Packaged accounts: Are they a con?
By Kate Saines
Remember the day you opened your first ever bank account? There was probably only one feature you were looking for in this most basic of financial products- a safe place for your money to be paid into and withdrawn from.
With such a wide choice of banks, you might then have whittled down the options by picking the one in the most convenient location, or the one offering the best overdraft or having the best student facilities.
Whether the bank account came with mobile phone insurance, airport lounge access and a concierge service probably didn't even come under your radar.
But all that seems to be changing. Thanks to the increasingly competitive nature of banking we now have a selection of current accounts with bells and whistles. They are called packaged accounts, sometimes known as "accounts with benefits".
In a bid to make more money and be ahead of their game banks are including incentives, or added extras, as part of their accounts.
The most common 'incentive' offered, according to financial research company Defaqto, is commission-free travellers cheques and foreign currency.
Travel insurance, preferential rates for savings accounts, mobile phone insurance, travel discount and motor breakdown assistance are the next most common perks.
Of course, none of this is complimentary – in return the customer pays a monthly fee for these products. This fee can vary according to how many perks you have and how valuable they are, but generally they start at £5 and go up to around £40.
Defaqto said the average monthly fee offered by the 65 packaged accounts on the market in March 2011 was £14.88.
Critics argue these products are a con. Consumer group Which? went as far as to name packaged accounts in its list of ten most useless financial products in June 2010.
It slammed the accounts as costing up to £300 a year, which it described as a needless cost for those who did not use the extras and the benefits of the accounts.
And this is one of the main pitfalls of the accounts – that many benefits are never actually used by the customer.
What's more, many people make the mistake of paying for these additional features when they already own them.
Mobile phone insurance might sound like a superb bonus to your bank account. But if you are covered for the loss or damage of your phone on your home insurance, it's simply a waste of money.
Don't get conned
These products can, however, present great value for money if you use them correctly.
David Black, Defaqto's insight analyst for banking, said people first needed to think about the monthly cost of the account and the incentives being offered.
In other words do they need the incentives and, if so, are they suitable for their needs?
If you are saving for a deposit on a house by not going on holiday for three years, a packaged account with travel discounts would be completely pointless.
On the other hand, an account offering you a preferential rate on a savings account would be right up your street.
The next step is to ensure you are aware of what, exactly, each benefit offers you.
Mr Black said: "The high value incentives tend to be travel insurance, motor breakdown assistance and mobile phone insurance. But, do note, there can be substantial differences between what is on offer and the scope of the individual incentives."
By way of an example he explained with a travel insurance policy you'll need to check whether it just covers Europe or provides worldwide cover. And does it provide cover for the account holder only, or other family members?
"People shouldn't assume that a feature will cover all of their needs or that it is better than a product they already hold on a standalone basis," he added.
It's a classic case of checking the small print.
Mr Black added: "[People] then need to weigh up whether the incentives offer value in relation to the cost of the account."
"Importantly," Mr Black stressed, "people need to consider whether some of the elements are covered by other products they hold – for example, do they already have annual travel insurance or roadside assistance?"
The final tip for ensuring you don't get ripped off when it comes to packaged accounts is to do your research and compare lots of different products.
"As with all financial products, it is important for people to shop around to make sure they get the account that best suits their circumstances," Mr Black said.
Making the most of your packaged account
Once you've chosen the packaged account which suits your needs, it is important you continue to get your money's worth.
Mr Black said people should periodically review whether they continue to get value from their packaged account.
"It would be easy for someone to forget they have the benefits and stop using them, while continuing to pay the fee," he said.
It is also important to continue to keep an eye on the competition to make sure there are no new bank accounts with benefits coming on the market that would provide better value for money and keep an eye out for packaged accounts that suit you as your circumstances change.
In the rush to be at the forefront of this market the banks are continually coming up with new incentives.
Last year the Co-operative Bank was offering a 'try before you buy' deal on its latest packaged account. It was allowing complimentary access to its Privilege and Privilege Premier Packaged Current accounts for 12 months.
With these kinds of deals it's obviously important to ensure you do not run over the 12 months without assessing whether the product is right for you.
But, on the other hand, it's a smart way of finding out if a benefits package will save you money.
Banks are always offering incentives, so keep your eyes open and don't be afraid to switch if you find a better deal.
Use the Myfinances.co.uk's comparison tools to find the best bank account for your requirements
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