Packaged bank accounts

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? That’s where packaged bank accounts come in.

What is a packaged bank account?

For a small monthly fee, packaged bank accounts 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.

Why do banks offer bank accounts with benefits?

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.

Do packaged bank accounts come with travel insurance?

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. Travel insurance is a common benefit that comes with a packaged account, however the offers differ from bank to bank. Here are 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

Are packaged accounts worth the money?

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.

Is a packaged account right for me?

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.

Packaged account mis-selling

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.

Packaged Bank Account FAQs

How do I find the best packaged bank accounts?

Every packaged account is different, with each offering a different set of benefits, along with a different account fee. Typically, packaged bank accounts offer things like travel insurance, breakdown cover, mobile phone insurance, home emergency insurance, preferential overdraft rates, and/or travel-related discounts and freebies. The best account will depend on your individual requirements, so be sure to read the terms and conditions before you apply for an account.

Are packaged bank accounts with phone insurance worth the cost?

Many of the packaged accounts offer mobile phone insurance, however, whether or not the account is worth the cost will depend on your eligibility and whether you will benefit from the insurance. Check the terms and conditions of the account policy as often, mobile phone claims will be limited to one or two claims per year. Remember that you may need to register your phone with the bank for it to be covered by your insurance.

What should I look out for when choosing a packaged account?

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.

How quickly can I open a packaged bank account?

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.

Are bank accounts with travel insurance for over 70s available?

Current accounts with travel insurance can offer a simple way to handle your banking needs and insurance in one place, however, not all accounts will insure all account holders. If you are over 70, make sure to check the terms and conditions of each packaged account to find out whether you are eligible for the travel insurance or whether additional cover is required.

Can you apply for a joint packaged account?

Yes, and in many instances, you will both receive the full suite of benefits for the same fee as an individual account.

27 November 2020