Are extended warranties a waste of money?

15 April 2011

Extended warranties are to be investigated by the Office of Fair Trading, on the grounds that they may not offer good value for money.

The study will check if consumers are actually getting what they pay for.

The announcement comes after the regulator launched a review into what happens after the sale of domestic goods last November. It claims "credible concerns" were raised that competition is limited by retailers' advantage in being able to sell warranties alongside electrical goods.

Claudia Berg, director of the OFT's consumer and goods group, says:

"Consumers buy millions of extended warranties on domestic electrical goods each year and we want to make sure they are getting value for money. We plan a short and focused market study to find out quickly what, if any, action is needed to make this market more competitive, to the benefit of consumers and the wider UK economy."

In the year to 31 March 2011, the Financial Ombudsman received 895 new warranty complaints, a 4% increase on the previous year. It currently upholds around 69% of complaints about warranties - up from 53% in 2009/10.

Your rights

Extended warranties are legally binding contracts but only if retailers adhere to the rules laid out in the Supply of Extended Warranties on Domestic Electrical Goods Order 2005. If they don't you could have cause for complaint. You can raise your concerns with, firstly the seller and if that proves fruitless, the Financial Ombudsman Service.

According to the rules retailers must:

* Make it clear that buying an extended warranty is optional and not compulsory;
* Tell you that you can have up to 30 days to buy the extra insurance cover;
* Give you a 45-day cooling off period so you can change your mind after buying the warranty.
* Tell you that you have the right to buy a warranty elsewhere and that the electrical appliance you are buying may already be covered by your household contents insurance policy;
* Give you a written price for a warranty if you ask for one, which retailers must honour if you go back to buy it within 30 days of buying the product it covers.

It's also worth noting that in some cases warranties are not needed. The Sales of Goods Act 1979 states goods must last a "reasonable" amount of time. This amount of time is based on common sense - if you buy an electrical product for £10 you can't expect it to last for years. However, if you spent £500 on a product and it breaks within two or three years then the retailer has an obligation to replace it.

According to Which? most modern appliances are sufficiently reliable and are unlikely to break, rendering warranties "a waste of money".

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