Now here's what should be done with teaser rates

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The Independent Online

Would you like to be able to fix your insurance premiums for the next three years? That's the new offer from NatWest and Royal Bank of Scotland, which – continuing their promise to scrap misleading introductory teaser rates – will next week launch a new home insurance policy with a fixed price over three years.

I'm not a fan of teaser rates. I believe they can sucker unsuspecting people into inappropriate financial deals that eventually cost them a packet. When it comes to home cover, the way it works is that insurers attract new customers with low rates for the first year. Then they rely on people's lethargy simply to renew the policy a year later, but at a premium price – often increasing it by as much as 20 per cent.

Many people renew in the belief that they must still be getting a good deal. But they're not. Insurers rely on people paying over the odds in years two and three to recover the costs of giving them a low rate in year one.

The losers are always those who don't switch to a better rate after a year. So I like RBS and NatWest's new promise that rates won't rise in the second and third year. It means anyone who takes out one of the policies can renew knowing they're not being ripped off by a huge hike in premiums.

The banking group's research suggests that more than 70 per cent of people don't shop around and switch to a new home insurance product once their introductory offer ends – so most renew to a higher-cost policy automatically. The group says it believes that offering a three-year fixed price is simpler and fairer for their customers. I agree.

The more clarity in financial services, the better – although that doesn't mean you should rush to sign up with NatWest or RBS. The most sensible move is to compare prices and policies from a range of insurers and go with the one that looks best value.

If you sign up for three years, you must be happy that the price quoted is competitive.

twitter: @simonnread

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