The madness of consumer goods warranties

“Cover blown on rip-off warranties,” says The Sun’s Tim Heming. In a bid to avoid having the whole £1bn-a-year warranty market referred to the Competition Commission, Britain’s major electrical retailers are pledging to overhaul the way they are sold. Possible changes include price comparison tables for customers. But we’ve been here before – they made a similar pledge after a 2005 investigation by the Competition Commission. Our advice is little changed from last time around: if in doubt, ditch the warranty.

Warranties are offered on everything from cars to fridges. In theory, they offer valuable peace of mind – you pay a fixed premium and your item is covered for repairs for a fixed period thereafter. It sounds simple and sensible enough. So why are most of them a waste of your money?

Firstly, many shoppers still don’t realise (because retailers are not keen to remind them) that most of the goods you buy are covered by the Sale of Goods Act. Pay by credit card (something you should always do for big ticket items) and you get additional cover under the Consumer Credit Act. Both pieces of legislation cover you against faulty goods for at least six months without you paying a penny for a warranty. And let’s face it – if a piece of modern electrical kit is going to go wrong, it will probably do so within the first six months. As Richard Lloyd, executive director of consumer group Which? notes, “many of the warranties on offer today… ignore the fact that appliance reliability has improved significantly”.

Even if something does go wrong further down the line, some warranties are so expensive (Dixons charges £159 for three-year cover on a washing machine priced at £349.99, according to Sean Poulter in the Daily Mail) that you might be better off just hiring a repair man at the time.

If you are still determined to have a warranty, do shop around for your cover rather than taking the first deal from a retailer. That £159 becomes £54.99 with Forget pay-as-you-go options, where you pay a monthly fee for warranty protection. On a £500 washing machine, the Office of Fair Trading reckons you’ll have paid Dixons the whole price in warranty premiums in under five years. That’s madness.

MoneyWeek magazine

Latest issue:

Magazine cover
Heading higher?

Or are house prices set to fall?

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

'Would you rather upset God, or have Him just ignore you?'

In the first of three interviews with Merryn Somerset Webb, Hugh Hendry, manager of the Eclectica Fund, talks about what it takes to be a good hedge fund manager – and how he learned to stop worrying and love central banks.

Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.

24 November 1972: the 'DB Cooper' hijacking

Today in 1972, a man calling himself Dan Cooper parachuted from a hijacked Northwest Airlines Boeing 727 with $200,000 in cash. He has never been found.