The banking products to avoid
When banks go beyond current accounts they tend to offer poor value.
Say no to your bank's hard sell Photo: HOWARD McWILLIAM
6:30AM BST 02 Oct 2011
14 Comments
Barclays is our most complained about bank, clocking up customer complaints at
one a minute over the past six months, according to the Financial Services
Authority.
But it isn't the only bank to receive a slew of complaints. While Barclays
notched up a quarter of a million complaints over the period, Lloyds TSB
received 181,907, Santander had 168,888 and NatWest 147,109.
In total, almost 10,000 complaints are filed each day to financial
institutions – and banks, having the most customers, pick up the lion's
share of these gripes.
The biggest cause of complaints is still mis-sold payment protection insurance
(PPI), which is designed to cover loan or credit card repayments. But this
isn't the only product that customers should give a wide berth to. Banks
don't make their money offering the core products we need: current accounts,
loans and mortgages. In recent years they've made far more money from
selling various "extras", from insurance policies and investment
bonds to offering "wealth management" advice.
While not all of these products will be poor value, many are. If you don't
want to end up at the back of the customer complaints queue, think twice
about buying any of the following products from your bank.
1 Identity theft insurance
In the past few years, your bank's credit card department has probably been keen to sell you this insurance, and other related products such as "card protection cover". Both can be expensive and deliver negligible benefits. This insurance won't stop your card being cloned or a fraudster applying for credit in your name. It simply purports to offer assistance should this happen, and cover subsequent losses. However, banks and credit card companies are legally obliged to do this anyway.According to figures from one of the main players in the market, just 0.5pc of policyholders have ever claimed on these plans. Card protection cover gives you one number to call to cancel all debit and credit cards. But at £35 a year, this seems excessive given that these numbers are easily found online, 24 hours a day. Which?, Consumer Focus and the Financial Services Authority (FSA) have raised questions about the sale of this insurance.
2 Packaged accounts
Why pay for a current account when you can get one for free? Almost half of all new bank accounts opened now charge a fee, which can be up to £300 a year. They offer various "freebies" – from travel insurance and breakdown cover to preferential loan and mortgage rates. But it's feared that many don't use these add-ons and could save money by shopping around for the extras they do use.The FSA said there were concerns about how banks sold these products, with some people buying inadequate insurance or simply duplicating cover they already have. Don't be fooled by any approach that suggests you have been "selected" to apply for one of these accounts. Stick with a free "mass market" product instead.
3 Savings accounts
You might think you can't go wrong with a savings account from your bank. But most of the big banks don't offer particularly competitive products. A quick glance at the current best buys shows that it's building societies and smaller specialist providers – such as Saga and ING Direct – that offer the best rates. Barclays, NatWest, HSBC and Lloyds TSB are notable by their absence. With interest rates so low it pays to shop around for the best deal.4 Will-writing services
Banks offer their wealthier customers will-writing services. The upfront costs may look reasonable, but they make their money by persuading customers to appoint the bank as executor – charged with sorting out the estate after you die. Banks charge fees of up to 4.5pc of the estate for this service, reducing your family's inheritance by thousands of pounds.Earlier this year, HSBC, Barclays, Lloyds and RBS agreed to review their sales tactics, following an investigation by the Office of Fair Trading. Customers who have already made wills via their bank should check what they have signed up for. It is possible to amend your will to appoint friends, family or even a local solicitor as an executor instead.
5 Investments
Banks have a long and far from illustrious track record of selling their customers underperforming and higher-charging investments – be they unit trusts, Isas or stock market linked bonds. Many have revamped their offering in recent years, but the jury is still out on whether this has significantly improved customer choice. And, of course, hiring a more successful team of fund managers doesn't help the millions who have bought a dud fund that the bank previously sold.Anyone who has bought an investment fund from a bank in the past 10 years should check performance and switch where appropriate. Over the past three years, just two out of Barclays' 18 funds have produced above-average performance, according to Morningstar. In other words, 90pc of its funds have underperformed. Over the same period, five of Santander's 20 funds have made above-average returns (so 75pc underperformed), while at Lloyds two thirds of the Scottish Widows funds it sold have underperformed. NatWest has done better though, with all five of its mutual funds delivering above-average performance.
6 Household insurance
If you are getting a mortgage via your bank, the terms of the loan may specify that you need adequate insurance in place. But don't fall for any sales patter implying that it has to be bought from your bank. It is almost always cheaper to shop around instead. For example, Halifax charges £253 for building and contents cover on a typical Manchester property. The same insurance costs less than £200 with SwiftCover.7 Life insurance
Banks also require mortgage customers to have life insurance that covers the loan. It may be easiest simply to buy this from your bank, but you'll rarely get the cheapest product. Most banks don't offer online quotes but ask customers to make an appointment instead. Moneysupermarket.com said this made it difficult to compare prices, but argued that banks were unlikely to offer the most competitive rates – if they did they would advertise them to attract new customers.8 Foreign currency
If you are jetting off on your holidays, don't assume that your local bank is the best place to pick up euros, dollars or Turkish lira – even if it promises "zero commission". Consumer Focus recently raised a "super-complaint" about how such currency deals are marketed and the charges banks apply on overseas card transactions. Holidaymakers should use an online currency broker such as Travelex or take a prepaid card.9 Financial advice
Does your bank offer independent advice, or will it simply offer you a narrow range of products from a few providers with which it has negotiated preferential terms? Most banks offer the latter; and more will do so next year when regulations will effectively ban "independent" advisers from taking commission. Tread extremely carefully if your bank invites you to have a financial review or "wealth check". If you need advice on retirement options, tax or investment, seek independent advice.10 Tied accounts
Now and again a bank appears to offer an excellent savings rates – but invariably there is a catch. Usually you have to invest a similar amount in a stock market linked bond, which obviously carries significantly more risk.If you weren't interested in share-based investment, stay clear. (And if you are, you may find that there are far better versions than the products sold by high street banks.)
Santander in particular favours this ploy; currently it offers 4.2pc interest on a one-year fixed-rate savings account – but to get this rate customers need to buy one of the bank's investment products.
http://www.telegraph.co.uk/finance/personalfinance/consumertips/banking/8799809/The-banking-products-to-avoid.html
Posts
