Money Insider: Rules tightened on paid-for bank accounts

Packaged accounts often include travel insurance (AFP)

Last summer the Financial Services Authority (FSA) published a new set rules designed to give greater protection to customers with a packaged or “added value” current account.

Under the revised proposals which come into effect from the end of this month, existing packaged account customers will receive an annual eligibility statement to allow them to check that the account remains suitable for their needs.

The FSA insists that each customer receives the annual reminder as a separate mailing. That is a sensible precaution, otherwise it could easily be overlooked if bundled in with other more general statements and marketing material.

For any new accounts opened from 31 March, banks will have to ensure that customers are eligible to claim for any insurance products included in the deal and sales staff will have to point out any features within the package that aren’t appropriate.

The new rules won’t make it any easier for consumers to compare the range of packaged accounts on the market, but at least they will know from the outset whether they meet the criteria for an insurance policy they may be relying on.

With some packaged accounts costing £300 a year, these additional safeguards are long overdue and such transparency is vital to ensure that consumers are treated fairly and not talked into paying out for unsuitable products.

It’s also a positive move because the onus is now firmly on the banks to check that the customer is eligible to claim on any of the insurance elements of the packaged account.

Whether this additional regulatory burden will force some providers to stop offering packaged accounts or increasing the monthly fees it’s too early to say, but it wouldn’t surprise me to see the latter.

Don’t tar all packaged accounts with the same brush

When the FSA announced its latest measures it provoked an outcry from consumer groups tarring all these products as little more than money-spinners for the banks.

In the past these accounts received negative press due to reports of accounts being sold to customers without their consent or without a full explanation of the benefits. While I agree that this must be stamped out, when it comes to the value of these deals, not all products are the same, far from it.

The NatWest Select Silver account at a monthly cost of £10 includes travel insurance, but only for Europe, and if you’re aged over 70 you pay an extra £50 per annum. It also comes with mobile phone insurance (one phone per account holder), ID theft insurance, five music track downloads and three DVD rentals per month.

The FlexPlus account from Nationwide Building Society, also £10 per month, looks far better value, with a wider and more comprehensive array of benefits. For starters there is a £100 free overdraft authorised facility, plus FlexPlus customers receive 3 per cent interest on credit balances up to a maximum £2,500, far more than you’ll get on most savings accounts at the moment.

By making full use of the credit interest incentive you can earn £5 per month net, which offsets half the monthly account fee in itself.

Also within the package is vehicle breakdown cover (including Home Start) for UK and Europe, plus worldwide (not just European) multi-trip travel insurance, including winter sports and travel disruption, with cover up to age 75.

The mobile phone insurance isn’t restricted to the account holder only, it covers all family members, plus you can get an extra 12 months’ warranty on eligible household electrical goods.

Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk