Post Office: Transparent accounts, but are they right for you?

The Post Office is launching three current accounts, but you could possibly do better. By Chiara Cavaglieri and Julian Knight

The Post Office has finally unveiled details of its new range of current accounts after announcing its intention to enter the market last month. There are three accounts to choose from, all aimed at very different customers, but how do they stack up against the best of the rest?

Initially, the accounts – Standard, Packaged and Control – are only available in 29 branches in East Anglia, with a wider rollout across the national network planned for next year. By that time, the market will be perfectly primed for competition as the new seven-day switching regulation will be introduced this September, making it easier for customers to switch banks.

The Standard account is the most straightforward offering with no monthly or annual fee to worry about. You can set up an account with an opening deposit of just £100 and when you apply, you can request an overdraft facility, which is currently charged at a lower-than-average rate of 14.9 per cent EAR. On top of this, there are no unarranged borrowing charges, although items returned unpaid or bouncing are charged at £15 a go.

"Consumers tell us they feel penalised by complex and expensive bank charges and fees. When they go overdrawn, they often don't realise how much it will cost, and this can have a real impact on their finances. With the Post Office what you see is what you get – no surprises, just a fair and transparent way to manage your money," says Nick Kennett of the Post Office.

If you are always in credit, there are better current accounts such as the Halifax Reward account, which is offering a £100 switching incentive as well as £5 for every month you're in credit, or Nationwide's FlexDirect, which pays 5 per cent on balances up to £2,500, although with these, you have to fund the account with up to £1,000 every month.

Despite the lack of in-credit interest, the big selling point with the Standard account is its transparency. The authorised overdraft rate of 14.9 per cent compares favourably with the average rate of 15.99 per cent, and with no charge for an unauthorised overdraft, the average rate of which is 20.84 per cent, you won't be stung by unexpected costs.

So far, so good then, but things get a little more complicated with the Packaged account. As an "added-value" account, this provides a range of additional benefits including multi-trip family travel insurance and vehicle breakdown cover, in exchange for a monthly fee of £8.

As with the Standard account, the overdraft costs 14.9 per cent EAR and there are no unarranged borrowing charges. However, if you aren't going to maximise all of the benefits, you won't get value for your money. The travel insurance cover is limited to Europe and the other benefits are nothing to write home about, with identity theft protection and a discounted Post Office travel booking service that saves you up to 7.5 per cent on various holidays.

"People will welcome the commitment to providing straightforward bank accounts without hidden charges. But while 'free banking' has always been a myth, anyone thinking about paying for a packaged account with insurance included should carefully consider whether it does represent good value for money for them," says Which? executive director Richard Lloyd.

Many other banks have come under fire for the way they sell this type of account. Just three in ten packaged account holders use their benefits regularly, while two in ten have never used them at all, according to a recent uSwitch.com survey. There have even been concerns over mis-selling as some customers were paying for an account and benefits that they could never claim on.

The Post Office's third offering, the Control account, also carries a fee, this time of £5 a month, despite being aimed at customers on lower incomes who may have struggled to manage their finances in the past and can't get a regular bank account.

"The Post Office Control account is effectively a basic bank account, for which there are many other similar products in the market. A fee of £5 per month is expensive, given that most banks do not charge a fee for these types of accounts," says Brian Brown of analysts Defaqto. Charging financially disadvantaged customers a monthly fee does seem harsh, and could put off the very people who need this service the most, yet there are some attractive features.

The minimum opening deposit is just £20 and although there is no overdraft facility or debit card (you get a cash card instead to withdraw money), you can set up direct debits and standing orders. The Post Office has said that customers could save on average between £125 and £215 through being able to switch their utility payments to direct debit. More importantly, there are no charges for bounced payments such as direct debits or standing orders. Other basic bank accounts charge up to £25 a time for payments when there aren't funds in the account.

While none of the new Post Office current accounts on offer could be accused of being terribly exciting, each one has been set up to appeal to quite distinct needs. As a trusted brand, transparent and simple features are the way to go and with such a large branch network, it could become a serious challenger in the current account market by the time it rolls out to all 11,500 branches in 2014. But that doesn't mean there aren't better accounts for you.

"It is important that anyone looking to open an account considers the benefits on offer and looks at alternatives as these accounts aren't among the market-leading offers currently available, and don't offer some of the incentives available on other accounts such as credit interest and interest-free overdraft facilities," says Charlotte Nelson of Moneyfacts.co.uk.

Market comparisons

Top current accounts for in-credit

Nationwide, BS Flex Direct

Minimum monthly funding: £1,000

AER: 5% up to £2,500

Post Office, Standard Account

£100 deposit required to open account

AER N/A

Top current accounts for unauthorised overdrafts

Santander, Everyday Current Account

Overdraft rate: 0% for 4 months

£1 per day capped at 20 days per month

Post Office, Standard Account

£100 deposit required to open account

Overdraft rate: 14.9%

Basic accounts

Lloyds TSB, Cash Account

Charge N/A

Post Office, Control Account

Charge £5 per month

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