Packaged accounts: How paid-for current accounts work
Packaged current accounts receive somewhat mixed publicity so it is worth spending some time examining what is actually on offer before deciding whether or not to open one.
There is a choice of 69 packaged current accounts available in the UK, and many of the High Street banks offer a range of accounts from entry level through to premium accounts.
The monthly fees charged for them vary from £6.50 up to as much as £40, although the typical account charges about £15 per month.
In exchange for this monthly fee they offer various benefits. The typical high-value incentives are travel insurance, motor breakdown assistance and mobile phone insurance.
They also offer a number of other incentives, such as card protection, discounts on other banking products, identity theft assistance, and, at the premium end, airport lounge access and a concierge service.
The Financial Services Authority (FSA) is currently in a consultation period looking at the insurance-based incentives offered by packaged current accounts.
Its proposals are aimed at ensuring customers are aware of whether the insurance offered is suitable for their circumstances.
These proposals, if implemented, should see that the insurance-related elements offered by packaged current accounts are more closely aligned to the actual needs of each customer.
There will also be an annual statement setting out the benefits, with a recommendation that the customer reviews their suitability. This is a really salient issue and highlights the fact that differing circumstances dictate different needs.
But is it worth having a packaged account or should you just use a free in-credit current account?
It has long been the case that the informed consumer should look at the incentives on offer and decide whether they need the incentive.
If so, is it suitable for them, do they already have a similar product in place or could they buy it more cheaply - independently - elsewhere?
Examples of cover
To give you a flavour of the sort of things to consider, have a look at travel insurance where there is a wide variation in the cover details on offer. Some just cover European travel whereas others provide worldwide cover.
Some just provide cover for the individual, whereas others may cover a couple and some cover the family. Family cover may, or may not, include step-children. Upper age restrictions may also apply. Some cover winter sports.
You need to consider each of those issues in relation to your own circumstances and decide whether the policy offered is suitable. So, for example, if you are a keen skier and the policy does not cover winter sports then you should look elsewhere.
Similarly, if you have a really expensive mobile phone then look at the coverage limit offered by the mobile phone insurance to find out whether it offers sufficient cover for your mobile. If you open the packaged current account, do not forget to register your mobile.
The motor breakdown policy might cover a single car, household cars or the account holder in any car. It might cover roadside assistance only or it might also cover one or more of the following: home start, towing, recovery and maybe even coverage in mainland Europe.
The insurance elements take some thinking about but it is worth stressing that some of the travel insurance can offer a valuable solution to the elderly who can struggle to find suitable cover elsewhere.
Another incentive offered by some accounts is discounts on entertainment tickets and these can prove very cost-effective to those who regularly attend gigs or concerts but, if you do not do so, such an incentive is largely irrelevant.
Most of the packaged accounts offer "commission-free" foreign currency and travellers' cheques but the value of such offers can be of questionable value because they do not address the differing buying and selling spreads on foreign currency that you will encounter if you do your homework and shop around for the best deal.
The discounted - or special - deals available on some of your bank's other products may or may not be worthwhile.
You are not tied to using the one provider for everything so it is always worth looking around to see if you can get a better deal elsewhere. Typically the preferential deals are mortgages, savings accounts, unsecured loans, credit cards and sometimes for things like home or car insurance.
So when you are offered a packaged current account, do not just sign up without really considering what it will offer you and whether the incentives are actually worthwhile for your specific circumstances.
There is a wide variation in what is on offer and the quality of the incentives can vary considerably.
Think carefully about what you actually need, whether what is on offer actually meets that need, and also do make sure that you do not already have that cover. For example, if you have recently bought a new car, it may have come with a motor breakdown policy.
Packaged current accounts can be good value but you need to check whether the incentives offered are both useful and appropriate for your needs.
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