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The Worst Financial Rip-Offs in 2025

Finance

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3.2.21 |

Joseph Darby

The Top 9 Ways You Could Be Losing Money Without Realising

Have you ever walked away from a financial decision feeling like you've been tricked? That sinking feeling of realising you've been ripped off.

The truth is some areas of the financial world can be filled with smoke and mirrors. Products and services promise the world but leave you wondering where your hard-earned money went faster than a rabbit behind a magician’s handkerchief.

This guide will reveal some of the worst financial rip-offs you might not have considered. Many of these offerings are legitimate and useful under the right circumstances. The key is understanding the difference between what is right for you and what equates to a financial disappearing act – and that often depends on your personal situation.

1. Buy Now, Pay Later

Ever see something you absolutely must have, but your bank account isn't quite singing the same tune? Buy Now, Pay Later (BNPL) services have become increasingly popular, promising a way to snag that new gadget or outfit without having to save up. BNPL programs have different terms and conditions. They generally offer short-term loans with fixed payments, no interest, and no additional charges. This means you know your payment amounts up front, and each payment will be the same. While there are benefits to BNPL, including convenience and spreading out the cost over several smaller payments, there are also some downsides.

The Potential Downsides of BNPL

Overspending: Convenience can lead to exceeding your budget, especially when juggling multiple purchases.
Hidden Fees: Understand all terms before using a BNPL service, as late payment fees can rack up quickly.
No Credit History: Since a BNPL purchase is not generally reported to a credit bureau, it won’t help you build a good credit history like a credit card does. Unless of course you are late in making repayments, then that does risk being reported and negatively impacting your credit score.
Debt Trap Potential: If you're not careful, BNPL can lead to a cycle of debt. Using multiple services or making only minimum payments to cover interest can leave you owing more than you bargained for.

BNPL can be a useful tool, but it's crucial to use it responsibly. Budget before you buy and consider whether you could save up for the purchase instead.

2. Payday Loans

Payday loans might seem like a lifesaver when you're in a tight spot. They're designed to help you get to your next payday and are quick and easy to get, but they're also the most expensive way to borrow money.

With selling points like “breeze through your application in minutes”, “get cashed up fast”, and “get your loan on the same day”, it’s easy to see why people might be lured in.

But no one’s checking whether you can afford to repay it or your credit history.

Think of it like this: you're taking out a small loan to solve a temporary problem. But the interest rates and fees on payday loans are so high, it can easily turn into a much bigger, long-term problem. That quick fix becomes a cycle of debt – you use next week's pay to pay back last week's loan, plus all the extra fees that pile on.

This high-interest debt could threaten your ability to obtain other lending, such as a home mortgage, as it shows you struggle to live within your means.

Our thoughts? Avoid payday loans altogether. They can drag you down into a financial spiral that's tough to escape. Instead, take the time to build an emergency fund for unexpected costs.

3. Savings Accounts

Savings accounts with the bank are a great way to build an emergency or ‘rainy day’ fund or to hold money for a big upcoming expense like a holiday or renovation. But that’s where the appeal usually ends.

Returns on bank deposits aren’t as high as other investments, so while they are great for managing your money for short-term goals, they’re not so great for long-term goals. This is because banks offer a low interest rate and tax and inflation can eat into the value of the interest earned, leaving you short-changed.

To boost your financial game, avoid letting too much cash sit idle in a savings account. If you can cope with a higher risk level, think about spreading your money into investments that have the potential for bigger growth over the long haul such as shares, managed funds, and property.

You can read more about why you shouldn’t save your money in one of our most popular articles: Don’t Save Money.

4. Bank Fees

Bank accounts can come loaded with sneaky fees that eat away at your hard-earned cash.

Banks can charge you a fee for anything from; visiting a branch, using your EFTPOS card, fees for making withdrawals from savings accounts, having or using an overdraft, transferring funds internationally, or just for having a bank account!

Consumer NZ, the non-profit organisation dedicated to getting New Zealanders a fairer deal, wrote in an article that “you could easily be paying your bank hundreds of dollars a year in fees - and it's money you probably don't need to spend”.

Here are some ways to avoid fees:

Fight the fees: Explore fee-free accounts, negotiate with your bank, or switch to a more customer-friendly option.
Consider your options: Seniors, students, and young adults may qualify for special accounts with lower fees.
Don't be afraid to negotiate: Especially for larger loans, use competition as leverage to reduce fees.
Challenge unfair charges: If a fee seems excessive, question it – you might get it waived. One member told Consumer NZ they were paying more than $250 annually in bank fees. “We had money invested with them, so complained. Now most of it is wiped."
Bundle your services: Some banks will chop fees on your everyday account if you have lots of business with them.
Avoid fee traps: Maintain a minimum balance in your account and use online banking instead of in-branch services.

5. Funeral Insurance

Funeral insurance is often pitched to ease the burden on your loved ones, but it can be a costly and unnecessary expense.

Think about it: death is a 100 percent guaranteed event. The grim reaper is coming for us all.

Most people are better off setting aside money specifically for funeral costs. This gives you more control over how much is spent and helps you avoid inflated premiums on insurance cover. There may be cases where funeral insurance is a good option, for instance, if you are ageing and don’t think you can commit to putting money aside and not touch it.

Learn more: is funeral insurance worth it?

6. Car Breakdown Insurance (Mechanical Breakdown Insurance)

Mechanical Breakdown Insurance (MBI) has been described as “not worth buying” and a “rip-off” by an assortment of people.

MBI is an optional insurance policy that you can buy to cover the repair costs of unexpected mechanical or electrical failures in your car.

It's typically offered by car dealerships when you purchase a vehicle, but it can also be purchased independently from insurance companies.

Car dealers may claim MBI will get your car back on the road if mechanical or electrical parts suddenly fail and need repair. But be wary as there is a lot of fine print and car dealers might earn undisclosed referral commissions from insurers.

“These products are a rip-off,” Andrew Mitchell, a financial mentor at the Salvation Army, told Consumer. He has seen firsthand the damage unnecessary insurance policies can inflict on household finances.

A thorough check of the fine print will reveal a huge list of things that aren’t covered, including things like brake pads, the battery, door locks, and cambelts, as well as anything considered a “pre-existing fault”, “design fault”, or the result of previous faulty repairs.

MBI was one of three kinds of insurance covered in an investigation by the Commerce Commission.

The review, focusing on car loans and add-on products like insurance, raised some red flags.

They interviewed people who had bought these add-on insurances, and it seemed a fair few didn't quite grasp what they were paying for.

This might explain why, on average, people paid over $1,000 every single year for mechanical breakdown insurance, but only got back around $1,250 on average if they made a claim.

Even worse, the odds of someone successfully claiming on their policy were only about one in seven.

For instance, a Christchurch man paid over $1,400 for MBI, only to receive a mere $40 payout when he needed $1,200 worth of repairs. The policy excluded his high-performance car model, a fact the salesperson neglected to mention, according to a report by Stuff.

7. Payment Protection Insurance

Ever applied for a credit card or loan and noticed extra insurance tacked on? That's Payment Protection Insurance (PPI). The purpose of PPI is to cover your repayments if you fall ill or lose your job. But is it worth the hype?

PPI can be a safety net for those living payday to payday. However, for most people, it's a costly add-on you might never use.

Ideally, PPI kicks in when you need it most, covering your loan repayments while you get back on your feet. But the reality can be harsh. Many people discover they've been paying for nothing because they weren't eligible to claim. Part-time workers or those between jobs might be left out in the cold.

Investigations in Australia raised some red flags about PPI. The Royal Commission into Banking in Australia found several financial institutions behaved poorly and that car dealers, lenders, and insurance companies seemed to be raking in the cash whenever someone purchased it.

The issue is not limited to Australia, PPI also has a bad rap in the UK, and it was included in the Commerce Commission’s investigation into add-on insurance in New Zealand.

The Commerce Commission’s 2021 report, which combined PPI and CCI (Credit Contract Indemnity) claims, found nearly $34m was paid in premiums in 2020, while a paltry three million was paid out.

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8. High Yield Investments

High-yield investments are debt instruments that offer investors the potential for higher returns than so-called investment-grade bonds in exchange for taking on greater risk. But it’s debatable whether most consumers would fully understand the extra risk they’re taking on for a little extra yield (income). So, when it comes to high-yield bonds, in professional investment circles they are often referred to as ‘junk bonds’.

Bonds essentially represent loans you make to major companies, organisations, or governments. In return for your investment, you receive regular interest payments and, at the bond's maturity date, get your initial investment back.

However, there are different types of bonds, each with its own risk profile and return potential. Two main categories are junk bonds (also known as high-yield bonds) and traditional bonds.

The key difference between them lies in the creditworthiness of the issuer, which translates to varying levels of risk and return. Bonds with higher credit ratings are considered investment-grade, meaning they carry a lower risk of default (failing to make interest or principal payments). On the other hand, junk bonds are issued by companies or entities with lower credit ratings, indicating a higher risk of default.

If the company issuing the junk bond goes bankrupt, you could lose your entire investment.

Remember those New Zealand finance companies that went belly up during the Global Financial Crisis (GFC)? Yeah, not a pretty picture. These companies offered debentures (like bonds) that promised investors interest rates higher than what traditional banks offered. This attracted investors seeking to grow their wealth faster. The finance companies often used the money raised from debentures to lend to borrowers who might have difficulty repaying their loans should the economy, or parts of it, suffer a downturn. This included many borrowers involved in property development.

The collapse of these finance companies during the GFC highlights the dangers of high-yield investments. When the economy took a downturn, many borrowers defaulted on their loans, leading to the collapse of the finance companies and significant losses for investors.

Before you invest consider:

Credit rating! Just like you have a credit rating as an individual, certain investments and lenders have credit ratings, too.
Risk tolerance: this relates closely to the credit rating. Are you being compensated appropriately for the extra risk you are taking, and are you comfortable with that extra risk?
Investment goals: Does what you’re investing into match your overall strategy and goals?
Diversification: Usual wisdom suggests you only invest a small portion of your portfolio in high-yield assets, if anything.

9. Investment Seminars and Training

Have you ever received an invite to an investment seminar promising to reveal the "secrets" to wealth creation? These seminars can be tempting, especially for those seeking financial security.

But before you RSVP, let's explore some red flags to watch out for:

Seminars that promise guaranteed high returns with little to no risk. Legitimate investments involve some degree of risk, and the potential for returns is never guaranteed.
Seminars that create a sense of urgency and exclusivity to pressure attendees into making quick decisions. They might use scare tactics or paint a picture of limited spots to pressure you into signing up for expensive investment programs or products.
Endless calls or emails promoting a specific investment opportunity.
Seminars that focus heavily on the success story of the presenter. Their wealth (real or not!) doesn't necessarily translate to success for everyone.

Before you attend any investment seminar or sign up for a training regime, research the presenter and the company hosting it. Look for reviews or complaints from previous attendees. A legitimate company will have a transparent track record. Most of these offerings are from companies outside of New Zealand, which means they’re outside of our legal protections and regulations.

If you're serious about investing, consider seeking advice from a suitably regulated and qualified financial adviser such as the team here at Become Wealth who can create a personalised investment plan based on your risk tolerance and financial goals.

The Bottom Line: Avoid Financial Traps

Imagine financial rip-offs as those dazzling yet deceptive carnival games. All glitz and promises, they lure you in with the allure of instant wins. But just like the seemingly simple ring toss or the claw machine stocked with adorable teddy bears, these financial traps are designed to separate you from your cash without you even noticing it.

In today's vast and ever-expanding world of financial products, it's more important than ever to educate yourself so you can start to spot the rigged games and hidden costs behind those flashing lights.

So, the next time someone tries to sell you a "guaranteed" jackpot or a "free" financial seminar with a hefty sales pitch waiting at the end, you'll be ready to politely decline and invest your money elsewhere.