The retail giant Marks & Spencer yesterday announced it will make its first steps into the current account market this autumn. As you'd expect, it's a current account with a difference. The main difference is the Premium current account comes with a whopping £240 a year fee.
The account – being introduced by M&S Money which is jointly owned by HSBC – will be offered from October. In return for the large fee, it offers a range of perks, which it hopes will be attractive to its 21 million customers.
If it can persuade its fans to stump up the cash, it could send a renewed message to the banking industry that it is possible to make people pay for banking. Currently most people expect free accounts, a hangover from the 1980s when the banks first competed with each other by slashing charges for cheques and other fees.
Since those heady days, all the banks have launched fee-charging accounts but to make them seem attractive have offered perks, such as free travel insurance or discount deals. But millions are yet to succumb to the gimmicks, preferring to keep their accounts for simple banking transactions, rather than pay out for dubious 'extras'.
M&S has made no attempt to attract those who seek free banking, instead focusing on goodies in return for a monthly £20 fee. Chief among them – if you're an M&S customer – are store and coffee vouchers. Most valuable is family travel insurance, which M&S says is worth £245.
In fact the store chain reckons the goodies are worth more than £500, making the £240 fee seem like a good deal. It's not a new concept. Banks have been trying the same game for more than 20 years. And commentators have been predicting the end of free banking ever since.
But M&S is likely to have a better chance of flogging the concept to its customers – after all some 150,000 already stump up £15 a month for its Premium Club, which offers extras.
Andrew Hagger, of Moneyfacts, thinks the new offering will have little impact on the wider market. "This new account from M&S isn't going to revolutionise current account banking in the UK," he predicted. "It's a niche packaged account product targeted at existing brand loyal shoppers."
Mr Hagger said he's surprised that M&S decided to come to market with a premium fee-paying current account. "It is likely to limit the number of people who switch from their current bank, although maybe this is part of the strategy. One can only presume that M&S avoided launching a mass market product to reduce the risk of being inundated with a huge influx of new customers that it couldn't cope with and therefore being unable to offer a good level of service."
Service is key for customers, rather than gimmicks. They want to know that their cash is safe and they can get it. It's that background that led to such problems for RBS and NatWest when its service crashed last month. If people have no confidence in a bank, they will not risk their cash. The RBS fiasco saw people leaving in droves. "If you asked people what they want from a bank, many will specify good customer service, low charges and a simple product," pointed out Mr Hagger.
However, if the M&S deal is successful, the banks will beef up their own offerings to persuade people to switch. Judging from historic experience with fee-paying accounts, few actually make the most of the added benefits, according to Michael Ossei, personal finance expert at Uswitch.com. "It remains to be seen whether or not the price tag of £240 a year is too steep.
"Although M&S claims the benefits are worth £500, many of them are only suited to loyal customers. And, as with many packaged accounts, not everyone will use the perks – just three in ten of all packaged account holders use the benefits regularly," he said.
Millions of people who think they get free banking do end up paying for it. That's because of the range of charges and fees they are slammed with if they dare to go into the red. The most recent Office of Fair Trading study found that more than 12.6 million people were hit by charges in a year. Almost 7 million paid at least £100 while 1.4 million were forced to pay more than £500 for their banking.
Meanwhile the Financial Services Authority has launched an investigation into packaged current accounts. It warned that many of the benefits are useless, especially the insurance and breakdown cover that many people may not be able to claim on.
The City watchdog will launch new rules before the end of the month and will force banks – and M&S when it launches its deal in October – to check whether customers are eligible for the benefits and tell them if they're not.
In other words, rather than making general claims about benefits, packaged account providers will have to calculate how much they are actually worth to individuals.
In many cases the figure will be pretty low which will make the accounts look expensive, rather than a good deal. And as current account providers are forced to be more transparent about their deals, they are going to be less likely to persuade people to pay for them.
Rival deals: Accounts money can buy
Monthly fees £9.50 - £13
Benefits include Travel insurance, mobile insurance, RAC breakdown, legal helpline, home insurance discount, mortgage offers, £200 - £300 overdraft
Monthly fees £10 for Premier Account; £6 to £13.50 for add-on packages
Benefits include Travel insurance, airport lounge access, gadget insurance, warranties, TV insurance, card protection
Monthly fees £12.95
Benefits include Cheaper overdrafts, free overseas ATM withdrawals, mortgage deals, travel insurance, breakdown cover, £3,000 life insurance
Monthly fees £8.50 - £12.95
Benefits include Travel insurance, mobile insurance, film and music downloads, breakdown cover, accidental death benefit of £15,000; deals on travel money, loans, overdrafts and mortgages
Monthly fees £9.95 - £25
Benefits include Travel insurance, AA breakdown cover, card protection, mobile insurance, home emergency cover, overdrafts up to £500