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Package accounts - are they worth the fees?
Updated: Tuesday 3 January, 2012
By Martin Fagan
With banks under the cosh and seeking to squeeze their existing customers for more profit, many are steering customers towards “packaged accounts” that offer a number of perks in return for a monthly fee. But is the fee worth it? And why are these accounts being investigated by the FSA?
The UK is one of the only countries in Europe that still offers free banking, but this could be about to change. Banks seeking to claw themselves back to profitability are desperate to get customers to pay for current account banking services they previously received for free. To this end, banks are trying to sign customers up for packaged accounts - current accounts that charge a monthly fee but offer “free” perks such as travel insurance, mobile phone insurance and breakdown cover.
But what are the advantages of paying to bank - are the perks worth the monthly charge? We investigate.
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- What is a packaged account?
- How much do they cost?
- Are they worth paying for?
- Case studies
- FSA issuing selling guidelines for packaged accounts
- Things to consider
- 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’ll be charged each month in order to be eligible for them, 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 they offer. 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.
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.
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 £180) offers an annual benefit of up to £809.26, which is a lot of cash. However, after deducting the £180 annual fee, you will only effectively be “saving” £629.26 if you make full use of all the benefits offered and, crucially, if they are services you would normally have had to purchase anyway.
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 a 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:
- 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.
FSA issuing selling guidelines for packaged accounts
The number of people with a packaged account has escalated in the past few years, with about one in five of the UK adult population now owning one. The range of different packages available has nearly doubled in the four years to 2012, which the Financial Services authority (FSA) says is making it difficult for consumers to make an informed choice.
This is especially when you consider that, according to independent financial number cruncher Defaqto, the price of packaged current accounts has increased by 109% in five years (2006-2011), so there’s an incentive for banks to sign people up for such accounts.
The FSA has responded to concerns from consumers by proposing new rules to make sure banks check a customer can use the facilities included with their account before concluding the sale. Going further, consumer watchdog Which? wants banks and building societies to publish the cost of each individual component of a packaged account so that customers can compare like-for-like in the wider market to see if they’re getting a fair deal.
The Financial Ombudsman Service, which deals with customer complaints about the financial services industry, said it sees a steady flow of about 150 complaints a year regarding packaged accounts.
Things to consider
- It is crucial that you work out the savings you will make by opening a package account. Package accounts have the potential to 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” (en route to your destination).
- 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 some 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.
What's available?
Find out by comparing popular current accounts and package current accounts with Creditchoices.co.uk.