Packaged bank accounts: Real value?
Friday, 07 November 2008 12:50
As yet another 'added value account' hits the high street, consumers may be tempted to take advantage of the offers available. But are these accounts, which typically carry a monthly charge, worthwhile or just another way for banks to make money?
Sarah Routledge investigates the world of premium accounts and what you get for the price tag.
Added value, or packaged, accounts charge customers for their current account but offer more services in return. Banks are keen to persuade customers to take up these products as it provides a regular income, especially now fees on overdrafts have been called into question.
However, packaged accounts have often been criticised in the past for including 'benefits' which are actually of little use for their customers. How do the most recent additions fare in comparison?
Several banks have already launched their own version of packaged accounts, but Co-operative Bank and Abbey are the latest banks to enter the market, with accounts they claim offer better value.
Abbey, part of the Santander Group, has launched two new bank accounts specifically for frequent travellers - the Travel Reward and Family Reward.
Both accounts cost £15 a month but the benefits outweigh the cost, according to Abbey. The Travel Reward Bank Account includes annual multi-trip travel insurance, holiday discounts and airport lounge access, add up to £830 each.
The Family Reward Bank Account includes benefits worth £844.99, including holiday discounts, gadget insurance, mobile phone insurance and legal advice services, among others, Abbey claims.
Abbey says it has carefully tailored the benefits to be worthwhile to customers, so they are genuinely good value.
Steve Shore, director of Abbey Banking, says: "Added value accounts can be great value - but only when customers actually use the benefits.
"Our accounts have been designed so that the benefits are relevant to the needs and lifestyles of our customers and they can maximise the value they get from their account."
Kevin Mountford, head of current accounts at moneysupermarket.com, says: "For those who travel or for families the benefits of these two new Abbey products look well targeted.
"Consumers with the time and inclination may well be able to source the individual elements cheaper elsewhere (for example Flexicover worldwide annual - travel insurance for a family is £41.50 rather than the £150 value suggested by Abbey).
"However, for those that don't want to shop around both of Abbey's new policies look worth the £180 annual price tag - always providing you actually use a good number of the features."
The accounts are exclusively available online to Abbey e-banking customers by going to www.abbey.com. They are not available in branch or over the telephone.
The Co-operative Bank has also recently launched two packaged accounts, which the bank claims is tailored to the customer's needs.
The accounts are slightly cheaper than the Abbey offering, with the Privilege current account costing £8.50 per month, while the Privilege Premier current account is available for £12 per month.
Included in both accounts is worldwide family travel insurance, mobile phone insurance, a free legal services advice helpline and 20 per cent off home insurance with Co-Operative Home Insurance.
With Privilege Premier, European motor breakdown cover is also included. In addition, the Privilege account includes a fee and interest free overdraft of up to £200 and the Privilege Premier has an overdraft worth £300.
In addition, there are three add-on packages to these accounts: 'gadget', which provides insurance cover for a range of household electrical products; 'safeguard', which covers against ID theft and includes handbag insurance; and traveller, which provides airport lounge passes and a luggage recovery service.
Dick Parkhouse, managing director of retail at The Co-operative Bank, said: "Until now, packaged accounts have been one-size-fits-all for customers. However, our new offering moves current accounts onto a new level by allowing consumers to tailor benefits to their lifestyle.
"Customers can also make significant financial savings from the comprehensive range of benefits that come with both the Privilege and Privilege Premier current accounts."
David Black, principal consultant of banking for Defaqto, said: "This move from The Co-operative Bank is a sign of things to come. Product differentiation is continuing apace in the current account market and it was only a matter of time until someone launched a menu option with a pick and choose approach to incentives."
There are several other packaged accounts already on the market from other banks.
Fees vary depending on the benefits, so it is worth shopping around if you are considering taking one.
It is important to work out whether you will use the benefits, then calculate whether it would work out cheaper to buy the product separately.
For example, Abbey claims its annual multi-trip travel insurance policy is worth £150, but there are cheaper insurance policies around that may better suit your needs.
Also ID theft protection may sound good, but banks already have to cover any losses from identity theft already.
However, if you are sure you will use both the travel insurance and the other benefits, such as the annual airport lounge access, this account becomes very good value.
Similarly, make sure you do not double up on insurance, as with the Co-Operative account some of the items insured under the 'gadget' add-on may already be covered with contents insurance.
What we couldn't find out - unsurprisingly - was how often bank customers claim on these insurance policies compared to standard insurance policies. Our gut feeling is most people sign up, feel good about the benefits and largely never use them.
Are packaged current accounts good value? Great value for the banks, less so for customers.
Sarah Routledge
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