Shopping Around for Financial Products
When it comes to choosing financial products—such as credit cards, auto loans or mortgages—most Americans either do not comparison shop or conduct only limited searches for the best prices or terms. For example, according to the FINRA Investor Education Foundation’s National Survey, nearly two-thirds of all credit card holders reported that they did not compare offers to find the best rates or conditions.
Whether your goal is to purchase products for saving and investing or to tap a new line of credit (by acquiring a new credit card or taking out a loan), shopping around for financial products makes good sense—and can save you money over the long term. Here’s how to get started.
Know Where to Look
A good rule of thumb when comparing any financial product or service is to look beyond the claims made in promotional materials or advertising, including charts that suggest a particular product or service is superior to competitors. The information might be accurate—but it also likely will be biased. Always ask yourself whether the comparisons presented are relevant to you and your circumstances. And remember that while marketing materials can be a good place to start, their primary purpose is to promote a particular product.
So where can you turn? While reliable sources of unbiased, independent information will vary depending on the particular type of product or service you are considering, the following can help:
- Neutral online sites. You can compare a variety of financial products by visiting Web sites that aggregate information from a broad array of financial product and service providers. For example, Bankrate.com allows consumers to compare yields and fees for savings and term-deposit accounts, terms and costs for insurance policies and interest rates, fees and terms for credit cards, auto loans, personal loans and mortgages.
- Consumer- and money-related publications. Independent product-rating organizations such as Consumer Reports, consumer advocacy groups such as the Better Business Bureau and personal finance magazines frequently publish comparisons and ratings for a wide range of financial products and providers, from credit cards to home and auto insurance to health and retirement plans.
- Local newpapers. Check the business or personal finance section of your local newspaper for rates and fees on common consumer financial products.
- Other product providers. There’s no harm in checking out the competition directly by requesting fee tables or term sheets from other financial institutions that offer the product or service you want.
- Offering materials. This includes term sheets for mortgages and other loans, the terms and conditions circular for credit cards and deposit accounts and the disclosure documents for investments and other financial products (such as a prospectus or offering statement for a bond or a mutual fund prospectus).
Your local library might be able to point you to these and other helpful sources of unbiased information.
Know What to Look For
Because different financial products have different features, the key factors you should consider will vary from product to product. Nevertheless, asking the following questions will help you get the information you need to compare virtually any financial product.
- What are the administrative costs and fees? Find out how much you will have to pay for the product or service, especially for any ongoing account management or administrative fees. Ask to see a fee table if one is available.
- What are the conditions? For a savings or investment product, consider how long your money will be tied up. Is there an early withdrawal or cancellation fee? For a loan or mortgage, are there penalties for early payment?
- Can I change my mind? Some products allow a “free-look” period or a cooling-off period in which you can cancel a contract without penalty.
- What return will I get? For any savings or investment product, be sure to find out what return you will get and how that return is calculated. If your return is based on the market performance of a benchmark, what is the benchmark? And are there any limits or caps on the return you will receive?
- What are the risks? Every investment carries some level of risk. And every guarantee is only as strong as the entity that makes a promise to return your principal or to pay your policy. Be sure to consider risk when thinking about savings, investments and insurance.
- What are the tax consequences? For example, taxpayers can often deduct the interest payments they make on home mortgages and some student loans. Other products, including savings products and investments, can result in your earning taxable income.
Be sure to read the fine print of any offer for a financial product. And remember that while comments and ratings from people who have used the product or service might provide valuable insight into whether a product or service is right for you, glowing testimonials can be easily faked.
Check with the Regulators
Various federal and state agencies offer tips on how to comparison shop for different financial products and services. For example, the Federal Reserve Board has extensive resources on factors to consider when looking for a mortgage or choosing a credit card. The Federal Trade Commission has information on shopping for cars and car loans. And FINRA provides information on choosing investments and checking the background of any investment professional you are considering working with using FINRA BrokerCheck. You can also find an array of additional resources and financial calculators at MyMoney.gov.