Watchdog cracks down on packaged accounts

A new set of rules is being implemented to prevent banks mis-selling packaged accounts. From March 2013 banks will have to check that customers are able to claim on insurance before selling them costly packaged or 'upgrade' accounts, according to new rules from the Financial Services Authority (FSA).

Packaged accounts are paid-for current accounts that include additional benefits such as travel and mobile phone insurance, breakdown cover, commission-free currency as well as better savings rates and enhanced overdraft terms. The FSA says, at present, one in five adults has a packaged account. They typically cost between £10 and £13 a month.

However, banks have come under fire for pushing these expensive accounts onto customers who do not need the benefits or would not be able to claim on the insurance. As banks continue to pay compensation to customers who have been mis-sold payment protection insurance, the FSA wants to ensure they do not become the next misselling scandal.

Under the new rules, banks and building societies will have to: check the customer is able to claim on each insurance policy and share that information with them; alert the customer to any policies that are not suitable for them; and provide a yearly eligibility statement setting out the requirements to claim under each benefit.

Money down the drain

"If you end up paying for an element you can't claim on, it’s money down the drain," says Sheila Nicoll, FSA director of policy. A review of packaged accounts is long overdue. According to research from, just three in 10 packaged account holders use the benefits regularly, while two in 10 have never used them at all.

"For too long, banks have been signing up customers to these fee-paying accounts with little evidence to suggest that the customer actually requires or can even use the benefits that they are paying for," says Michael Ossei, personal finance expert at

But the FSA rules to help customers won't come in for another six months, so what can you do in the meantime to make sure you don’t end up coughing up for products you can't or won't use?

1 Check whether you are over-insured.

Are you paying for insurance policies as part of your packaged account that cover items that are already insured elsewhere? For example, a packaged account giving you mobile phone cover won't be any benefit to you if your phone is already covered by your home insurance policy.

2 Find out if you can make a claim.

You may think you've got a great insurance package at a great price but are you actually covered? Many people are paying for travel insurance they would not be able to claim on because of their age or preexisting medical conditions.

3 Make sure you’re getting a good deal.

You might think paying £15 a month for a packaged account that comes with travel insurance and breakdown cover offers value for money but take the time to price check the benefits. Chances are you could get a better deal by buying the packaged items separately.