Technically speaking, a financial product is a contract between two parties (in this case you and a financial institution) in which future cash flow is stipulated. In a nutshell, the two fundamental factors of every financial product are time and the movement of money. If done wisely, shopping for financial products makes a lot of financial sense, as it can save you a lot of money in the long run through interest rates. According to the National Survey carried out by the FINRA Investor Education Foundation, however, almost 75% of all credit card users state that they did not compare offers in order to find those with the best conditions and rates. Regardless of whether you are on the lookout for investment opportunities, mortgages, auto loans, futures, insurance policies, credit cards, or any other financial product; comparing different financial providers beforehand will ensure you get the most bang for your buck. The following fundamentals will help you to successfully navigate through the myriad of different financial products out there.
Where to look
Rule number one when making any comparison of financial services and products is to read the small print. Advertising and promotional materials can often be intentionally misleading, so look beyond the claims that suggest a particular product is superior to that of competitors, including charts and supposed customer testimony. Even if the information is accurate, it will most likely be skewed or at best biased. Do not forget to ask yourself if the information and comparisons on display are relevant to you and your financial needs and goals. The bottom line is that, while marketing materials are a good starting place to get acquainted with an institution’s offer of financial products, their primary function is a promotion of a certain product, not providing useful core information. This begs the question, where to turn for relevant and useful information?
Neutral Websites are a great resource for independent, unbiased and up to date information on a wide range of financial products from different suppliers. A good example of one such online site is Bankrate.com which allows you compare rates, terms, fees, costs and yields for a variety of financial products ranging from saving and checking accounts to insurance policies, mortgages and everything in between.
Offering Materials, including term sheets for various types of loans, can be a solid starting point for your research. Go directly to the source and check out various competitors directly for a first hand insight on what they have to offer. Financial service providers will be more than happy to provide fee sheets and other useful information on which to make an informed decision. Ask for prospectuses that offer statements for bonds, mutual funds, credit card deals or other investments that you may be interested in.
Publications on money and consumer related topics are commonplace in the world of financial products, and can provide useful independent product ratings and consumer reports across the board. A great example of one such publication is the Better Business Bureau, but any local publication will do; starting with the business and personal sections of local newspapers. A visit to your local library can yield valuable advice on what other literature and helpful sources of independent information you should look into.
Knowing What to Look For
Knowing exactly what you need before commencing your search is half the battle. Different products can have varying features, and even differing terminology, so being aware of your core needs is a must. When considering your needs, there are a few facts that will be invaluable for making the right choice. The first things to look out for are the administrative fees and costs. If one is available, ask for a fee table, and be on the alert for hidden or downplayed costs. Secondly, be sure to find out the conditions; if it is a saving product you need, find out how liquid your funds will be, and if there is a cancellation or withdrawal fee. For mortgages, the thing to take into account of is if there are penalties for early payment, and if so what they are. There might also be other perks that some providers offer whilst others do not. For example, you can get personalized checks and credit cards that you can design to match your personality or interests.
As important as knowing what you need is being aware of the risks. Every investment comes with a certain degree of risk, and the guarantee of risk minimization is only as good as the institution that promises to pay your policy or return your principal. The reputation of the financial entity is not to be overlooked. Financial instruments can also be susceptible to tax consequences. Payments made towards student loans or mortgages, for example, can be tax deductible, whilst some saving products can result in you earning taxable income.
Regulators and Calculators
Last but not least, it can pay dividends to check with regulators before making your final decision as they are a great source of impartial and up to date information. Some state and federal agencies offer free advice on how to compare and opt for different financial products and services. Regulators have a vast pool of information and extensive material on factors to consider when shopping for mortgages, choosing credit cards, and most any other financial product. Similarly to official regulators, there are also many online resources that you can use to great effect. These websites have a variety of financial calculators and other useful tools that can help you get to the core data that is instrumental to your final choice. One such website is MyMoney.gov, but there are so many out there that it makes sense to use more than one. Online resources, such as FINRA BrokerCheck, can also assist in checking the background and reliability of any investment entity you may consider working with.