New FSA proposals on packaged accounts don’t go far enough

Under revised Financial Services Authority (FSA) proposals coming into force on 31 March, people who already hold packaged accounts will receive an annual eligibility statement to enable them to check that the product remains suitable for their needs.

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

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

The FSA insists that the customer receives their annual eligibility statement as a separate mailing, which is a sensible precaution, otherwise it could easily be overlooked if bundled in with statements and marketing material.

With some packaged accounts costing £300 a year, these safeguards are long overdue and such transparency is vital to ensure consumers aren’t getting a raw deal.

The unveiling of the proposals last year provoked the usual outcry from consumer groups tarring all these products as little more than a money-spinner for the banks and a waste of money for account holders.

These accounts frequently receive negative press due to reports of accounts being sold without their consent or without a full explanation of the benefits While I agree that the practice of selling these accounts to customers without checking suitability must be eradicated, when it comes down to the value of these deals, not all products are the same. Far from it, in fact.

Take the “select silver” account from Royal Bank of Scotland, for example. This account includes European travel insurance (over 70s pay an extra £50 a year), mobile phone insurance (one phone per account holder), ID theft insurance, five music track downloads and three DVD rentals per month – for a total monthly cost of £10.

By comparison you may think the “privilege premier” account from Co-operative bank at £13 a month looks expensive. Before writing it off as a waste of money, however, take a closer look at the package of benefits.

For a start there is a £300 interest and fee- free overdraft facility, which can be worth up to £4.50 per month on its own. There is RAC breakdown cover for UK and Europe, worldwide (not just European) multi-trip travel insurance, including volcanic ash situations, with cover up to age 79. The mobile phone insurance covers up to four smartphones in the family, plus you have the flexibility of choosing an additional benefit, from traveller, gadget or safeguard options.

It’s also worth looking at the individual costs of some of the cover if you were going to buy it from a standalone provider. For example, insuring a single iPhone with Vodafone costs £12.99 a month.

While the RBS account may be more suitable for some customers, the benefits on more expensive accounts can far outweigh cheaper alternatives and the extra £3 a month represents good value for money if you’re going to make use of most of the elements on offer.

• Andrew Hagger is personal finance expert at Moneycomms.co.uk