Is your money in danger?

Whether it's a credit card or life insurance, buying financial products can feel like walking through a minefield. Without becoming an anorak on the subject, how can you avoid landing on an investment product that will blow up in your face?

Ideally you should research every deal on the market to make sure you choose the best value. But if you can't choose the best, you can at least avoid the worst. In the past 10 years the financial services industry has made great strides in giving customers better value, with new products such as current account mortgages which let you offset savings and current account balances against mortgage borrowing, potentially saving you thousands in interest. And fierce competition in the savings market has spawned accounts that pay so much interest the institutions lose money on the deal.

But venturing into an industry with a history of rip-offs and scandals is nerve-racking, and choosing a new mortgage or savings product lacks the excitement associated with buying a new car, CD player or wardrobe. If you do not want to adopt personal finance as a hobby, but have the uncomfortable feeling you could be doing better with your money, one way to approach the problem is to become aware of the types of products to avoid. You can also improve your prospects by occasionally checking that the financial products you have are still offering a reasonable deal. Financial institutions make millions through customer inertia. Once in an investment plan, or stuck in the slow process of paying off a mortgage, customers happily forget the whole thing.

Despite the emergence of competitive products, many old-fashioned low-interest and inflexible deposit accounts still lurk in the shadows. Some even pay interest at below inflation, so in real terms your money is shrinking. Halifax has two accounts paying pitifully low rates. Its Card Cash account pays just 0.25 per cent, while the questionably named Liquid Gold account pays a maximum of 2.2 per cent, according to financial data provider Moneyfacts. Who would let their cash languish in those accounts when at the same institution another instant access account pays 5 per cent?

You might. Once savings are tucked away in a deposit account, it's tempting to put the passbook in a drawer and forget about the account until the money is needed. To make the most of your money it is vital to keep an eye on the rate of interest your account pays. Once an institution stops actively marketing a certain type of account, it often lets the rate fall behind the competition; instead it showers rewards on its latest savings head-turner. Dan Kemp of independent financial adviser Holden Meehan says many homeowners spend years paying their mortgage lenders interest at the standard variable rate, even though competitors offer discounted rates way below this. 'People get attracted to the lenders because of the rates in the first two or three years, and then they just stick around,' he says. 'Whenever a deal ends, be it fixed or discounted, people should always look at what others are prepared to lend them.'

The perceived cost of shifting a mortgage to another lender might put you off, but a number of mortgage providers now offer to pay not only the legal expenses of the move but also the property valuation. This may mean no cost for you at all.

It can be equally damaging to your wallet to choose a good-value product which happens to be unsuitable for you. Many people are sold life insurance when they have no dependants or anyone else who would suffer financially if they died. Or a self-employed person may take out payment protection insurance with a personal loan, even though the policy may cover employees only.

Philippa Gee, independent financial adviser at Shrewsbury-based firm Gee & Company, says: 'For someone who is willing to sacrifice higher rates of interest for security of capital, National Savings may be a suitable product, but for someone willing to take a bit more risk, it may not. Everyone should look at their own requirements.'

Potential customers should treat all financial advertising with healthy dose of cynicism. 'Everyone says they have the best Isa,' says Ted Lake, author of a new book, The Bad Investment Guide. 'They can't all be the best, but they don't make comparisons. Investment is all about alternatives, and people should stop and look at the alternatives.'

Lack of knowledge can easily turn a basically sound investment into a money-loser. Lake says he is continually surprised at the number of poor investment decisions people make. These have included leaving large sums in low-earning accounts, or more than necessary on instant access, and failing to use available tax breaks.

'Even if you leave all your money in high-earning accounts, over a long period they are a financial graveyard, because there can be no real income growth, no capital growth and no tax breaks to speak of.' He says people should be looking at stock market-based investments wherever possible.

Simply taking advice is no guarantee that you will manage to avoid poor money deals. While a good independent financial adviser should always point you in the right direction, one who is too easily tempted by those products which pay high levels of commission to advisers may not.

And many advisers, most notably bank and building society employees, are tied agents. They can only talk about or recommend products from a particular provider. Since they cannot give you comparisons with any other insurance firms' products, for example, you have no way of knowing whether what they are offering is good value or the worst deal on the market. 'People taking tied advice should recognise it is tied,' says Lake.