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Spend & Save

Julian Knight: A billion reasons why this racket won't be buried

The Competition Commission is taking the payment protection insurance industry – or racket, as I prefer to call it – to task.

In what was one of the most strongly worded statements I can remember from the commission, PPI was rightly condemned as overpriced and the industry as a whole as uncompetitive. As a remedy, the commission has suggested price capping.

I can tell the insurance and banking sectors know they are in trouble over this because their response has been measured – bordering on the apologetic.

I can imagine the gritted teeth of Angela Knight (pictured), chief executive of the British Bankers' Association, as she stated that the commission's report provided "food for thought".

Meanwhile, the Association of British Insurers said that the industry had put its own house in order of late and that the commission's conclusions were based on a long-distant reality.

This is total hogwash. PPI is not only expensive, as the commission concludes, but routinely mis-sold, as a series of fines from City regulator the Financial Services Authority have shown.

The sales processes, based on commission, fail consumers and the product itself is a very poor one when compared to the other types of insurance policies that will pay out if you become ill or lose your job.

PPI is a product that should be confined to the dustbin. Simply, it is beyond reform. However, this won't happen because too much money is at stake – billions in profit.

The commission is talking tough but what comes out in the wash may be different. I remember a few years back when it took on high-street electrical shops over the sale of massively overpriced extended warranties. Big changes were promised then but walk into a big electrical retailer now and next to nothing has changed – you are still pestered to take out poor-value extended warranties.

In short, I think PPI will continue as a racket that keeps piling up the pounds for banks and insurers.

Be a savings tart

The credit crunch does have an upside after all: the banks want your money and they are willing to pay for it.

The Halifax unveiled a regular savings account last week that pays a bumper 10 per cent. And unlike some other high-interest offers, this deal doesn't require that people taking up the offer must also have a current account with the bank.

However, as with all things money-related, there are caveats. In this case, the 10 per cent offer only lasts a year, after which time the money is swept up into any one of six different accounts all paying a much lower rate of interest – in one case a paltry 2.07 per cent.

The message here – and it applies to all the eye-catching high-interest offers currently coming from the deposit-hungry banks – is to be an active consumer. Take the banks up on their offers but don't then forget about your cash. Constantly review what's available on the market and, when a good deal comes to an end, move away immediately to the next one.

A few years ago when the banks were trying to tempt us all to take out credit cards, they used 0 per cent introductory offers as bait. This gave rise to a whole new type of consumer – the "rate tart". These were people who took up the zero- rate offer and as soon as the deal expired hooked up with another one.

The days of the rate tart are long gone on credit cards, but there's nothing to stop consumers turning the same trick with savings accounts.