Watchdog warns on packaged accounts

Paying for a bank account with travel insurance that may be useless is "money down the drain" warns FSA

The Financial Services Authority is forcing banks to stop selling often useless paid-for current accounts. The City watchdog yesterday announced new rules designed to protect people from being sold expensive extras that are of no use to them.

The FSA will introduce new restrictions from next year that will force banks to check whether their customers are actually eligible to claim under the insurance policies, which are usually included to make the accounts appear to be good value.

Marks & Spencer, for instance, is launching its first current account in the autumn but will charge customers £20 a month for the privilege.

In return, anyone who signs up will be given a range of so-called benefits, chief of which is a family travel insurance policy, which M&S claims is worth £245, a fiver more than the annual cost of the account.

But the City watchdog has warned that such deals may be worthless. Sheila Nicoll, FSA director of policy, said: "These products are often referred to as upgraded accounts but if you end up paying for an element you can't claim on, it's money down the drain."

She gave warning to banks, building societies – and retailers – which offer packaged accounts that the regulator will call them to account to ensure customers do actually get value out of the expensive accounts.

"We are closely monitoring the promotion of packaged bank accounts, and the new rules will make sure customers know what they're buying and that they can rely on the product or have the limitations explained before buying," Ms Nicoll said.

An estimated 10 million adults, about one in five, has a packaged account, paying up to £20 a month in exchange for benefits such as insurance, extra overdraft facilities or gimmicks such as music downloads or, in M&S's case, free coffee.

The new rules will be introduced from the end of March next year. The FSA will then require current-account providers to check whether a customer is eligible to claim under each policy. Staff flogging the accounts must establish whether policies are suitable for individual customers and tell them if they are not.

Even if customers take out the accounts, banks and building societies will have to provide then with a yearly eligibility statement setting out the requirements to claim for each of the benefits under each insurance policy in the package. The FSA hopes that move will prompt customers to check whether the policies are still useful.

The watchdog is also considering forcing banks to tell customers who have triggered the age limit for claiming on the travel insurance element, or warn them if they will do so before the next statement is due.

Andrew Hagger, who writes about packaged accounts in this week's Money Insider column on p57, said that they may not be good value for many.

"If you're not going to make use of the monthly benefits on offer with the fee-paying current accounts, then it's a no brainer, you should switch back to a standard bank account and save yourself up to £240 a year into the bargain," he said.

"If you asked people what they want from their bank, many will specify good customer service, low and transparent charges and a simple product on their wish list. Free drinks vouchers or music downloads are likely to be seen as more of a gimmick.

"However, rather than dismiss all packaged accounts out of hand, it's worth looking closely at the deals on offer," he added.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

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