Every once in a great while you hear about someone who benefited from having an extended warranty, but chances are it’s never been you. Retailers make piles of cash off extended warranties that are never needed, and on many sales the profit from selling the extended warranty is higher than the profit from selling the actual item.
At the frugality blog FiveCentNickel they offer an alternative to extended warranties:
Instead of buying warranty after warranty, why not create an “extended warranty fund”. In other words, whenever a retailer offers you an extended warranty, simply transfer that amount of money into a dedicated savings account.
If/when problems arise, you can simply pay for the repairs (or replacement) out of your warranty fund. And once the fund builds up to a sufficiently healthy size, you can back off on your contributions.
There are two main benefits to self-insuring in this way. First, you’ll get to earn interest on the money as it accrues. Second, you’ll be the one that gets to keep the cash when your stuff doesn’t break.
After a string of particularly good luck you may even find yourself with a surplus of money that you can transfer to another account. Have your own trick for setting aside money for repairs and replacements without throwing money away on warranties? Let’s hear about it in the comments.
Create Your Own “Extended Warranty Fund” [FiveCentNickel]