Millions are losing out on current account 'freebies'

Barely half of customers who pay a monthly fee to banks, and are offered extras such as travel and breakdown cover, take advantage

Normally in life you get what you pay for, but it seems not in the world of fee-charging packaged accounts.

Despite coming with fees as high as £25 per month and promising all sorts of freebies – such as worldwide travel insurance and car breakdown cover – many account holders are not making use of the benefits, either through ignorance or the benefits' limited or inappropriate nature.

In fact, according to comparison service Moneysupermarket.com, only 52 per cent of people who pay for their bank account make use of the benefits; of these, only half are making the most of them on a regular basis. The comparison site's poll also revealed that 13 per cent of packaged account holders aren't even aware of what benefits they are paying for.

"Fee-paying accounts are now very much part of the UK's financial landscape," says Kevin Mountford, head of banking at moneysupermarket. "However, it's worrying to see many consumers don't know what they are paying for and aren't making full use of the benefits they are entitled to. The decision to pay for a current account shouldn't be made on a whim, particularly with a wide number of rates and fees on offer."

To make matters worse, fee-paying accounts are getting more expensive. Financial information firm Defaqto's says that the average monthly fee has risen from £10.65 in 2006 to £15.58 today; some cost as much as £25 a month. Halifax has also recently announced it will add a further £2.50, bringing the monthly fee up to £15 from Thursday.

Price aside, it seems the big problem with packaged accounts is that with various products bundled together, it can be tricky to work out how valuable they really are. A bank may boast that its "added value" account comes with hundreds of pounds' worth of benefits but these figures are often based on average prices, not best buys. If you were to take the time to pay for all the relevant benefits as standalone products, you may find that the packaged account is worth far less than you think.

"The highest value incentives offered by most packaged current accounts tend to be travel insurance, motor breakdown assistance and mobile phone insurance," says David Black, Defaqto's insight analyst for banking. "As with insurance when sold on a standalone basis, the level and type of insurance, and other benefits, within a packaged account vary across the market."

Breakdown cover and travel insurance offered with some packaged accounts might be worth paying for. Ski enthusiasts, for example, could benefit from the Co-operative Bank's Privilege and Privilege Premier accounts, costing £9.50 and £13 per month respectively. With the cheaper account, the main benefits include worldwide family travel insurance (which includes scuba diving, golf and winter sports), mobile phone insurance, 20 per cent off the Co-op's own home insurance and an automatic £200 interest-free and fee-free overdraft. The pricier account includes UK and European motor breakdown assistance and a £300 free overdraft.

For people who work abroad regularly, the HSBC Advance account, costing £6 for the first three months and £12.95 thereafter, provides free cash withdrawals abroad as well as preferential rates on mortgages and savings accounts.

However, because packaged accounts are not tailored to an individual's specific needs, you would be pushed to find anyone who could make use of all the benefits in any given account. A single person who travels rarely, for example, has no use for worldwide, family travel insurance and equally, non-drivers are wasting their money on accounts offering car breakdown cover, whether it's comprehensive or not.

Many accounts will also include mobile phone insurance and ID theft packages, but even as standalone products they are often labelled as worthless by experts.

"Most people wouldn't go out and buy ID protection insurance unless it was offered in something like this," says Dan Clayden, a chartered financial planner from Clayden Associates. "All the benefits might look quite good packaged together but you could be paying for something you don't really want or need."

Mobile phone policies are notorious for being full of awkward exclusions such as a limit to cover for unauthorised calls, or a maximum number of replacements allowed in any one year. You may also have to pay considerably more to cover smartphones, or agree to pay a high excess.

It's also important to avoid duplicating cover by checking that you don't have one or more of the benefits already. Your mobile phone may be covered under your home insurance policy or you may be able to get travel insurance through work. Similarly, if anyone takes money from your account fraudulently your bank is already liable to refund you (as long as you have taken reasonable care) so ID theft cover offers little extra protection. You may be offered access to your credit reports but you can access these yourself for £2 from the credit reference agencies.

Other benefits such as discounts on home or car insurance and preferential rates on other financial products with the same bank, whether it's a mortgage, savings account or credit card are also common, but there is every chance you could find better rates by shopping around.

If the main benefit of a packaged account is focused on one feature, it's worth working out if it really pays for itself. For example, you may be attracted to an account offering travel insurance for you and your family, but if a quick online comparison search shows that a family could buy worldwide annual cover for as little as £40, is it really worth paying well over £100 a year for the account?

The message is to do your homework and ask yourself three key questions: do I need these benefits? Can I get them cheaper elsewhere? And do I already have cover elsewhere? And, if you do decide that a packaged account makes sense, remember to review it regularly along with all your other financial products.

"People do tend to stick with what they know but things are getting tighter nowadays. Utility and petrol prices are going up so it is something you should check at least once a year just as you do with your car and home insurance," says Mr Clayden.

Case Study

Robert May, Paramedic

Robert May, 26, from Hackney, east London, has been a joint holder of a HSBC Advance packaged account along with his brother Andy, 28, for more than a year. The big pull for the pair was an ongoing preferential rate on their HSBC mortgage, which saves them 0.01 per cent.

"We got the account when we took out the mortgage as the better interest rate on the tracker made the account fee negligible. As it's a joint account we get all the benefits for the same fee that an individual account holder would have," says Robert.

The brothers pay only a few pounds each per month for the savings on their home loan but they have yet to see the worth of any of the other benefits except for Robert's car breaking down on the motorway earlier this year.

"The only benefits I really know about or have used are the free travel insurance and breakdown cover, which is actually only roadside assistance. And they were awful – the company took hours to arrive," he says.

Despite this, both are happy to keep paying HSBC until they start looking for a new mortgage deal. In the meantime, they say switching to a different current account simply isn't worth the hassle.

Expert View

Dan Clayden, Clayden Associates

"We're going to see more banks going in the direction of charging current account fees. Looking at some of the packaged current accounts, many offer useful products such as travel insurance or breakdown cover, but you must check the small print and look at the level of cover you get. Banks rely on client inertia – you may feel that they offer convenience but you could be paying for stuff that you don't need."