particular product
So where can you turn for reliable sources of independent information for the type of product or service you're looking for? Here are some good places to look.
- Unbiased online sites. You can compare different financial products on websites that gather information from an array of product and service providers. For example, Bankrate.com lets you compare yields and fees for savings accounts and certificates of deposit, as well as terms and costs for insurance policies. It also includes interest rates and conditions for credit cards, auto loans, personal loans, and mortgages.
- Consumer and money publications. Check out independent product-rating groups like Consumer Reports, consumer groups like the Better Business Bureau, and personal finance magazines and websites. They frequently publish comparisons and ratings for a wide range of financial products, including credit cards, home and auto insurance, mortgages, and health and retirement plans.
- Newspapers and news sites. Check the business or personal finance section of your local newspaper, national and financial newspapers, and online business news sites for rates and fees on consumer financial products.
- Other product providers. There's no harm in checking out the competition by directly requesting fee tables or terms and conditions from other financial institutions that offer the product or service you want.
- Offering materials. These include term sheets for mortgages and other loans, and the terms and conditions circular for credit cards. You also can find useful information in disclosure documents for investments, such as a prospectus for a mutual fund.
Know what to look for
Sometimes it can seem hard to compare the different features of financial products. The key elements that you should consider might vary from product to product. However, if you ask the right questions, you can get the information to compare nearly any financial product.
- What are the administrative costs and fees? Right upfront find out how much you have to pay for the product or service, especially any ongoing account management fees. Ask to see a fee table if one is available.
- What are the conditions? Consider how long your money will be tied up in a savings or investment product and if that works for you. Are there early withdrawal and cancellation fees? And for a loan or mortgage, are there penalties for paying it off early?
- What kind of return will I get? Be sure to find out how much you'll earn and how the return is calculated for any investment and savings product. If the return is based on the market performance of a benchmark, what's the benchmark? And are there any caps or limits on the return?
- Can I change my mind? See if the product has a free-look or cooling-off period, which lets you cancel a contract without penalty. Some do.
- What are the risks? Some level of risk comes with every investment. And every guarantee is only as strong as the institution that promises to return your principal or pay your policy. Be sure to consider risk when thinking about savings, investment, and insurance products.
- What are the tax consequences? Taxpayers often can deduct the interest payments they make on home mortgages and certain student loans. Also consider that savings and investment products that pay interest can result in taxable income.
Be sure to read the fine print of any offer for a financial product. Comments and ratings from people who have used the product or service you're interested in might offer some valuable insight, but remember that glowing reviews also can be easily faked.
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