Packaged accounts, which charge monthly fees in return for benefits such as travel insurance and breakdown cover, now account for more than half of all available current accounts.
Extras worth the extra cost?
The perks attached to these accounts have improved in recent years and, provided accountholders make full use of them, paying a monthly fee for the account could work out to be more cost-effective than if you were to buy all the benefits on offer independently.
For example, Barclays Additions Active current account costs £15 a month and comes with world-wide family travel insurance, mobile phone cover, RAC motor breakdown cover in the UK and home emergency cover. It also gives customers a £300 interest-free overdraft limit.
Barclays claims that these benefits are worth £800 in value, so, as long as you take advantage of them, you will save a substantial £620 even once you’ve deducted the £180 annual cost of the fees.
Similarly, HSBC’s Advance account, which costs £6 a month for the first three months and £12.95 a month thereafter, comes with up to £500-worth of benefits, including world-wide family travel insurance, exclusive mortgage offers, roadside breakdown assistance, £3,000 of life insurance cover, access to a 12-month fixed rate cash individual savings account (ISA) paying 2.85%, and identity theft assistance.
Other benefits offered by packaged accounts include 20% off family days out at over 200 UK attractions, accidental death benefit, extended warranty cover and commission-free travel money.
These benefits could prove extremely useful depending on your needs but, before opting for a packaged account, make sure you aren’t paying for something that doesn’t suit your individual requirements. For example, if you don’t have a car, there’s no point paying a fee for a current account which provides you with breakdown cover.
Similarly, the 5-star multi-trip worldwide family travel insurance offered by the Royal Bank of Scotland’s £12.95-a-month Royalties Gold account is great if you have a family but for singletons it doesn’t really make sense.
Couples or single people might be better off going for Lloyds TSB’s Gold account, which comes with comprehensive worldwide travel insurance for you and a partner, if you have one. This account costs £7.95 a month for the first two months and £12 a month thereafter.
You should also bear in mind that, if you have been tempted by a packaged account because it offers you preferential mortgage rates, depending on your mortgage size, the fees could potentially wipe out much of the financial benefit of the lower mortgage rate. In addition to this, even once rates are discounted, the deals provided may not the most competitive in the marketplace.
This means that you need to sit down and work out the real financial benefit of choosing a packaged account. Worryingly, it appears many of us don’t do this.
According to research by consumer organisation Which?, one in 10 people questioned fail to use any of the extras they are paying for, while only 12% of packaged accountholders use all the benefits on offer.
Which? also said that over a fifth of people with packaged accounts hadn’t even asked for them, claiming that their accounts were automatically upgraded by their banks.
If you’ve got a packaged account that you’re not making the most of then contact your bank and ask to switch back to a standard account.
Fee-free but packed with extras
Some of these fee-free accounts come with perks too, but at no added cost. For example, Halifax’s Reward Current Account not only pays you £5 a month if you are in credit – plus £50 cashback if the account is opened through moneysupermarket.com. Halifax current account customers also benefit from beneficial rates on some savings and mortgage accounts. For example, its Websaver Extra account offers a rate of 2.60% to non customers, but you’ll receive a higher rate of 2.80% if you have your current account with Halifax
Similarly, the Alliance & Leicester Premier Current Account comes with free annual multi-trip European travel insurance, plus a £100 switching incentive, while its Premier Direct Current Account pays 5% interest and offers access to the Premier Regular Saver account which pays an impressive 6% gross interest a year, provided you use A&L’s switching service. It also gives you access to take out the Santander Zero Credit Card which has no balance transfer fee, no cash advance fee and no foreign exchange fees.
Other competitive fee-free accounts include Lloyds TSB’s Classic Plus Account with Vantage, which entitles accountholders to commission-free foreign currency and non-sterling American Express Traveller’s Cheques, and First Direct’s 1st Account which will credit your account with £100 if your salary or income is paid into the account for at least three months after opening the account.
You can also earn some decent rates of interest with free accounts – both Alliance & Leicester’s Premier Direct Current Account and Santander’s Preferred In-Credit Rate Account pay 5% gross interest on balances up to £2,500. After that, and for balances over £2,500, the rate drops to 0.10%.
Switching to the right deal
Whichever current account you go for, make sure it suits your needs. And if you are paying a monthly fee and not using the benefits, switch now to save yourself money.
Kevin Mountford, head of banking at moneysupermarket.com, said: “Anyone with a packaged account who does not use the benefits should strongly consider moving to a standard, non-fee based account.
“Although the rates and benefits offered by packaged accounts can be quite attractive, it’s crucial that customers understand the product and make sure they can take full advantage of them or they will end up paying over the odds.”