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.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Jeremy Clarkson 'sees no problem' with his racist language on Top Gear, says BBC
- 2 'Alien thigh bone' on Mars: Excitement from alien hunters at 'evidence' of extraterrestrial life
- 3 Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
- 4 London restaurant 34 creates champagne glass modelled on Kate Moss’ left breast
- 5 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
Bin bag full of cats' heads discovered near Manchester's Curry Mile
Disgusting, frustrating, but intriguing: how the country really feels about its politicians
iJobs Money & Business
£550 - £650 per day: Orgtel: Business Analyst - Traded Credit Risk - Investmen...
£55000 per annum: Harrington Starr: A financial software vendor at the forefro...
£600 per day: Harrington Starr: .NET Developer C#, WPF,BLL, MSMQ, SQL, GIT, SQ...
£65000 per annum: Harrington Starr: A financial software vendor at the forefro...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony