Beware of financial advice from people who are selling something.

I have long felt that unless you really know what you are doing, you are highly unlikely to get the best advice on what to do with your money from anyone who wants some of it. If someone advising you knows that a particular decision on your part will increase their income, or advance their careers, they will almost always be unable to give you objective advice, even if they try.

The latest example of this (and a particularly egregious one in my opinion) is H&R Block. In an attempt to get a few more bucks out of their tax clients they created something called an “Express IRA” which they offered to set up for you using the money you got from your tax refund, even if it was not that much.

It sounds good. They do all the work, and you start an IRA, with tax-deferred savings. But H&R made sure it was more good for them than it was for their clients; and NY Attorney General Eliot Spitzer has now sued them over it.

Spitzer points out that these Express IRA accounts put money in low interest Money Market funds (a very poor choice for long term investments like IRAs), and charged such high fees, that 85% of the people who opened the accounts actually ended up with less money than they started.

So Block was not just taking more of the interest than they should; Block was taking principle. Why not just write them a check?

The information was all in the fine print, but it was very fine print, not pointed out by sales reps, and one would have to do some math to figure out that this was a terrible deal. Block charges $15 to set up an account, $15 for every deposit, a $10 annual account management fee and a $25 closing fee. Interest payments so far have ranged from half of one percent to one and a half percent.

Let’ say you put in $300 up front and $300 every year, and closed out the account after five years. Unless interest rates went way up, you would have gained about $45 in interest and paid $150 in fees. You would have put in $1,500 and ended up with $1,405.

If you have a only a small amount of money you can put into an IRA. you would do better at your local bank. Using Certificates of Deposit, they can pay more interest and their charges should be much lower.

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