Paid-for accounts: are they worth the cost?
Is free banking set to become a relic from a simpler, less fee-focused banking regime? Judging by the number of costly 'packaged' products creeping onto the current account market, it's only a matter of time until conventional free accounts become a real rarity.
But are we getting value for money? Or are banks simply pushing current accounts in much the same way that they once sold payment protection insurance to so many unwitting customers?
Charging customers £10 or £15 a month for a packaged or 'privilege' account is an easy way for banks to raise revenue. The Financial Services Authority (FSA) said as much way back in 2011, writing in its Retail Conduct Risk Outlook: "Another option for banks to increase their fee income is to increase the number of products like current accounts that charge a fee in exchange for additional features."
Former retail bank manager David Wilson, 32, from Newcastle, has witnessed first-hand the sort of aggressive sales tactics that branches employ. "As soon as a paid-for account is given a sales target, impartiality goes out the window," he says.
As a NatWest employee, David saw how important sales of packaged accounts were for the bank's income: "They use these accounts to provide revenue. This means branch staff aren't impartial - cashiers are pushed to sell accounts while serving customers."
This sales culture eventually became too much for David: he left in 2007 to start his own financial services company, NE Money.
In a Moneywise poll, 59% of respondents claimed their banks tried to sell them fee-paying accounts.
James Harley, 48, from Edinburgh, is one reader who is fed up with the constant sales talk from his bank, Clydesdale: "Nearly every time I go to the bank I get asked if I want to upgrade my account. I wish it would make a note after two or three times, and leave it for six months."
However, there's a striking difference between visiting a branch and making a telephone enquiry. Moneywise called the main packaged-account providers (Santander, Lloyds, the Co-Operative Bank, Barclays, Halifax and NatWest) to see if any were putting undue pressure on customers or misleading them.
In each case, the agents stressed that while they could provide information on the benefits available, they couldn't offer advice.
In 2010 an FSA report warned that the regulator intended to monitor banks' sales practices more closely. As a result, it seems providers are on red alert when it comes to recorded telephone calls.
Banks are also more keen to capitalise on their existing customers. Even online customers are not immune, with reminders to upgrade every time they log in.
What's it worth?
So how worthwhile are packaged accounts? For some, such an account provides a useful one-stop shop for products; as well as being convenient, it can save them money, provided the benefits suit them (see below). Unfortunately, many customers find themselves paying for benefits that they don't use or that don't suit them.
Indeed, this is the other big issue with 'added-value' accounts. For example, if you pay £12 a month but the only benefit you use is mobile phone insurance, you should be able to find cheaper cover elsewhere or as part of your contents policy.
"If you've only got a cheap pay-as-you-go phone, it's likely two or three months of account fees will cost as much as a new handset; the amount you can reclaim on call charges will also be low, given that there will typically only be £10 or £20 credit on it," says Graeme Trudgill, spokesperson for the British Insurance Brokers' Association.
You can often get standalone products more cheaply elsewhere. Insureandgo, for example, offers basic annual family worldwide travel cover for £75.26, compared with the travel cover offered by banks, which ranges from around £200 to £365.
Banks will argue this is because their policies are better quality, but Trudgill warns that there are cases of packaged account travel insurance that don't offer baggage or even personal accident cover.
Other extras such as card protection can seem handy - increasingly, services will replace, at no extra cost, all the cards in an owner's wallet, including a driver's licence, a new sets of keys and even a new passport. But if you're simply prone to misplacing your card, then your bank should replace this free of charge anyway.
Free credit reports and checks are another feature, but by law everyone is entitled to an annual report for just £2 a year, and although the banks allow you unlimited access, this is hardly enough reason to pay a monthly fee.
Likewise, extended warranties are only worth the paper they're written on if they cover products for a long time after their purchase, as the manufacturer's guarantee covers items for the first 12 months, and the Sale of Goods Act says that retailers are liable to pay for any repairs, replacements or refunds if an item isn't 'fit for purpose' up to six years after purchase.
Even benefits like preferential overdraft rates and better mortgage deals should be set against the £100-plus annual fee.
A pinch of salt
It's also extremely difficult to compare accounts and standalone products. Banks do now list a breakdown of benefits and calculate their value, but you should take these values with a pinch of salt.
Take Lloyds' AA breakdown cover for its Silver account: it's worth £56 and covers "single personal breakdown cover including roadside assistance and accident management". But a search on the AA website reveals that you can get this level of cover for £28.
The banks bump up the supposed value of their extras to make it look as though you're getting a better deal. As well as being misleading, this makes it hard to know the true worth of these extras and to compare like-for-like.
So while a paid-for account can provide value for money, many don't. Be very wary, and don't rely on the banks to give you the full story.
When is it worth paying for your current account?
Some older people struggle to find competitive travel insurance, but can get cover through their packaged account. Jack Leonard, 76, from Sutton Coldfield is a case in point.
Jack pays £12.95 a month for his Lloyds Gold account. "The most important thing it gives me is free basic annual travel insurance, which I wouldn't get at that price anywhere else at my age. I can then get pre-existing conditions (including a stroke) covered for around £155 a year," he says.
"I also get car breakdown cover and mobile phone insurance. They can 'rip me off' any time they like for that."
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.
All limited liability companies registered in the UK are compelled by law to compile a report once a year on the company’s accounts and directors’ statements must be issued to shareholders and filed at Companies House. A report details a company’s activities throughout the preceding year and its contents will include chairman’s statement, auditor’s report and detailed financial information such as cash flow and balance sheet statements.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.