Are packaged accounts a stitch-up?

by , Lead Investigative Researcher Money 3 February 2013
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In theory, fee-charging current accounts should represent good value to some customers. But are they still good value if you’re not eligible to use some of the account’s benefits?

A wallet stitched closed

Many banks sell packaged current accounts that come with a number of assorted benefits, such as travel insurance, mobile phone cover and car breakdown protection.

However, the Financial Services Authority is taking action to make sure customers are getting good value from these fee-charging accounts. After all, if you can’t access the benefits, there’s no point in paying for them.

The problem with packaged accounts

Let’s take travel insurance for instance – it’s not always right to trumpet this as a major benefit of a packaged account. For example, you could have an HSBC Advance account costing £155.40 a year, but you can only claim on the travel insurance policy element if you’re under 70 years old. It would be easy for an account holder to miss this exclusion and carry on under the impression that they’re covered.

I mention travel insurance specifically because, when we last surveyed Which? members about packaged accounts, more than 80% of respondents told us it was the most recognisable benefit. However, only half of them had actually taken advantage of it.

There’s a similar problem with ID theft insurance – a product we believe is useless considering you have adequate protection under consumer legislation. Some banks have removed this from their packaged accounts, but haven’t actually reduced the cost of these accounts as a result. As far as I’m concerned, that just about sums up the true value of ID theft insurance.

Checking before selling

The goods news is that, as of 31 March, current account providers will have to check whether customers are eligible to claim under each policy that’s bundled with the account before selling it. Sales staff will have to highlight features that won’t be suitable, and annual statements must show claims requirements.

It’ll be interesting to see if all UK banks respond in a positive way and make sure that packaged accounts aren’t mis-sold in future. It still remains to be seen if they were mis-sold in the past. Do you have a fee-charging current account? Do you know if you’re eligible to use all the benefits that come with it?

8 comments

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John Ward

Be wary of “free” travel insurance packaged into another form of financial service. We have a conventional travel insurance policy – purchased in response to a customised quotation applying to our requirements and circumstances. We also have ordinary current accounts [and perhaps the odd credit card] that provide travel insurance as an un-asked-for extra, not forming part of the decision to have the specific account. We assumed these were extra-contractual and would have no affect on our status with our principal insurer. When making a claim to our principal insurer we were asked to check whether the event for which we claimed was also wholly or partially covered by these other insurances, and it was. Luckily we didn’t have to go to the trouble of claiming separately against the other insurers and the companies slogged it out amongst themselves [ultimately at policyholders' and account-holders' expense, of course] but the whole settlement process was aggravated and prolonged by this additional cog in the machine. I suppose the insurance companies realise that everyone probably has access to compensation from some other source and consider that they are acting responsibly in laying-off their bets wherever they can; it doesn’t make for an easy life, however.

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richard

I decided not to use a packaged account as most of the extras offered I don’t use – and I’m over 80 so don’t qualify anyway. My free basic current account from First Direct is superb – easy to understand and instantly accessible – with a UK based helpline if I want to do something unusual. The rest of my accounts are free too.

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Malcolm R

Mis-selling or misleading sales of banks products should be severely dealt with. However, providing banks’ products (services) are clearly described it is surely our responsibility to scrutinise them and decide whether we would find them useful or not. Richard has dealt with this.
We, most of us, must be capable of handling our own affairs, in banking, but also in many other transactions, without being nannied – or should there be more education to alert us to the perils of the real world?

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Chris Gloucester

“In theory, fee-charging current accounts should represent good value to some customers”.
How do you work that out?
Admittedly if you were going to buy the products your bank is pushing anyway, and if those products are part of the “offer collection” in your packaged account then, yes.
But I’ve found that items featured in packaged accounts are often those I don’t want, or are items I could get cheaper elsewhere with minimal research, and without the bank imposed “standing charge”.
Packaged accounts are simply the banks way of making a bit of money out of you, and in my opinion are of little if any benefit, except to the bank of course.

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Malcolm R

And as you don’t have to buy a packaged account, what is the fuss about? Are they being mis-sold or are people duped into taking them?

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colin c

I have had one of these for many years now, mainly for the AA breakdown cover. The travel insurance is useful too but not such a big deal for us, and there are several other perks which I haven’t really bothered with. Paying the monthly fee wasn’t worth it, but at the time you could avoid this by keeping a minimum balance in the account. In earlier times when interest rates were higher it was a bit of a toss-up whether the loss of interest on the balance was offset by the value of the perks, but nowadays with interest rates so low I think it is probably worth it. So I don’t think packaged accounts are necessarily a bad thing provided you do the maths and decide whether or not it’s the right thing for you.

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Justin

I’ve had a Barclays Premier package account for a few years now and I do believe it shows value for money, especially since I have it on a shared account (at no extra cost) so both my wife and I are able to benefit from it.

Admittedly there are a lot of things that are not really very useful to me, however looking at the cost to buy the things that are useful against the cost of the account I think it is worthwhile, and a lot less hassle than trying to maintain everything separately.

I find sites such as Which and Money Saving Expert are always very partisan and quick to point out accounts where the benefits are not great compared to the cost; but they never mention accounts where the costs are realistic or could actually save you money. It would be good to see these companies showing an unbiased and balanced argument for once rather than just putting in the details that serve their own agenda

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John de Rivaz

It is important to realise that fees for fee charging accounts have to be paid out of taxed income and also may contain a VAT element.

The fee quoted may well be in the form of “£10+VAT” which means that you are billed £12, and if you are using income from a saving account taxed at 22% then your savings account will have had to earn £15.38 in interest.

This is more than half as much again over the £10.

If the fee was from notional interest on cash within the account, on the other hand, these tax penalties would not be applied.

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