Packaged accounts: Don’t buy this latest bank fraud

published 4 November 2011

Does the financial industry have your interests at heart? If you work at the top of the industry you will agree that it does. Fund manager pay across Europe has risen by 18% in the last 12 months, despite an outbreak of even more dismal performance than usual. However, for those outside the industry, I can honestly say that I have never come across a circumstance under which the answer is yes'.

Nowhere is that more clear than in the rip off that is retail banking. It seems only a matter of weeks ago that the big banks were caught scamming customers into buying payment protection insurance (PPI) that they didn't need and the papers were full of the horror of high overdraft charges. But already the banks have a new scandal on the go: the packaged account.

One in five Britons now have these. The idea is that they pay a fee every month and get extra benefits in return. The problem? You pay a lot and mostly don't get much back. The average packaged account costs £15 a month, with the most expensive (Lloyds TSB) coming in at £25. For that you get travel insurance, mobile insurance, ID theft insurance, preferential exchange rates and the like. That might be fine if you needed and used all these services. However, according to Moneysupermarket, just 10% of people say they do, while according to Which? a third of people use none of the services on offer.

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This is partly down to the fact that no one needs some of the inclusions: banks have to refund your money if you are defrauded, so ID theft insurance is generally pointless. It is also partly because customers often find they have doubled up: mobile phone insurance can come with house insurance; travel money is pretty much always cheaper at a dedicated firm such as Caxton FX than at a bank; and holders of fee-paying credit cards may already have travel insurance.

But it's also because some people could never use the extra features: if you don't travel much, why pay up for airport lounge access? The upshot is that holders of these accounts are wasting somewhere in the region of £240m and £320m in bank fees every year. The Financial Services Authority (FSA) is wondering if this is yet another mis-selling scandal in the making and has published new guidelines aimed at forcing bank salesmen to check if customers need the extras before flogging them overpriced accounts. The banks aren't behaving any better than they were and their customers seem as dim as ever (I can't believe one in five of us has fallen for this). But it is nice to see the FSA intervene earlier rather than later.

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.