You'll have seen Defaqto star ratings featured on many of the financial products you have or are considering applying for, but what does a Defaqto rating mean for you, as a customer or potential customer? We've interviewed Defaqto to find out.
Who are Defaqto?
"Defaqto is an independent researcher of financial products. As an organisation, it tries to give consumers more information about the products they're comparing, so it's easier to make an informed decision before making a purchase.
Defaqto assess every product in the market across more than 60 categories, from banking - including credit cards and current accounts - to general insurance for your home, car, pets and your holiday; investments, health insurance and income protection insurance. Each of these products is awarded a rating from 1 to 5 Stars, allowing you to see where it sits in the market, at a glance."
Why is a Defaqto Star Rating important?
"Defaqto Star Ratings place less importance on price and more on quality of cover, features and benefits. Cheaper policies often exclude key elements of cover which could leave policyholders exposed when it comes to making a claim. So Star Ratings can help you to compare the level of cover, and only the most comprehensive policies get 5 Stars."
At TSB, our Plus account* is a Defaqto 5 star rated product because it has lots of great features like 5% interest on credit balances up to £2,000, cashback on up to £100 of contactless or ApplePay purchases every month and no monthly fee. But we also have other current accounts like the cash account, or accounts specifically for students. These might be better suited to your needs, but they are not 5 star rated.
So a one star rating doesn't necessarily mean that a product isn't 'good'
"The higher the Star Rating, the more comprehensive a product will be. Products rated 1 Star are a basic product, with a low level of features and benefits, while 5 Star products provide the highest level of cover with or the most comprehensive range of features and benefits, and must meet additional minimum criteria in certain areas. So, depending on your needs, a one star product could be for you.
Is Defaqto impartial?
"Defaqto is completely independent and unbiased, and it never knowingly excludes a product or policy from its Star Ratings. We rate every product in the market but providers are less likely to advertise that their product is 1 star. So you may not see Defaqto ratings promoted by every provider, and where you do, you'll mostly see 4 and 5 star Defaqto ratings."
How is a Defaqto Star Rating achieved?
"Defaqto Star Ratings are calculated using a scoring system called Data Numerical Analysis, or DNA. They assess between 40 and 100 features and benefits for each product or insurance policy, with each scored from 1 to 5.
The scores for each product are totalled and all products ranked. Defaqto's industry experts determine the scores necessary to achieve 1, 2, 3, 4 and 5 Star Ratings."
Now you know what a Defaqto score means on a product, hopefully you'll be able to better understand whether a product is right for you based on its rating. Remember whether it's an insurance product, a long term product like a mortgage or a loan or an everyday product like a current or savings account, ensuring that you understand everything that you'll benefit from with that product is how you best determine that the product is right for you.
*The Plus account gives 5% AER/4.89% gross (variable) interest on balances up to £2000. Interest paid monthly. Pay in a minimum of £500 a month, register for Internet Banking, paperless statements and paperless correspondence. Cashback subject to eligibility. Paid monthly. Ends Dec 2016.