Is this the end for packaged accounts?
Banks are having a rethink, and consumers may benefit. By Chiara Cavaglieri and Julian Knight
The packaged current account market could be on its last legs, with Santander the latest bank to pull the "added-value" products from its shelves. Packaged accounts have proved popular, with about one in five UK adults paying anything from £8 to £25 a month for a current account with "extras" such as travel insurance and premium customer service. At their worst, however, it's money down the drain for a service that is usually free plus a few limp products that you never use, or aren't even eligible for.
Consumer groups and regulators have already waded in amid concerns over mis-selling. Complaints to the Financial Ombudsman Service (FOS) are on the rise and the uphold rate is high. In the past three months the FOS received 736 new complaints about packaged accounts, compared with 1,629 cases during the whole of last year. The ombudsman finds in consumers' favour in two-thirds (66 per cent) of all cases referred to it.
"We do receive a significant number of complaints about the products 'packaged' with the accounts, from mobile phone insurance to travel insurance," FOS spokesman Rory Stoves says. "These problems tend to arise when people come to make a claim – only to find that their policy offers only limited cover or pays out only under the most particular of circumstances."
If the no-win, no-fee brigade turn their attention to packaged accounts, to attack banks as they did when the payment protection insurance (PPI) scandal blew up, it is no wonder some banks now think they simply are not worth the effort.
From October about 300,000 customers will be kicked out of Santander's reward and premium accounts and reverted to free accounts without perks – a move that follows the temporary withdrawal of Lloyds' packaged accounts and the closure of Co-operative Bank's paid-for accounts.
Of course many other banks are still happily turning a profit from these accounts and aren't so willing to change tack, but are any of them actually worth paying for?
The good news is that there has been a clampdown on the way that banks are allowed to sell packaged accounts, and it isn't the minefield it once was. In March 2013, new rules were introduced forcing banks to first check that customers would actually be able to make a claim on any insurance-based extras, and then provide annual statements so that people can check whether the benefits still suit their needs if their circumstances have changed.
So, once you're sure that you could potentially make use of the benefits on offer you need to check the details. At first glance, this will largely be down to preference. If you like films and music, for example, the NatWest/RBS Select Silver account costs £10 a month and comes with LoveFilm subscription worth £5.99 and five free downloads from HMV each month, as well as annual multi-trip European travel insurance with winter sports cover and mobile phone insurance.
The Post Office packaged account is a little cheaper at £8 a month (£96 for the year), with the main perks being European family travel insurance and breakdown cover from Green Flag. However, a quick search on a comparison site reveals that you could take out a similar travel insurance policy with CoverForYou.com for only £65 and annual breakdown cover for as little £30 – still only £95 in total.
Nationwide's FlexPlus account is also £10 a month but makes more sense if you're usually in credit because you earn 3 per cent interest on balances up to £2,500. The packaged benefits are also more encompassing as you get worldwide family travel insurance with winter sports cover, UK and EU breakdown cover, plus worldwide mobile phone insurance.
Kevin Mountford, a banking expert at MoneySupermarket, says: "For those looking for a one-stop, convenient solution, then packaged current accounts certainly have a part to play. However, make sure you will make the most of the benefits on offer otherwise you may be paying far more than you need to. The key is to think about how you use your current account, and then shop around for the deal that best suits your needs."
Beyond the headline features, you must read through the fine print. Understanding the exclusions is a priority. For example, many banks insist that travellers aged 75 or over must pay an annual £50 premium to be eligible to claim on travel insurance policies. Find out how much money you have to pay towards any given claim – known as the excess – and whether there is limit on the number of claims. NatWest Select Silver customers, for example, pay an excess of £75 per claim and are limited to two claims in any 12-month period.
If you're still tempted by packaged accounts, there are products that offer something of a halfway house, such as the Santander 123 account which costs £2 a month in return for cashback on direct-debit payments for household bills and in-credit interest of up to 3 per cent. Barclays also offers flexible add-on packs, enabling customers to mix and match various benefits.
This may indicate the way the market as a whole is heading, and in the not-to-distant future we may find that all of the UK banks charge a fee for even the most basic current accounts.
Charlotte Nelson at the comparison website Moneyfacts.co.uk says: "Eligibility is often an issue when it comes to insurance so it is quite possible that more accounts will come on to the market charging a small fee for various account benefits such as high credit interest or a better overdraft facility. It will be interesting to see if the current account market becomes more tailored, rather than the 'one size fits all' we have at the moment."
In the meantime it pays to concentrate on the truly important features as many current accounts, both standard and packaged, pay little or no interest and many impose hefty overdraft charges.
Consumers have always been slow to switch providers – largely because of the process – it currently takes between 18 and 30 days to transfer from one bank to another. But this will be soon be much easier. From September this year banks will have to limit the time it takes to switch to just seven working days.
The 'no-hang up' scam targets vulnerable people - and your bank may not protect you
Under new state pension rules we will all be much worse off
Budget 2015: George Osborne is set to get tough with further cuts in public spending
Energy giants overcharge us by almost £2bn as 70% of customers are on the wrong tariff, warns CMA
If a bank calls about transferring money because of fraud, you risk losing your life savings
- 1 Autistic teenager beaten up by bullies makes them watch 20-minute video about autism
- 3 World learns of app that shows you who unfriended you on Facebook, app promptly crashes
- 4 Chris Moyles reportedly set to make radio comeback with new breakfast show on XFM
- 5 The Greece debt crisis explained in less than 100 words
More Britons believe that multiculturalism makes the country worse - not better, says poll
Osborne to cap family benefits at £23,000 – announced ahead of his post-election Budget
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
Sickness and disability benefits could be reduced by £30 a week as part of £12bn welfare cuts
iJobs Money & Business
£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...
competitive: SThree: Are you passionate about sales?Do you have a keen interes...
£17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
Day In a Page
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.