Scam watch: scammer persuaded me to ‘invest’ £10,000

Hi Chris, the goal of this Convo is to get you talking about similar scams. We just wanted to give credit to our Money Helpline team who worked on this, and if people feel like clicking they can. But the main purpose, as with any Convo, is to start a debate. Thanks for your comment 🙂

On the evidence given us I think that is the correct analysis Malcolm.

I happen to think that many people are unjustifiably dissatisfied with the rates available on the high street in banks and building societies which is what drives them to look for what they think will be high performing investments and without stopping to think that for every increase in reward there is an increase in risk. Whether their behaviour is a result of innocence or greed is irrelevant – there should not be an expectation that they will be able to get their money back if they put it in a bad place.

I read in the last few days that there had been a massive increase in complaints to the Financial Ombudsman Service over packaged bank accounts. Leaving aside the complaints that customers were allegedly transferred to such accounts without their knowledge, or that their request to revert to their previous current account was not acted upon, it would appear that most of the complaints were that the ‘package’ included insurance cover or other facilities [like commission free cash machine withdrawals abroad] that they could make no use of and that the interest on their balances was significantly less than the monthly charge for running the account, so therefore miss-selling had taken place. Apparently the Ombudsman is only upholding ten percent of those complaints [this recognises that the bank concerned has made an appropriate settlement offer in many cases]. These accounts are not complicated or sophisticated investments. There are leaflets and full descriptions of them in branches, in newspaper adverts, and on-line. Staff are available in every high street branch to explain the way these accounts work and to answer questions. The charges are displayed up front and the contents of the ‘package’ are all shown. But such is the complaints culture now, possibly due to the PPI miss-selling issue, that people are going straight to the Ombudsman or using claims management companies to seek redress rather than raise it with their bank or building society in the first instance.

I sometimes wonder what more could reasonably have been done to help people avoid an unwanted or an unsuitable current account . There is no doubt that better education in personal money management is needed, but also far too many people seem unable to do the relatively simple calculations required to tell them whether they will be in or out of pocket if they convert to a packaged current account. It’s about time we stopped blaming the banks for people who step into a financial puddle because of their own lack of reasonable care and attention.

John, I totally agree. People need to take responsibility for their own decisions and not assume someone will repay them if it goes wrong. Who repays them? In the end, all of us, through extra charges. If you are deceived into taking an unsuitable product that is a different matter but my experience of packaged bank accounts is that the literature provided all the relevant information.

It’s wandering away from the topic a little bit, but the Nationwide keeps sending me e-mails and mailshots trying to get me to switch from my Flexaccount to their packaged current account called Flexplus. It would be very lucrative to them if I did. I am not interested in any of the fringe benefits linked to the Flexplus account so it comes down to a straight financial comparison. I actively manage my Flexaccount so the average credit balance each month is not high – probably no more than £500. The 3% a.e.r. interest payable on balances up to £2,500 would therefore only produce £15 a year [before tax] for me but I would have to pay £10 a month [£120 a year out of taxed income] to run the account. It is possible that anyone with a similar average balance and using most or all of the features and benefits could be better off so it is potentially a good account, but people do need to make a careful calculation before switching and then not complain if they haven’t made it work for themselves.

John, i assume you mean interest would be up to £75 a year before tax? As you say it depends upon whether you would make use of the benefits that are offered. I think Which? give it a good rating for those who do. We do need to use our brains when evaluating anything offered to us. 🙂

Unfortunately not Malcolm.

In the example I set out above, assuming my average current account balance over the course of a year is £500, the 3% a.e.r. would only produce £15 before tax. The 3% is only payable on balances up to £2,500, and yes, if you kept an average balance of £2,500 in a Flexplus account it would earn £75 a year before tax, but no interest is payable on any amount in the account above £2,500.

To maintain an average balance of £2,500 with the usual outgoings each month would mean keeping £3-4,000 there for periods at 0% interest on anything over £2,500 thus diminishing the overall rate of return and certainly not making it an attractive account, especially with the maintenance charge of £120 a year.

With an average balance in the £500 – £1000 range, as I said previously, it is potentially a good account if you can make good use of its benefits and features. The vehicle breakdown & recovery assistance and the worldwide family travel insurance cover included [with other benefits] in the package would more than offset the cost of running the account if you are happy with having such services provided in that way.

The aspect that Nationwide don’t go out of their way to explain is the ‘average balance’ which is not mentioned directly in their literature but is the only conceivable construction that can be put on their terms. They also allow people to get confused between the standing charge which is paid monthly and the interest which is an annual rate, and the reference to £2,500 [which is the sort of sum that goes into many current accounts each month] deflects people’s mental arithmetic so they end up thinking they will earn £75 a year. Furthermore the Nationwide does not draw attention to the ‘after tax’/’before tax’ distinction on the monthly payment made and the annual interest received. In my example, it might look as though the charges exceed the income by £105 but depending on the person’s tax position the deficit could be £140. For anyone who runs on or near empty for a few days at the end of each pay month, even if offset by other ‘benefits’, this account would take some managing to make it pay.

I certainly think the Nationwide should have made the terms much more easy to understand. As you say, we need to use our brains when evaluating anything offered to us, but the demands on the standard Mk.1 brain made by this account are unreasonable.

I am a longstanding Nationwide customer and generally have a high regard for their products and their business operation. But with this account I can see how easy it is for people to be drawn into it but eventually find that it is disadvantageous and could leave them worse off. I do not know what degree of suitability analysis they go into with customers before accepting an application to open one of these packaged current accounts.

John, the reason I queried your interest was because the high rate offered means it is worth keeping the current account topped up to the maximum. We run one with a savings account as well and simply transfer money online to keep it on the limit. Not much effort and it takes advantage of the high rate.

Thanks Malcolm. I am sure your approach to managing the current account is good for you but I tend to run mine the other way keeping a low average balance and putting any additional money to better use elsewhere. Moreover, having had free banking for decades, I don’t like the idea of having to pay £120 a year out of taxed income for the privilege. and then being effectively forced to use certain services in the package in order to recoup it. We all have our different approaches but the important thing is to understand the account so you’re not taken by surprise when it doesn’t produce the golden egg.

I think I’ve now gone too far away from scams and I am worried that the Nationwide will become guilty by association.