Are packaged bank accounts a gimmick?
There’s something strange afoot in the world of packaged accounts. These are current accounts which package up a variety of benefits from travel insurance to deals on currency exchange, and charge you a monthly fee.
They have attracted criticism from experts; yet ask almost any of the one-in-nine people who have a packaged account and they’ll tell you they are delighted with the product. So who is right?
Let’s start with why the experts hate these accounts. Firstly, they are more expensive than people realise, and the cost is gradually creeping up. According to a report by Professor Merlin Stone from the University of the West of England, the average monthly fee for a packaged account has risen in the past 10 months from £11.50 to £13.20. That’s now a total of £158.40 a year.
Secondly, many of these so-called benefits are actually worthless. Some, such as ‘commission-free currency’ are available to anyone wandering into their local Post Offi ce.
Michael Taylor, money mentor with moneytactics.co.uk, says: “I have a packaged account that promises an extra 1% off the loan rate. I applied in January, got a loan at 8%, and when I took the paperwork into the branch to get 1% off the rate, they couldn’t do it.”
Similarly, he points out that ID theft protection on your credit cards is worthless: “Provided you haven’t been negligent, any card provider will take appropriate steps if you are the victim of fraud, and you’ll be reimbursed anyway.”
Thirdly, no package will ever entirely suit your needs, so you are paying for perks you can never get any value out of. Fourthly, even the benefi ts that have their uses may well be duplicated elsewhere.
Breakdown cover, for example, is offered in an increasing number of car insurance deals, while home emergency cover and legal assistance is covered by many household insurance policies.
A study by uSwitch found that nearly a third of packaged-account customers are lured by the free perks on offer, but 26% never use them as they already have a number of these products.
And finally, the experts are unimpressed with the marketing claims made to customers about the value of the benefits. Take the Bank of Scotland’s Royalties Account, for example. One happy customer told me the bank had explained he was getting annual worldwide family travel insurance worth £160, which he felt pays for the account on its own. However, a quick search of the market finds policies starting at just under £40.
The same customer told me he was getting mobile phone insurance worth £130. Even if you opted for the expensive cover from your phone provider, you would struggle to spend more than £80 a year on this, and standalone insurance would cost closer to £25.
It seems there is validity to the expert opinions. The question remains: why aren’t there hoards of angry customers demanding to be switched back into fee–free accounts? The root of the problem is that consumers believe the marketing hype when working out whether these products are worth the money. There are good reasons for this. In some instances, it simply isn’t possible to check these claims.
The breakdown cover, for example, has often been tailored specifically for the package, so if you go directly to the provider you won’t be able to fi nd an equivalent product to compare it against. But more usually, people simply don’t want to spend the time making comparisons.
This means a headline benefit like roadside recovery or travel insurance will convince consumers the entire package is worth the money, and the other perks are just nice little extras they get for free.
The other problem is that many people don’t realise there are drawbacks until they come to claim. Karen Beeney, a 32-year-old web administrator from Yorkshire, says: “I was actually quite shocked when I claimed on my mobile phone insurance, because there was a £35 excess. It seemed a bit steep when you can buy a cheap phone for that kind of money.”
The best advice is to dig out all the paperwork, do a comparison search, and if you still think it’s worthwhile, read through the policy’s small print. Of course, the vast majority of people don’t have the time for this.
So failing that, if you are tempted by one of these accounts, work out which of the perks you really want. Then do a quick search for just these benefi ts, to find out whether they are cheaper to buy together or alone.
There may be some consumers for whom these things offer value for money, but you can safely bet it’s nothing like the one in nine who actually have these accounts.
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.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.