Your Money: Beware the bedazzlers

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The Independent Online
BUILDING societies have been warned to be on their best behaviour when it comes to opening zappy new high-paying accounts and leaving existing investors languishing in defunct accounts paying uncompetitive rates.

The Building Societies Ombudsman, Stephen Edell, said investors had to take care of their own funds, but he warned that they should be given enough information to enable them to make rational decisions.

But things are getting out of hand. Existing investors are being bombarded with leaflets extolling the virtues of some new account and are rushing sheep-like out of their existing account into fresh pastures.

This is not necessarily the right course of action.

We saw Abbey National (no longer a building society, although the principle remains the same) having to write to its Tessa customers to apologise for a misleading missive promoting a new tiered-rate Tessa.

All those who received the letter from Abbey were already enjoying the rate paid on the top tier, and so had nothing to gain from switching.

Last October, Halifax Building Society launched Premium Extra, which pays a bonus if no withdrawals are made during the year.

Halifax told its 90-day-account customers that they could switch 'without notice or loss of interest'.

But while the 90-day account had interest credited on 1 February, the new account credits interest one year after opening. So those who had their accounts redesignated as Premium Extra had a long wait to see the interest capitalised.

Thousands of investors saw the trap and transferred only those funds on instant access to the new account, keeping the minimum pounds 5,000 that required 90-day notice to serve out its time.

The old accounts were kept open until this month, then switched after the interest was credited, moving all the funds to the new account, which pays 7.55 per cent on pounds 25,000 compared with the 5.9 per cent rate on the 90- day account.

But several hundred others who were too nimble for their own good have complained, and Halifax has agreed to make amends.

At Alliance & Leicester, investors in the 90-day account were allowed to switch to the Bonus 90 account and encountered a similar problem. Accrued interest on the first account was frozen until the February interest date on the new account.

It seems that investors just cannot win. They are either kept in the dark or bedazzled with shiny new accounts that disadvantage them - at least in the short run.

As the Ombudsman says: caveat emptor.

SO, THE banks (or one, at least) are finally giving away money as if they are going out of fashion. As indeed, they are, though the stylish offspring of a high-street giant - Midland's see-through Firstdirect - is becoming rather fashionable.

It is a bank with no branches, offering a round- the-clock service for those happy not to have face-to- face contact with their bank manager. It is fairly choosy about its customers, as they get a pounds 100 cheque guarantee card from the outset and no nasty surprise charges when they go overdrawn.

There was much scoffing when Firstdirect was launched three-and-a-half years ago, but it has grown slowly to win 350,000 customers. It would like many more. Last week, a mailing went out to 'select' people to offer them a pounds 15 sweetener for their account if they signed up before the end of April.

Banks have always tried to tempt students aboard, but never before have ordinary old customers been wooed with money.

Midland says it is confident that once people have signed up, they will stay. I hope they are right.

UNEMPLOYMENT insurance is a strange beast. Financial companies only want to sell it to those who do not look for it.

If you start making inquiries about cover to pick up the mortgage, then the chances are that you will meet with refusal. The argument is that only those expecting the black plastic bin-liner treatment are likely to seek out the insurance.

But if you are not looking for it, you may find that as a first-time home buyer or a credit-card innocent who forgets to opt out, you are landed with the insurance. But beware, it can be expensive, fail to pay out when you need it, and cut across benefit payments.

Another case where the buyer should be wary.