While we don’t consider ourselves to have a glass half –empty attitude, what the payment protection insurance scandal has shown us is when it comes to banking products it is best to err on the side of caution.
Top 5 banking products to raise an eyebrow over
With the payment protection insurance add on now a no go for many customers, banks are turning to packaged accounts to bolster profits. They take a normal, free current account, chuck in a load of ‘free’ products such as travel insurance and breakdown cover, and charge you a monthly fee for it.
Similarly though to the controversy surrounding payment protection insurance, the Financial Services Authority is concerned about how these products are being sold to customers. By adopting this ‘one size fits all approach’ and grouping such products together, there is a good chance customer will be paying for one product or another that they don’t need, or may already have.
It is common practice for customers to take out a savings account with their current bank. However, research by The Telegraph demonstrates that while it is often easier to go with your current lender, it is not often best for your money. “A quick glance at the current best buys shows that it’s building societies and smaller specialist providers – such as Saga or ING Direct – that offer the best rates.”¹
Payment protection insurance is just one kind of insurance banks offer. With the current attitude regarding PPI, banks are now pushing products such as life and household insurance. While there is nothing wrong with these products, customers, as with payment protection insurance, may not get the most competitive of rates.
According to leading investment researcher, Morningstar, investment funds from a bank have a tendency to underperform. “Over the past three years, just two out of Barclay’s 18 funds have produced above-average performance. In other words, 90 per cent of its funds have underperformed. Over the same period, five of Santander’s 20 funds have made above-average returns (so 75 per cent 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.”¹
There are many reasons why allowing your bank to make your Will isn’t the best of ideas. For a start, it is always better to have a qualified solicitor draft your Will especially given the recent discovery from the Legal Services Board (LSB); a mystery shopping exercise found that two in every 21 Wills produced by a Will writer (i.e. a non-legal professional) was declared invalid. However this is not the only reason why it isn’t advisable to use a banks Will-writing service.
The primary reason why banks offer a Will-writing service is the potential revenue should they be named as Executors. If this happens, banks charge fees of up to 4.5 per cent of the estate (e.g. if an estate is worth £100,000, the banks would receive £4,500). This fee would come out of your beneficiary’s inheritance.
One good thing to come out of payment protection insurance mis selling – see, we said we preferred the glass half-full outlook – is that it has encouraged customers to question the products being offered by their banks and not take them at their word. And ultimately, with this attitude, customers should benefit from more suitable financial products.
¹The Telegraph (Oct 2011)
Content correct at time of publication