Complaints soar as packaged current accounts fail to deliver

Monday, October 6, 2014

Which? reports a ‘worrying’ rise in customers unhappy with paid-for bank accounts

Packaged accounts, offered by the likes of Lloyds and NatWest, charge customers a monthly fee for benefits such as travel insurance, mobile phone insurance and card protection.

Guardian Money can reveal that complaints to the Financial Ombudsman Service about packaged accounts are running at up to 400 a week – a figure that Which? executive director Richard Lloyd describes as “worrying”.

Many of these customers are saying they did not need, or want, a premium account, or that when they came to claim on the insurance that is often a big selling point of these accounts, they were told they were ineligible to do so.

The volume of dissatisfied customers has prompted the ombudsman to create a new complaint category just for packaged accounts, so that tackling these “does not impact on the rest of our complaint handling in banking and credit”.

So is it ever a good idea to sign up for a packaged account?

Of the 62m live current accounts in the UK, it is estimated that around 14% are paid for. The monthly fee varies sharply between providers – typically £6 to £25 – and while the selection of benefits is fairly standard, the terms and conditions of some of the add-ons create problems for claimants.

“The problem is many accounts are overpriced or inflexible, and so might not be as good value as they appear,” says James Daley, founder of personal finance website fairerfinance.com.

He points to the age restrictions on travel policies as a particular area of concern. “Most have upper age limits, and in many cases once you pass these limits the travel insurance is invalid and there’s no option to pay a little extra to stay insured. You’re forced to go and buy an entirely new policy elsewhere.”

Roadside assistance can be another benefit which, at first glance, may be tempting, until exclusions for a home start or recovery service are applied. “These are not elements of a breakdown package that you can go out and buy separately,” says Daley. “So if they are important to you, then you’ll have no choice but to buy your entire breakdown cover elsewhere.”

Studying the fine print before deciding to go with your bank’s bundle of benefits is no guarantee that the goal posts won’t be moved after the agreement has been signed.

Mathew Owens, who lives in Reading with his wife Jo Cordy and their two children, says he cancelled his sole-named HSBC Advance account, which cost £12.95 a month, when the bank decided to change its mind over who the roadside assistance would cover. “I chose the account because it offered travel insurance and roadside assistance which covered my wife and family as well as me. We had had the account for over a year when HSBC notified us by post that instead of my car being covered it would just be me.”

A survey carried out by Mintel of 2,000 current account holders revealed that 22% said they found it difficult to work out if packaged bank accounts were offering value for money, while 14% said they would be prepared to pay for an account which enabled them to choose their own benefits.

Barclays has gone down this route by scrapping its fixed bundle of benefits in favour of a tailored approach which enables customers to pick free and paid-for extras from its “Features Store”.

Daley’s best-buy recommendation is Nationwide’s FlexPlus account, which costs £10 a month. It comes with comprehensive breakdown cover, worldwide family travel insurance and mobile phone cover. It also offers exclusive mortgage rates for account holders, a feature that attracted Kate and Dave Hughes from Wrexham.

“We were moving house and using Nationwide for our mortgage,” says Kate. “Our adviser told us about the preferential rates we could get if we had an account with them and, as the monthly fee was cheaper than our Barclays Additions account at £10, it made sense to move.”

Good customer service is going to be key for many people and a survey issued by Which? this month ranked Nationwide, the largest provider of current accounts in the mutual sector, third for customer service.

Travel insurance is also an important perk, and Lloyds’ Platinum account – which is pricey at £17 a month – offers cover up to the age of 80. However, Nationwide’s FlexPlus offers its customers the option of paying an additional fee of £50 a year to stay insured once they reach its age cap of 75.

Rules brought in by the financial regulator last year to protect customers against packaged account mis-selling, combined with the new regime designed to make switching current accounts easier, have improved competition, but Lloyd wants to see more done. “We want to see [the regulator] enforce these rules and the banks to be upfront and inform customers if they are no longer eligible for benefits.”

Anyone who thinks they have been mis-sold a packaged account should contact their provider. If they are not happy with the response, or it has been longer than eight weeks, customers can complain to the financial ombudsman.

‘I’m confident it will save me money’

For years I have written articles warning people against signing up for expensive packaged bank accounts, writes Money reporter Miles Brignall. However, I now need to come clean and admit that I have just signed up for Nationwide’s FlexPlus account, which charges a monthly fee.

We have held our main joint account at the building society for almost 15 mostly happy years, and when Nationwide launched the new £10 a month (£120 a year) account earlier this year, I was very sceptical. However, having trawled through the small print – no mean feat – and crunched the numbers, I’m petty confident it will save us money.

Its main benefits include UK and European breakdown cover, commission-free cash withdrawals abroad, and worldwide family travel insurance. The cheapest annual UK and European breakdown cover with home start – which we do buy as we usually drive to Europe at least once a year – starts at around £60 a year, and the Nationwide cover (underwritten by Liverpool Victoria) looks better than the cheaper policies. Unlike other breakdown services, we have had few recent complaints about it. The free ATM withdrawals abroad will easily save us £40 a year – more in some years. Meanwhile, in the past we typically bought annual travel insurance from EHICPlus if we were staying in Europe, which is £42 a year. If we head further afield, the insurance is more, and the FlexPlus policy offers worldwide cover – including the expensive United States.

The cover looks fine on paper and, crucially for me, covers scheduled airline failure – it pays up if the airline goes bust before you travel. It also covers natural disasters – Icelandic volcanoes, anyone? We don’t have many mobile phones of value in our household, but the policy will cover one handset per person, and the cover looks as good as you would get good from any other mobile cover. Note that it will not pay out if you “knowingly put your mobile phone at risk or you have not taken care of it”, so I’m not holding my breath. The policy does, though, cover unauthorised calls up to £2,000, which could be worth having. I take the view that extended electronic warranty and ID theft cover are extras that few people will use, but it’s free as we’ve made the savings elsewhere.

It helped that both our breakdown cover and travel insurance policies were due to expire at the same time, so we weren’t doubly insured. The acid test, of course, comes if you have to make a claim. Lots of travellers with packaged accounts have in the past found to their cost that the cover is very restricted. I’m hoping that we won’t be one of them.