Make sure you are sold policies which are right for you

Concerns have been raised that people are throwing money "down the drain" when they pay a monthly fee for a current account with add-ons such as insurance, business class lounge access at airports, or overdraft facilities which turn out to be useless to them.

The Financial Services Authority (FSA) is clamping down on a "lack of transparency" surrounding such accounts, which are held by a fifth of adults in the UK.

It wants to ensure customers are given the same level of protection they would have had if they had bought the products separately.

A "key risk" the FSA found is that consumers may believe they are covered by each policy included in their account and only discover they are ineligible when it is too late.

Firms buy insurance policies wholesale and offer them at discounted rates in the overall package, making it hard for customers to compare costs with standalone insurance products or other bank accounts.

The FSA's new rules, which come into place from March 31 2013, will force financial institutions to check whether a customer is eligible to claim under each policy, share this information with the customer and alert them to policies where they are not covered.

People must also receive annual eligibility statements to make sure the policy still suits their needs.

The FSA warned it will consider further intervention if it finds evidence of further problems. It plans to continue monitoring the market, with six-monthly surveys to firms to collect information about product ranges, sales and complaints.

The regulator is also consulting further on a proposal that annual eligibility statements should be sent to customers as a separate document to give them added prominence and that providers should do more to warn customers when they are reaching the upper age limit to qualify for travel insurance cover.

The Financial Ombudsman Service (FOS) said it receives around 150 complaints about packaged accounts each year, with many arising when a consumer attempts to claim on products such as breakdown assistance, mobile phone or travel insurance, only to find they are not covered or the terms are more limited than they had realised.

The new rules follow concerns raised by the FSA in February last year that banks may try to bolster their incomes by selling products such as packaged accounts without sufficiently considering customers' needs.

Lenders have suffered a fall in income from mortgages and they have also lost large amounts of revenue from the widespread mis-selling of payment protection insurance (PPI).

A spokeswoman for the FSA said it did not expect to see widespread mis-selling claims over packaged accounts, as there have been over the PPI scandal, and said the rules were being introduced to deal with a "growing market".

There are currently 44 packaged accounts on the market, with an average fee of £14 per month, according to financial information website Moneyfacts. Five years ago there were 35 packaged accounts, with an average monthly fee of £11.

Sheila Nicoll, FSA director of policy, said: "These products are often referred to as upgraded accounts but if you end up paying for an element you can't claim on, it's money down the drain.

"We are closely monitoring the promotion of packaged bank accounts and the new rules will make sure customers know what they're buying and that they can rely on the product or have the limitations explained before buying."

One recently-launched high profile packaged account is Marks and Spencer's first current account, which charges fees of up to £240 a year in return for "transparent" terms and a range of in-store perks, which analysts said is well-tailored to the retailer's loyal customer base.

The announcement comes after the Office of Fair Trading (OFT) launched a review into the personal current account market earlier this month amid concerns over a lack of competition.

The watchdog wants banks to make switching easier and increase their transparency over fees and charges. It said it will consider going to the Competition Commission if it finds the sector has not done enough to improve.

Peter Vicary-Smith, chief executive of Which? said: "This is a welcome first step in helping to stop people being sold policies that they don't need or can't use.

"Banks should only be able sell these accounts where it is appropriate and people are eligible to claim all of the benefits. Some people are paying more than £300 a year for benefits that they may never need.

"We want to see greater transparency from the banks so their customers can see clearly what is included in a policy and the costs so they can easily judge whether it is the right policy for them.

"The regulator must also be a proactive watchdog for consumers and prevent banks linking staff bonuses to the sale of these products; the mis-selling scandals of recent years must never be repeated."

Paul Green, director of communications for Saga, said: "This is an extremely positive step to help consumers, particularly older travellers who often believe they are covered by travel insurance in their packaged bank accounts, only to find themselves stranded when they try to make a claim.

"People simply don't realise that many of these policies tend not to cover pre-existing medical conditions as standard or have upper age limits, meaning that the cover is often totally inappropriate for their needs."