Banks shift towards fee-paying accounts
Current accounts charging a fee increased by 48% between March 2008 and May 2010, according to new research.
There are now 49 current accounts charging a monthly fee - so called packaged accounts -compared to 33 just over two years ago, says data provider, Moneyfacts.
During the same two-year period, the average fee charged has increased by 29% – from £11.50 to £14.88. A general trend has also developed for companies to only offer their best products to their most profitable customers.
Darren Cook, spokesperson for Moneyfacts, says: “Banks are very keen to move customers onto a fee-paying account as they know in most instances the customer will pay the fee and rarely use the benefits attached.
“Once a customer is signed up to a fee-paying account, providers are normally very reluctant to downgrade them back to a standard account.”
Research released earlier this month by analysts at Defaqto showed only 6% of adults change their bank account each year. The main reason for this is that many people worry the switch will be a tricky process, resulting in direct debits or other payments going astray.
David Black, banking specialist at Defaqto, says: “Consumers should look at their current account and see if they can get a better deal elsewhere. There are some generous introductory deals available, which include high interest rates, 0% introductory overdraft rates and even a £100 cash gift.”
Currently, interest rates on current accounts are trumping many in the savings market, so it may be worth your while to shop around for a competitive rate and get away from paying fees.
If you’re thinking of switching current accounts, head to this guide to find out how.
A current account that charges a monthly fee in return for a “package” of additional services, such as travel insurance, credit card protection, mobile phone insurance, identity theft insurance, car breakdown cover or a “concierge service” that will book airline and theatre tickets or restaurant tables. However, many consumer experts say the features are overpriced and that more competitive deals exist elsewhere in the market and that very few packaged account holders actually take advantage of the features.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.