Get the most from your packaged account
The number of paid-for accounts, or 'packaged accounts', has risen by 94% in four years, says research specialist Defaqto. There are now 64 packaged products compared with 61 standard accounts on the market.
And, according to data provider Moneyfacts, fees have gone up by an average of 29%, from £11.50 to £14.88.
Given that practically every other country charges customers for banking services, perhaps we shouldn't be so surprised.
In the US, customers can still get a free bank account but they have to open a savings account or mortgage that links in to the current account, and they will still be charged for cheque use and cash withdrawals from other banks' ATMs.
It's the same story in Canada, while in Australia there are additional charges for telephone banking and paying bills, as well as monthly fees.
European countries also tend to charge monthly fees or impose transaction limits. A recent report, The Price of Banking, by economic consultants Oxera for the British Bankers' Association, compared the cost of banking in 11 developed countries.
Italy, France and Germany fared particularly badly, whereas the UK was in the top three, alongside the Netherlands and the US, in terms of competitive pricing.
Cathy Neal, senior researcher at Which? Money, believes November's Supreme Court ruling on overdraft charges in favour of the banks has meant they now have less incentive to push packaged accounts so aggressively.
"If the banks had lost the case, a fee-paying structure might have become the norm," she says. "They would have used fees as a way to recoup their costs."
But packaged accounts aren't about to disappear under the radar. "Banks are spending more on advertising this sort of account, and they'd certainly like us to move to a fee-paying system," Neal adds.
David Black, banking specialist at Defaqto, believes the number of fee-charging accounts will continue to rise, with providers offering a selection to suit different needs.
"Many providers have a range of entry-level accounts, with a couple of incentives; then a mid-range with more extras; and premium packaged accounts that even offer concierge services," he says.
But while – from the provider's point of view – personal accounts are a great income-spinner, for the consumer, the added benefits are often simply not worth the cost.
Which? Money issued a report last year that looked into the benefits offered by packaged accounts.
Citibank's Plus account, for example, offers travel insurance and breakdown cover valued at £46, but the annual cost of the account is £120, leaving £76 unaccounted for. Ostensibly, the monthly charge vanishes into an admin-costs black hole.
So, it pays to make sure that if you do have a packaged account, you can at least take advantage of the benefits. "With travel insurance, for example, you could find it's just for Europe, or doesn't include winter sports, or has age restrictions," Black warns.
However, if the travel insurance does apply to older people, it could represent a better deal. For example, Alliance & Leicester's Premier 50 current account offers worldwide multi-trip insurance up to the age of 79 to both members, if it's a joint account.
Another potential benefit of packaged accounts is the attractive mortgage deals that lenders offer to current customers. "Nationwide, RBS, HSBC and Halifax are some of the big names that give discounts on their mortgages with packaged accounts," says Black.
Plenty of benefits, though, have no real value – you could get a better price elsewhere for legal help, mobile phone insurance and commission-free travel money, for example.
Also, a lot of packaged deals include identity theft insurance, but under the banking code, your bank is legally obliged to refund you if money is fraudulently taken from your account.
Legally, banks can't automatically upgrade you to a packaged account, but Neal says many people call the Which? helpline saying they didn't realise they were paying for the service.
"It's too easy, when you walk into a branch and are asked 'would you like to benefit from x,y and z?', to agree without knowing if you need the benefits, or what you're paying," she says.
Once you've upgraded, (although rare) you could end up being locked in for a minimum period. For example, HSBC Advance account holders have to sign up for a minimum 12 months.
However, there's still a wide range of standard, free current accounts available for the UK consumer to choose from. For example, Santander's Zero Current account has a 5% in-credit interest rate.
You can get the same in-credit interest rate with its Reward account – but that costs £10 a month.
We're not imminently due to switch to a structure where it costs to get cash out of an ATM other than our own bank's, but what does the future hold?
"Certainly, in the medium term, I suspect we're looking at a situation where everyone will be paying for their account," Black predicts.
So, with fee-paying accounts a very real prospect, it could pay to make the most of free banking while you can.
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.