by Mark Johnston
Packaged bank accounts.
A number of traditional banks offer ‘packaged accounts’ or ‘premium accounts’, which carry a monthly fee in return for freebies and perks.
These usually include travel insurance, breakdown cover, mobile phone insurance, discounts on overdraft fees, as well as less tangible benefits such as free will writing services or access to business class lounges at airports.
These added extras sound too good to be true and they are…the fees for these accounts can be substantial. The top of the range account will cost the consumer around £300 a year and the average account costs the consumer around £200 a year. Many of these extras that are offered are unsuitable for most customers.
Like many financial products these accounts are sold by bank staff that are incentivised to sell them and therefore they fail to explain that the travel insurance for example may not cover those who have suffered ill health in the past or that many people might already have their mobile phones covered through their home insurance.
According to data analysts, Defaqto, there are currently around 70 different types of packaged accounts on sale in theUK, compared with 39 in 2007.
Despite the costs of these accounts millions of customers have already signed up to them. In fact recent figures have shown that more than 10 million people now pay for their current account, around one in five of all current account holders.
Research has shown that just one in ten customers who have any type of insurance through their ‘packaged account’ actually use it.
Which? executive director, Richard Lloyd said “Which? has found that people do not use any of the benefits offered with packaged current accounts. This means they are wasting between £240 million and £320 million in bank fees each year”.
The Financial Ombudsman Service has said that it receives around 150 complaints each year linked to these accounts.
Therefore the Financial Service Authority (FSA) is now clamping down on how packaged bank accounts are sold to prevent customers from ‘throwing money down the drain’.
Many experts believe that for too long banks have signed up customers to these accounts with little evidence that the customer actually requires or can even use the benefits that they are paying for.
The regulator has now published new rules that will force banks and building societies to check whether customers are eligible to claim on insurance cover before selling them a packaged bank account.
Shelia Nicoll, the Financial Service Authority’s (FSA) director of policy, stated “the new rules will make sure customers know what they are buying and that they can rely on the product or have the limitations explained before buying”.
Michael Ossei, personal finance expert at uSwitch.com, said “this is good news for consumers as it brings some much needed clarity in to the paid for current account market”.
The Financial Service Authority (FSA) has also suggested that customers who have already been sold these types of bank accounts might be able to reclaim money if they were sold a packaged account that they did not need and that was not explained correctly by the provider.
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