Packaged accounts: the next mis-selling scandal?

ONE in five of us now has a packaged bank account that we pay a monthly fee for, but many people don’t – or can’t - make the most of the benefits on offer.

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Packaged bank accounts charge a monthly fee in return for a range of benefits, such as mobile phone cover, travel insurance and breakdown cover.
The Financial Services Authority (FSA) is concerned that banks are mis-selling these current accounts to customers for whom they're not suitable.

Under new proposals announced last week, the FSA wants banks and building societies selling insurance as part of a packaged account to check whether the customer is eligible to claim under each policy and to share that information with them.

It also wants them to provide customers with an annual eligibility statement designed to encourage them to check whether their circumstances have changed and whether the policies continue to meet their needs.

Sheila Nicoll, FSA director of policy said; "For some people packaged accounts represent good value and convenience. But in other cases customers may find that the insurance cover they have paid for is useless.

"We are concerned that it may be too easy at the moment for firms to sell customers something they do not understand or need. We want to make sure that packaged accounts are only being sold to customers who have actively decided it is the right product for them."

In a MoneySupermarket poll conducted last week, 80% said it's not worth paying for a current account but 13% said they believe the additional benefits are worth the monthly fee.

Here, we take a look at the deals available for those who would consider switching to a packaged account and also look at the options for those who aren't prepared to pay for their bank account….

What do packaged accounts offer?

The most common benefits on offer from packaged accounts are travel insurance, mobile phone cover and breakdown cover. However, the policies on offer can vary widely in terms of the cover and benefits they provide, so you should always read the small print carefully.

Several providers have recently re-vamped their packaged account offerings.

As of 29 September, for example, customers with Co-Operative Bank’s Privilege account, costing £9.50 a month, and its Privilege Premier account costing £13 a month now benefit from greater breakdown cover, increased travel insurance limits and improved mobile phone and gadget cover.

The travel insurance now provides cover against airport closure and scheduled airline failure, following recent events such as the ash cloud crisis and increased industrial action by airline staff.

Halifax also changed its Ultimate Reward account, upping the fee from £12.50 to £15 a month from 1 September and changing some of the benefits.

The bank has removed its Purchase Protection, Price Promise, Discount Card Scheme and Travel Accident Cover, but has improved its AA breakdown cover so that it includes Home Start.

The account also comes with travel insurance, mobile phone insurance and £5 cash back each month provided you deposit £1,000 into the account every month.

Other packaged accounts which may be worth considering include Royal Bank of Scotland’s Royalties Gold Account, which costs £12.95 a month, but comes with up to £1,089 worth of benefits including mobile phone insurance, including iPhones, Green Flag car breakdown cover, annual worldwide multi-trip travel insurance including wintersports, complimentary access to UK airport lounges and home emergency cover.

If you are not satisfied with the benefits within the first 60 days of opening your account, you will be entitled to a refund of the monthly fee.

The NatWest Advantage Account has the same monthly fee of £12.95, but comes with a slightly lower level of benefits which include mobile phone insurance, Green Flag car breakdown cover, annual worldwide travel insurance with winter sports cover and savings of up to 10% on Thomas Cook holidays and flights.

The Santander Premium Account costs a much steeper £20 a month, and offers over £850 worth of benefits including annual worldwide family travel insurance including winter sports, RAC breakdown cover in the UK, will-writing assistance and a concierge package for events such as concerts and theatre tickets.

Whichever packaged account you go for, make sure the benefits on offer are appropriate for your needs.  

David Black, banking analysts at Defaqto, said: "If someone is considering opening a packaged current account they should look at each of the incentives on offer and decide whether they need the benefit and, if so, whether what it provides is suitable for their circumstances - and ultimately represents good value against the monthly fee.”  

Best free accounts

If you don’t want to pay a monthly fee for your bank account, then there are plenty of ‘free’ accounts available, many of which still offer attractive benefits.

The Nationwide FlexAccount, for example, comes with free multi-trip annual European travel insurance. With effect from 21 September, Nationwide raised the age limit on this account to 75 – up from 65 for new customers.

The account also provides customers with access to one of the lowest personal loan rates in the market at an annual percentage rate (APR) of 6.2% typical, 35% off 5 star Home Insurance, and low charges on foreign transactions.

You must pay in £750 a month to qualify for this account.

Other accounts which don’t charge a monthly fee and are worth a look include First Direct’s 1st account, which offers an attractive £100 switching incentive and a £250 free overdraft.

Accountholders can also apply for the First Direct Regular Saver account, which pays a whopping 8% annual interest a year before tax, provided you pay in between £25 and £300 a month.

Santander’s Preferred current account, meanwhile, pays a market-leading 5% AER in- credit interest for 12 months on balances up to £2500 and offer a free, arranged overdraft for the first year, dependant on circumstances.

There is also a £100 switching incentive if you move to this account, which rises to £200 if you are a mortgage customer as well, and £300 if you are a mortgage customer and can deposit at least £10,000 in a Santander savings account as well.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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