In the UK, we sometimes don’t realise how lucky we are to have such a competitive market for free bank accounts. If you stay in credit, you’ll never normally pay for the banking services you use – and you might even get a few freebies, if you shop around for a good deal.
Because they’re free, though, banks are fairly limited in the benefits and rewards they can provide. What if you wanted more from your banking, and you were willing to pay. What are your options?
Packaged bank accounts are the answer to this conundrum for many people. For a small monthly fee, they offer all of the functionality you would expect from a traditional account, together with a package of other features.
They are certainly not for everyone, but if you get the right packaged product, and use it well, they can be a great way to save money, and get benefits you might otherwise miss out on.
Usually, the combined cost of the various elements contained within a packaged account exceeds the annual fee, so are banks losing money on these accounts? Unlikely. But they’re not making much either.
The separate elements in a packaged account would cost you more if you bought them individually, because each organisation you purchased from would have their own costs and profit. Simply acquiring a new customer can be an expensive process. However, everyone needs a bank account, so organisations who partner with your bank can dramatically reduce what it costs to get new customers, and these savings can be passed on to you – in a similar way to group buying.
Of course, most packaged account suppliers are also commercial organisations, so it’s unlikely that they will be doing this out of the kindness of their hearts. There’s also something in it for the banks – loyalty.
Since the advent of the current account switch guarantee, swapping your bank account has never been easier. It can be done quickly and painlessly in just seven days. This is great for you, but less so for the high street banks.
Packaged accounts help banks increase customer loyalty, because although switching your bank account is a straightforward process, replacing all of the elements contained within a packaged account is a far more time-consuming and costly exercise.
Packaged accounts, then, are pretty much a win-win. Customers benefit from the discounted perks they offer, while banks benefit from increased loyalty and reduced customer churn.
Most banks offer a range of different packaged accounts, starting at a couple of quid a month and scaling all the way up to £20 or more. Here’s some examples of what you might get in a packaged account:
Travel insurance (European or worldwide)
Vehicle breakdown cover
Gadget/mobile phone insurance
Fee-free foreign cash withdrawals
Discounts/cashback on household bills paid by direct debit
Discounts/cashback from partner retailers/merchants
Discounts at some restaurants
Access to preferential savings rates and other financial products
It depends whether you would be buying the elements within the package separately. If you would, there’s a good chance a packaged account will save you money. If not, you’ll end up paying for things you’re unlikely to use.
If you think a packaged account might be right for you, grab your calculator and tot up what you are currently paying, or what you would pay elsewhere, for the various benefits on offer. Then consider which (if any) of the elements you might need within the next year, and what they might cost.
Armed with this information, you can calculate the annual cost of each account, and whether or not it exceeds the combined cost of the elements you’d normally pay for separately.
If the annual cost of an account exceeds the cost of the elements you’d use, then it’s not going to be right for you. Just so you have some idea, though, it is possible to save upwards of £500 per year with an optimal packaged deal – so it’s worth checking.
If the cost of the account is lower than the amount you would be paying for the individual benefits contained in the package, then probably.
However, even when you’ve done your homework to calculate the benefits of each account, you might need to do a little more research before applying. This is because the insurances available through packaged accounts sometimes contain exclusions based on your age and, in the case of travel insurance, existing medical conditions.
These exclusions won’t necessarily prevent you from applying for an account, but you might need to pay a supplement to access the cover. This can still work out cheaper than buying separate protection, but you should account for all of these factors before applying.
Because some people don’t qualify for some of the benefits they’re paying for, the FCA (Financial Conduct Authority) has investigated packaged bank accounts due to claims that they were mis-sold – in much the same way that PPI was.
There is undoubtedly some truth in the allegations, but the most persuasive cases are where customers were directly approached and sold the packaged account by their bank. If you have impartially assessed a range of packaged accounts and selected one based on your needs, claims are unlikely to be successful. The FCA has no intention to ban these products, so they clearly understand that for many people they are a valuable money-saving tool.
Every packaged account is different, with each offering a different set of benefits, along with a different account fee. Typically, such accounts offer things like travel insurance, breakdown cover, mobile phone insurance, home emergency insurance, preferential overdraft rates, and/or travel-related discounts and freebies.
This all depends on whether you will be eligible for all the benefits on offer (for example, some travel insurance policies only cover up to a certain age), and whether you will realistically use them. There is little point in paying (even at a discounted benefit) for phone insurance if you don’t own a mobile phone, or for travel insurance if you rarely go abroad.
First, you should check the level of insurance, as in some instances it may be too basic for your needs. Similarly, phone insurance may only cover certain handsets, with a premium required to cover your brand of phone. Always check the small print! Secondly, many of the extras that come with a packaged account may need to be activated before you can use them, so check out the process for doing this and make sure that you enable all your benefits as soon as the account is opened. Finally, if you decide that a packaged account is right for you, check that you are not doubling up by having the same insurance cover elsewhere.
Like ordinary current accounts, most high street banks offer the seven day switch guarantee, meaning that you can switch (along with all the associated direct debits and standing orders) within a week.
Yes, and in many instances, you will both receive the full suite of benefits for the same fee as an individual account.