Packaged current accounts: The Good, the Bad and the Ugly

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Packaged Bank accountsLike buy-one-get-one-free deals and voucher discount codes, packaged accounts – where financial provisions are rolled up together, typically via a current account deal – are becoming increasingly popular. But are they actually worth the monthly fee, and can you save money by having one?

What is a packaged account?

A packaged current account is a current account that charges you a monthly fee for receiving a number of additional services, such as mobile phone insurance, travel insurance, car breakdown or credit card protection. There are about 54 million active current accounts in the UK and packaged current accounts make up about 17% of the market in terms of account ownership.

The banks love packaged accounts: since 2006 the number of packaged accounts has increased by 109%, according to Defaqto, the independent financial research company. Five years ago there were just 33 packaged current accounts, today there are 69. In fact, since November 2009 there have been more packaged accounts available than free in-credit accounts.

Monthly fees

The average monthly fee for a packaged account has increased over the same period, too, up from £11.59 in 2006 to £15.44: monthly fees now range anywhere from £6.50 to £40 per month.

While it sounds like a great money-saving idea to have all your insurance covered, such as for your car, phone and travel needs, on one simple monthly cost, there is plenty you need to be aware of before you decide to choose a packaged current account.

What do they offer?

The type of services and products on offer for packaged current account holders varies considerably. Incentives can range from deals on home insurance and car breakdown to more unique opportunities such as access to discounted share dealing services, airport lounge access, identity theft assistance and even spare key storage.

So the first thing to be aware of is the different services on offer. You should always focus on whether or not you will see any benefit from the additional service. For example, if you already have an annual car breakdown policy as part of your car insurance deal, do you need it twice via a packaged account?

Do the benefits actually get used?

Consumer group Which? has found that a third of people don’t use any of the benefits offered with packaged current accounts. This means that they’re wasting between £240m and £320m in bank fees each year. No wonder the banks love packaged accounts so much!

The Financial Services Authority (FSA) estimates that one in five of the UK adult population now has one of these accounts, and concerns have been raised about the transparency of the accounts themselves. In October the FSA proposed new rules to make sure banks and building societies check customers are eligible to claim on insurance cover before selling them a packaged bank account.

Should you sign up for a packaged account or not?

If you are buying everything that is included in a packaged account individually then a packaged account is going to save you money. Take a look at our table below to see how an average packaged account compares with the average prices of individual items.

It’s most likely though that you won’t be buying each item, you will be picking and choosing what you need, so this is where you need to do your sums. If you travel abroad a lot or own a car for example then you need to compare the price of buying insurance separately versus a packaged account that will include other benefits you might not use.

Packaged accounts Sources: Defaqto, http://www.barclays.co.uk, http://www.24drtravel.com/, http://www.theaa.com/breakdown-cover/index.jsp, http://www.cusc.co.uk/, http://www.cpp.co.uk/, http://www.warrantyshop.co.uk, http://www.gadget-cover.com/

It depends on your circumstances

As you can see, our table shows that it can be cheaper to go with one of the averagely priced packaged accounts rather than buying everything separately but depending on your circumstances it might be cheaper to choose your benefits separately.

It’s better to buy benefits separately if you only use one or two

You might only really need travel insurance or breakdown cover so that would be cheaper than a packaged account with other benefits you don’t use. Or you might just need gadget insurance and card holder protection in which case it would be cheaper.

If you are only going to use two or three of the benefits found in a packaged account then it’s generally better to buy separately.

For each proposed benefit that a packaged account promises to offer, think about whether or not you will need that cover or benefit. It really is that simple. It is also important that you check to see you don’t already receive any of the relevant benefits from other products you may have – such as phone or contents cover.

Policy Expert

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The views expressed here are solely those of the author and do not necessarily reflect the views of Policy Expert.