New current account deals
There's been a flurry of activity in the current account market with the Co-operative Bank offering a new range of packaged accounts, Alliance & Leicester (A&L) launching a linked fixed rate savings bond and Lloyds TSB having added a mobile phone banking service. Watch our latest video, 'Savings turmoil' for more information on what's been happening in the savings market.
So what does this all mean for consumers?
Does more choice equal better value?
Co-operative Bank's new Privilege and Privilege Premier current accounts, take packaged accounts on a step. These are current accounts for which you pay a monthly fee in return for benefits such as travel insurance and breakdown cover. However, they often prove not to be great value because most customers don't make use of all the extras included. This is where Co-op's offering is different because customers can choose which benefits best suit their needs.
Both the Privilege and Privilege Premier current accounts, which cost £8.50 and £12 a month respectively, come with mobile phone insurance and worldwide travel insurance as standard; while the Privilege Premier also includes motor breakdown cover with European assistance.
What makes these accounts unique however, is that they both allow customers to add one of three bundles to the mix. Customers can choose between: a gadget option which includes insurance cover for MP3s, laptops, SatNav and more; a safeguard option with cover against ID theft, key recovery, handbag and contents insurance; and a traveller option with four free airport lounge passes a year and a passport and luggage recovery service.
The move by Co-Operative Bank to offer added value current accounts could be seen as a sign of things to come as it allows providers to cross-sell products while increasing their guaranteed income stream.
The accounts should hold appeal to customers for whom these incentives offer legitimate money-saving opportunities. However, others may be put off by the fees, the fact that neither of the accounts offers any in-credit interest, and the interest-free overdraft is just £200 on the Privilege account and £300 on the Privilege Premier.
The key with these and any other package accounts is to calculate the real annual cost - for example, the Privilege Premier, at £12 a month, is actually costing you £144 a year. Then think about if you would really make use of the incentives offered - and if you could actually get them cheaper elsewhere. For example, most consumers could get annual worldwide travel insurance or breakdown cover for less than £40 a year by shopping around. If the incentives do offer good value and you'd make full use of them, then you're on to a winner - otherwise you'd probably be better off shopping for a fee-free deal.
What other new deals are available?
Lloyds TSB, with around 21% of the market, is the country's largest current account provider and has four million customers registered to its internet banking service and has now launched what it describes as the 'next generation of mobile banking'. This allows customers to monitor and manage their money on a mobile phone by viewing account balances, looking at recent transactions and receiving text alerts. It also allows customers to move money between accounts. It's an attractive additional service from an increasingly competitive provider.
It recently launched its Vantage account, which is aimed at those with large balances as it pays an annual rate of 5% on balances between £5,000 and £7,000 - a rate that is paid on the entire balance. For those with smaller amounts, the interest rate is less attractive as the account pays 0.1% on balances up to £1,000, 2% between £1,000 and £2,999 and 3% between £3,000 and £4,999. For lower balances, Lloyds' Classic Plus account pays 5% on balances up to £2,500. Our site editor, Clare Francis, has interviewed Catherine McGrath, director of current accounts at Lloyds TSB, to talk about the bank's latest offerings as well as what the proposed merger with Halifax Bank of Scotland may mean for current account customers. Click here to watch the interview.
A&L meanwhile has launched the Premier Fixed Rate bond, which pays 6.50% on lump sum investments between £1,000 and £10,000. This is available with the Premier Direct, Premier, Premier 21 and Premier 50 accounts, which are among the most competitive in the market for various customer types.
How do these deals compare to the rest of the market?
When searching for a current account you should look beyond incentives and firstly decide what type of customer you are - are you usually in credit, and if so what's your average balance, or do you tend to be overdrawn most of the time?
If you're always in credit you should find an account that pays the highest rate of interest on a positive balance. While the Lloyds TSB Vantage account pays 5% on balances between £5,000 and £7,000, only around 5% of people have that amount in their current account according to the Office of Fair Trading. For the majority therefore, there are better options available.
The A&L Premier Direct is the market-leading deal with a rate of 8.5% on balances up to £2,500. This is fixed for the first 12 months, after which the rate drops to one percentage point below Bank rate - the current 'go to' rate is 4%. However, you only earn 0.1% on balances of £2,501 and above - meaning those with larger balances should look elsewhere.
For customers who can pay in £1,000 or more each month, the Coventry First account offers a rate of 5.6% on balances up to £250,000. However, this does incorporate a first-year bonus of 0.85%, after which the rate falls to 4.75%. This is arguably the most appealing deal for those with high balances - though customers should be wary to spread their savings around in these turbulent times as only the first £50,000 is protected with any one institution. If you are looking for another home for your money then Cahoot, the internet bank owned by Santander, has a current account with no cheque book paying 3.75% on balances up to £249,999.
However, it's always worth remembering that if you have a large amount of cash, then a current account is not the best home for your money - you could almost certainly earn a better rate of interest from a savings account.
If you're willing to lock your excess cash away for a year you could earn as much as 7.21% with the AA One-Year Internet Fixed Rate Savings Account, or 7.20% with the ICICI Hisave Fixed Rate Account. Those who want regular access to their cash could pick up a rate as high as 6.55% from the Kaupthing Edge Instant Access Savings Account and have no withdrawal restrictions.
However, if you regularly dip into the red then you should focus on the best overdraft rate. Again, the A&L Premier Direct and the A&L Premier are the market-leaders in this category with a 12 month 0% overdraft. After the first year you are charged 50p per day for being overdrawn up to a maximum of £5 a month.
Have your say: How do you rate your provider? Give feedback on your experience with your savings, loan, credit card or debt solutions provider and help others decide which provider to choose. Can you 'beat the credit crunch' and save as much as some of our other customers? Don't forget to let us know how you get on by posting in our community forum.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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