Surge in packaged account complaints
Complaints about poor-value packaged accounts soared to new heights in 2015, with the Financial Ombudsman Service (FOS) saying it’s already received 53% more new cases in the last nine months than it did in the previous 12.
In total, the FOS received 32,720 new cases between April and December 2015, compared to 21,348 between April 2014 and April 2015. Over two years the surge is even more apparent – despite three months’ figures to arrive, 477% more people have complained in the last nine months than in the whole of the 2013/14 tax year.
Three times as many people complained about packaged accounts than standard bank accounts, even though the products are less widely used. And the ombudsman was far more likely to rule in the customers favour with packaged accounts too, upholding 32% of complaints, compared to just 12% for standard current accounts.
The surge in disgruntled packaged account customers is likely because people are paying high charges for services they don’t want or need, according to Matt Sanders, spokesperson at GoCompare.com.
“In principle there’s nothing wrong with added benefit or ‘packaged’ bank accounts, as long as they represent good value and customers actually benefit from the features they provide,” he says.
“However, in many cases people simply do not use the benefits they are paying for, or in some instances were sold accounts when they were ineligible for some or all of the benefits offered. This means many people have been paying for an account that’s completely unsuitable for them.”
The ‘high interest’ account paying 0.75% - with a £480 fee
In some cases the charges are so high that it’s hard to see how they could offer value for money to anyone.
Take the Mayfair ‘High Interest’ Current Account from Lloyds Private Bank. It costs £480 a year, and the interest rate isn’t impressive either – 4% AER on balances up to £5,000, and 0.75% on the rest.
Admittedly, it’s a private bank account, so it’s aimed at wealthier people than the most of the packaged accounts looked at by FOS. You need either a £2 million initial deposit, or a £500,000 income a year to have one. If you can meet that, you’re most likely in the 45% tax band, so you’ll need an average balance of around £95,000 before you start getting any interest above the £480 annual fee.
That hardly seems like good value, considering the same balance would earn £2,470 (£1,358 after tax at 45%) in the best one-year bond.
A spokesperson for Lloyds Private Bank says customers are paying for the service, rather than the perks with this account: “Our Mayfair offering is a personalised, relationship based banking service where individual Private Banking and Advice Managers take care of every aspect of our customers’ banking needs.
“There is a monthly fee of £40 to benefit from this one-to-one banking service; this is not a monthly account fee. This fee is waived if customers hold an investment portfolio with us.”
How to find the right account?
But if you’re considering a packaged account, it’s crucial to work out how much value you’ll get, instead of getting dazzled by offers of travel insurance, phone insurance, or ‘preferential’ rates that aren’t a patch on the top deals you’ll find by shopping around.
The best way to do that is by using midata, the comparison tool that’s been developed by GoCompare and the Treasury, as it factors in how you use your bank account, so can accurately predict how much interest you’ll get or how much you’ll be charged.
Mr Sanders explains: “Midata enables people to use the information that banks or building societies hold about them to see exactly how much better off they could be by switching their current accounts.”
“Customers simply download their midata file from their online banking and upload it to Gocompare.com’s secure comparison service. The midata comparison tool then analyses 12 months’ worth of their actual banking data and in seconds provides a pounds-and-pence value to help people determine which account is the most appropriate one for them.”
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A current account that charges a monthly fee in return for a “package” of additional services, such as travel insurance, credit card protection, mobile phone insurance, identity theft insurance, car breakdown cover or a “concierge service” that will book airline and theatre tickets or restaurant tables. However, many consumer experts say the features are overpriced and that more competitive deals exist elsewhere in the market and that very few packaged account holders actually take advantage of the features.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.