Cooling off periods explained

Under current legislation, certain new agreements for financial services and products have a mandatory cooling off period. Other goods and services may also have voluntary cooling off periods where the providers have independently decided to offer this feature. Find out more by reading our guide to the Consumer Credit Act.

This guide will give you a basic understanding of what cooling off periods are and what sort of financial products and services are covered by this legislation.

A cooling off period is a fixed length of time which, after signing a contract, you can cancel an agreement without incurring a penalty.

It is designed to give consumers the right in law to reconsider taking out a financial product. You are not obliged to give any reason for withdrawing, but these can include finding a better deal elsewhere or simply changing your mind.

Normally you will have the right to cancel within a set period. This is often 14 days from the date you signed an agreement – the legal minimum – though can be 30 days depending on the product. After this time, you do not have the automatic right to cancel and the provider may hold you to an agreement or be entitled to levy extra fees or charges if you choose to withdraw.

Some providers may offer a longer cooling off period than the minimum dictated by law. Other providers may not be obliged to offer a cooling off period but do so as good business practice and for the peace of mind of their customers.

Remember that if you decide to cancel an agreement during a cooling off period you will have to return any monies loaned or repay any purchases, cash advances or money transfers you have made on a credit card. If you are purchasing goods with finance (such as a car) then you must return them immediately, and if you took out an investment and changed your mind, you may not get your original amount back if it lost money in the interim period.

You’re well within your rights to cancel a financial product, but don’t delay – if you’ve changed your mind, you may only have 14 days’ grace to cancel or be faced with additional charges. There may be different considerations depending on how you bought the product, too.

The legislation states that you have the right to cancel any credit agreement taken out ‘at a distance’ – i.e. by telephone or online – within 14 days of signing the agreement.

Typically speaking, the same rules apply whether you purchase the financial services or products in person – you’ll get a standard 14-day cooling off period, which can be longer depending on the product. However, some insurance policies won’t offer a cooling off period if bought face-to-face through a broker and the term is for less than six months.

Yes. In some situations, you don’t get a cooling off period and you won’t have a right to cancel. This includes:

• Services where you’ve already fully benefited within the 14-day timeframe
• Where the price of a service is variable and dictated by market fluctuations that are outside of the provider’s control
  
  

There are also some more specific products and services (as set out in the Financial Services Regulations) that don’t offer a right to cancel, but the majority do.  

You’ll normally need to cancel a financial product in writing – perhaps by email, fax, letter or to a specific web address given by the provider. Sometimes you may be able to cancel verbally, but only if the provider has given permission to cancel in this way. Even so, it may be prudent to get something in writing, so you have evidence to fall back on if there are discrepancies at a later date.

Once the provider has received notification that you wish to cancel, you should receive a refund within 30 days. Bear in mind that some deductions may be made if you already received services before the provider was notified.  

If you’re outside your cancellation period, you have no automatic right to cancel, and you may be locked in for the duration of the contract. That said, some providers may still allow you to walk away, though it likely won’t be cheap and they’ll be within their rights to charge hefty cancellation fees, and you may not get your money back.

It’s always important to speak to your provider and see what your options are, as some may be able to offer additional leniency given the current cost of living crisis.

Several products have a minimum cancellation period built in when you take out an agreement. Providers may offer longer cooling off periods than those given below, but they cannot be less than these minimums.

Different rules can apply depending on the type of savings account you have:

Easy access: A 14-day cancellation period applies to variable rate accounts. Bear in mind though that most easy access accounts will let you withdraw your funds without penalty at any point.

Fixed rate bonds: No cooling off period in law, but individual banks and building societies may offer this voluntarily. After this, some fixed bonds allow for early withdrawal on closure of the account, but this will often result in a penalty fee involving loss of interest. Some fixed rate bonds offer no access or closure until the fixed period has ended.

Notice accounts: Variable rate accounts including notice accounts have a 14-day cancellation right.

Cash ISAs: A 14-day cooling off period applies regardless of how the ISA was taken out. This applies to both fixed and variable rate ISAs.

Stocks & Shares ISAs: 14 days, but only if you bought the stocks & shares ISA following advice or at a distance (such as over the telephone or online). If your investment has fallen in value you will not get back your initial investment.

There is no official cooling off period for mortgages. Bearing in mind it can take many weeks from signing an agreement to its completion, you can choose to cancel at any time before the final transfer of funds. However, if any other parties have incurred costs, such as administrative fees, you may be asked to repay these. You also won’t get back any associated fees you’ve already paid (such as legal or valuation costs). Also, if you have exchanged contracts on a property purchase, you are legally obliged to continue.

As with mortgages there is no cooling off period enshrined in law. However, individual equity release companies may offer these voluntarily. In addition, it often takes many weeks from signing an agreement to the release of funds, enabling a consumer to cancel if they have second thoughts. Once again, there may be administrative fees or charges associated with this so be careful to check your agreement carefully before signing.

There is a 14-day cancellation right for new accounts. However, if you have run up any debt associated with that account (such as an overdraft) then this must be repaid in full before closure.

If you are switching banks using the switching service you have the right to cancel up to seven working days prior to the switch date. After this you must wait for the switch to complete before cancelling your new bank or current account.

You have the right to withdraw from any credit agreement within 14 days of acceptance or when you receive a copy of the agreement if later, where the agreement was arranged by phone, by post or online.

You’re within your rights to change your mind after purchasing an insurance policy, but the cooling off period varies depending on the type of policy you’ve taken out, the term of the policy and how you purchased it.

Bear in mind that you may still be charged for some insurance products, even if you cancel during the cooling off period, if any services have been deemed provided and the firm told you that you’d be charged if you cancelled during the period (this doesn’t apply to life insurance, critical illness or income protection policies, or to PPI policies unless you’ve made a claim).

For all forms of life insurance, critical illness cover, income protection and payment protection insurance, you have a 30-day cancellation period. However, this doesn’t apply if any policies can be cashed in. You also won’t get a cooling off period if the term is for less than six months and you buy it face-to-face from a broker.

You get a standard 14-day cooling off period if you buy an annual travel insurance policy. However, you don’t get any cancellation protection if you buy cover for a single trip and the policy will be running for less than a month.

The minimum 14-day cooling off period applies for all other types of insurance.

You’ll typically be able to “opt out” of any pension scheme within 30 days, and any contributions made should be refunded. In the case of annuities, you’ll again get a 30-day cancellation period, provided the annuity isn’t already in payment.