How are my finances protected by the cooling-off period?

As the name suggests, a cooling-off period is a fixed length of time during which, after signing a contract, you can cancel an agreement without incurring a penalty. When it comes to your finances, it can be an important piece of legislation if you wish to back out of a deal for whatever reason.

Here we discuss which services must include a cooling-off period by law. This is important, as some providers offer longer cooling-off periods as a means of good business practice. Consumers are always encouraged to check the terms and conditions of their own policies first.

Mortgages and equity release

Mortgage and equity release policies do not have any official cooling-off periods enshrined in law. These types of services often take weeks to complete, so if you are having doubts about your agreement, then you can generally back out before there is a release of funds.

Savings accounts and investments

Savings accounts, with the exception of fixed rate bonds, are protected by a 14-day cooling-off period. This applies to Individual Savings Accounts (ISAs) too, other than Lifetime ISAs, which have a 30-day cancellation right.

Where this becomes more complicated is the cooling-off period for a stocks & shares ISA. The cooling period here only applies if you bought this following advice or at a distance, such as over the telephone or online. In addition, if you have purchased a stocks & shares ISA and your investment has fallen in value then you will not get all your capital back.

For fixed rate bonds, if you wish to back out of this agreement, then some accounts do offer a withdrawal policy. However, this usually comes with a loss of interest penalty.

Credit cards, loans, and current accounts

Like most savings accounts, these three forms of financing all benefit from a 14-day cooling-off period. But before the account can be fully closed, consumers will need to repay their debts or return their purchases.

For credit cards this includes cash advances or money transfers, and for current accounts this could include any debts such as an overdraft. The same applies to loans, but if you purchased any goods with this form of financing, such as a car, then they must be returned immediately.

Insurance policies

For all insurance policies there is a minimum 14-day cooling-off period. Life insurance, however, is different and has a 30-day cooling-off period while travel insurance that lasts less than one month does not apply.

While other financial products will refund your money, insurance policies work differently. The insurer is entitled to deduct a small amount from your premium to cover the days your policy was valid, and an administrative fee. To make more informed financial decisions, search moneyfacts.co.uk to find the best insurance policies on the market.

Michael Brown is a journalist for moneyfacts.co.uk, specialising in personal finance