Current account guides

Package accounts -The death of free banking?

Hazel Cottrell hazel.cottrell@consumerchoices.co.uk

With the potential death of free banking on the horizon, we ask - is it worth paying for a packaged current account? (Updated 2/7/09)

The UK is one of the only countries in Europe that still offers free banking, but this could all be about to change. The Office of Fair Trading is currently in a High Court battle against eight major banks over unfair overdraft charges. If these charges are declared “unfair” and ruled against, many predict that banks will look elsewhere to make their profits and start charging for the privilege of banking.

If this does happen, “added-value” package accounts may seem more attractive. But what are the advantages of paying to bank? Are the perks worth the charge? We investigate.

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• What is a packaged account?
• How much do they cost?
• Are they worth paying for?
• Case Studies
• Recommendations
• What's available?

What is a packaged account?

Packaged or “bundled” accounts cost you a monthly fee, in exchange for which you are offered a range of benefits and services. Although these benefits are promoted as “free”, clearly you are actually paying for them.

The perks vary from bank to bank and also by how much you pay each month, but may include:

• Travel insurance
• Car breakdown cover
• Mobile phone insurance
• Identity theft assistance
• Preferential interest rates on credit balances and overdrafts
• Reductions and special offers on the bank’s other products

Whilst it may seem patently obvious, these accounts are only “good value” if you actually use the services. It is also important to remember that often some services which are included in the package will require you to register separately before you can make use of them.

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How much do they cost?

Generally, these accounts cost around £10 to £15 a month (£120 to £180 a year), but they can be more expensive. At the time of writing, Barclays is charging up to £25 for its Premier Life Account, which is aimed at high earners and, as well as the usual perks, includes a “Lifestyle Management service”. Barclays claims to provide you with a team of “experts” and promises to organise services from sourcing concert tickets to finding you an electrician!

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Are they worth paying for?

With package accounts, the value really depends on your individual needs and whether you will take full advantage of the benefits offered.

At the time of writing, Barclays says its Additions Active account (with an annual cost of £168) offers an annual benefit of up to £790, which is a lot of cash. However, you will only effectively be “saving” £790 if you make full use of all the benefits offered and crucially, if they are services you would normally have had to purchase anyway.

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Case Studies

We can see the relative value of packaged accounts with Jake and Maggie:

Jake is a jet setting businessman who spends many hours driving to and from the office and is prone to misplacing his flashy mobile phone. He takes multiple trips abroad, often taking his whole family with him and being a big music fan, he likes to get the best offers on gig tickets. His annual costs are:

• Worldwide Family Travel Insurance – £80
• Mobile Phone Insurance – £60
• Breakdown Cover – £38
• TOTAL - £178

A packaged account could suit Jake perfectly. Depending on the account he chooses, and the benefits it offers, he could save s fair bit of cash.

Maggie doesn’t own a car, owns a cheap functional mobile and makes one trip to France each summer. Her annual costs are:

• Annual Costs: Single Trip Travel Insurance – £12
• Cost of replacing mobile (if necessary) – £10
• TOTAL - £22

Package accounts are not for Maggie as her relevant annual costs only amount to £22 and she would not benefit from the services offered. She would be much better off with a standard current account.

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Recommendations

• It is crucial that you work out the savings that you personally will make by opening a package account. Package accounts can save you money, but it’s important to do the sums first.
• Check that the cover offered, for example with travel insurance, is at the level you need. Make sure the policy includes cover for the duration of your holidays and not just while you are “travelling” (on transport).
• Your specific needs may change from the time of opening the account. If you find that you are no longer benefiting from the extra services, be sure to look around for a more suitable deal or return to a standard current account.
• Bear in mind that many credit cards offer free travel insurance, so if this is the most relevant benefit for you, you may be better off with one of these.

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What's available?