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Your Money > Banking Articles > Are packaged bank...
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By Sarah Modlock
We hear more and more about the impending end of free banking, but for eight million people, it's already over. Packaged or 'premier' bank accounts are current accounts with extras for customers who are prepared to pay a monthly fee. Although the UK is one of the few European countries to offer free banking, eight million people prefer to pay an average of £120 a year for accounts that offer a range of extras alongside a normal banking service. According to Defaqto, there are 33 packaged current accounts on the market from 14 providers and they are big money-spinners for the banks, bringing in around £530m in fees last year, say uSwitch. But what exactly do you get for your money, are they worth the cash and will packaged accounts become the norm anytime soon? The costs Fees start from £2 a month at Northern Ireland's First Trust Bank and rise to £25 a month with Lloyds TSB's Premier and Premier Plus. Until recently, the Lloyds account charged £15 a month - a level which applies for the first three months before rising. can easily rise, too. The bank told customers that the extra £120 a year would give them protection against identity theft "worth up to £83 a year" and home emergency cover "worth up to £100 a year". This would come on top of existing benefits such as worldwide travel insurance, AA breakdown cover, mobile phone insurance, Sentinel card cover and a £500 interest-free overdraft. Customers had to accept the more pricey upgrade or switch accounts. This illustrates how easily these accounts can change and also gives you an idea of the type of perks on offer, which are used to attract new customers. HSBC's Bank Account Plus costs £12.95 a month offers discounts on mortgages, car insurance, loans and credit cards held with the bank. However analysis reveals the average interest rate paid on packaged accounts is just 1.5 per cent with two-thirds paying less than one per cent. Average monthly fees for the 33 packaged accounts on the market are £11.59 a month with the lowest at £2 and the highest £25, MoneyExpert.com analysis shows. Credit interest rates paid on sums of £1/£10 average just 1.5% with only 10 accounts paying more than 1.5%. "The accounts from Barclays, Citibank, Co-op, NatWest, Royal Bank of Scotland and Yorkshire Bank pay some of the lowest rates of credit interest on the market," says Michelle Slade of Moneyfacts.co.uk. "Lloyds TSB, along with NatWest and Royal Bank of Scotland, also charge some of the highest rates for an authorised overdraft." "From 1 May, Lloyds TSB will increase the monthly fee on its Gold Service and Platinum current accounts by £2 per month to £12pm and £17pm respectively, Michelle adds. "In return for the additional fee, account holders will receive an increased mobile phone insurance cover up to £2K, 'save my numbers' - which backs up customer numbers in their mobile phone and Airmiles if customers book holidays through the Lloyds TSB Travel Service. The £1 foreign usage retail transaction charge will also be scrapped on Platinum and Premier accounts. However, this charge is one that majority of other banks and building societies don't make. By transferring to one of the best buy current accounts you could not only save up to £300 through not paying the fee but in the case of Alliance and Leicester's Premier Direct current account you will receive 8.19% on balances up to £2.5K. The savings you make will more than likely pay the cost of buying some of these benefits independently." The extrasThe accounts have proved successful because they offer products such as free annual travel insurance, commission-free holiday money, discount deals with leisure firms and breakdown insurance in return for the fee. But weigh up the benefits before you take out a packaged account as many fee-free accounts can offer as good a deal. "These benefits can be quite attractive but only if you take full advantage of them, so make sure you register for them and make sure they fully meet your needs," says Michelle Slade of Moneyfacts.co.uk. "How beneficial is car breakdown cover if it only covers you on a limited distance from your home? Alternatively, how often do you lose your mobile phone?" Banks tend to claim that the perks on offer add value, though this is hard to justify. Travel insurance is a common feature, but while NatWest boasts that its cover is worth "up to £160 a year", a similar worldwide family policy can be found on the internet for as little as £62. When Which? spoke to premier account holders it found that a third already had travel and breakdown cover and a fifth needed neither product anyway. The switchOne in four account holders don't use the perks they get with packaged accounts because they duplicate the services or policies held elsewhere according to uSwitch. The firm has previously hinted that it believes some bank customers are automatically 'upgraded' to the fee-generating accounts. If this were indeed the case, it would represent a breach of the voluntary banking code but this is hotly denied by the banks. But research by Which? tends to suggest that the move from non-paying accounts to 'premier' versions needs to be more transparent. In recent research, the consumer campaigners found that 43% of those they interviewed were persuaded to upgrade by their bank (30% in branch, 10% by phone and 3% by email) 8% didn't know or couldn't recall how they got the account. About 15% of people told Which? they had chosen the account after seeing an advert or receiving a mail-shot. A further 13% were persuaded to upgrade by phone or email by their bank. But by far the largest group of people (about a third) were sold the account in person in a branch. Around half thought the accounts were excellent or good value, but one in seven thought the account was poor or very poor value. "They don't give good value and are just a way for banks to make money," says Which? spokesperson Mike Naylor. "Most people don't use the benefits they offer and the perks are often not worth the value the banks say they are. You can often buy the products cheaper elsewhere." If you are thinking of switching accounts or your bank is trying to persuade you to upgrade then take some time to think about exactly what you need from your bank. Whether your focus is on an overdraft or interest then you will almost certainly find the best deal by shopping around. Useful links: |
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