Premium accounts: Bank like the rich and famous
If you’re lucky enough to be a high earner, or have significant sums saved or invested, you may be eligible for a 'premium' bank account. Effectively, they're packaged accounts for the well-to-do.
Think of them as the middle ground between packaged accounts - current accounts that come with added benefits such as travel insurance that are available to the masses in return for a monthly fee - and private banking, which has long been the preserve of aristocrats, oligarchs and, more recently, footballers.
Besides the wallet-sized status symbol that is the flashy debit/credit card that generally comes with the premium account, there are four main advantages of having one.
1. A more personalised service: premier customers usually get access to a 'premier banking team' that will give you support over the phone. But if you're really lucky/rich, you'll get a 'personal account manager' who will be available to you by phone, and maybe face to face depending on your circumstances - or how many zeros your bank balance contains.
The more personalised service is the main attraction of such accounts for many customers. And, of course, for the banks, the more often they're in touch with their rich clients, the more money they stand to make from selling them other products and services.
2. Added extras in the shape of preferential rates and fees: customers are often able to get better savings and mortgage rates or reduced fees. Let's take a look at the perks granted to HSBC Premier customers to illustrate this point. First off, they can get an interest-free overdraft facility up to £500, subject to status (while all other non- student/graduate HSBC account-holders must pay for their overdrafts).
They can also access a regular saver account, paying 6% gross interest fixed for 12 months (while standard bank account customers get 4%) and the Loyalty Cash Isa, which pays 1.6% AER variable (1.4% for standard bank account customers).
A personal loan is also on offer and Premier customers can borrow between £7,000 and £25,000 at a rate of 3.9% APR variable. While non-Premier customers can borrow at the same rate, they can only do so for amounts between £7,000 and £15,000.
Moving on to mortgages, various savings apply, and usually on the booking fee. For example, the two-year fix at 70% loan-to-value at 2.19% has a booking fee of £999 for non-customers, £499 for standard current account customers and just £299 for Premier customers.
3. Convenience: Premium accounts often position themselves as a tool for busy professionals. For example, they generally allow customers to withdraw larger sums of cash from ATMs per day. Barclays Premier customers can withdraw up to £750 a day, compared to the £300 available as standard. Other perks are marketed for their convenience, too.
For instance, most premium accounts come with worldwide travel insurance for the customer, their spouse and dependants (when travelling together) – so that's one last thing to worry about when organising that umpteenth trip of a lifetime.
4. Perks: Even the rich get satisfaction from getting something for nothing and premium accounts usually make a song and dance about the sheer number of rewards, discounts and special deals they give their customers access to. For example, the Barclays Premier account doles out free cinema membership, access to an exclusive lounge at London's 02 for the customer plus two guests, free entrance to 280 English Heritage sites and free entry to exhibitions at the Royal Academy.
If you're drooling at the thought of all of the above, here are a few other points you should consider before revving up the Jag and cruising down to a local bank to open an account.
How do they differ from packaged accounts?
Packaged account benefits such as travel insurance have been widely criticised by customers and the financial services regulator and ombudsman for failing to offer value for money because customers were often unable to claim on the policies.
As a result, many banks have ditched their accounts. Premium banking accounts differ from packaged accounts in that the added extras in the form of insurance products aren't the main draw for customers - the more personal service is. This makes them more similar to the world of private banking, where the ultra-wealthy receive a highly personalised service and enjoy the prestige this affords them.
Traditionally, there haven't been monthly fees for having a premium account either (although, as mentioned above, the NatWest/RBS account is an exception). This is because the banks make money from the services they're able to upsell to wealthy customers, who usually have more complex needs than the rest of us.
For example, they may need separate accounts for foreign currency transactions to do with running second homes abroad and the bank earns fees from those transactions. And, of course, the more money a customer has deposited with a bank, or invested with it, the more profit the bank can make by lending out that money to other customers.
Where can I open a premium account?
The choice is shrinking, after Santander, Lloyds and TSB all pulled out of the broader packaged account market in an attempt to distance themselves from criticism that such accounts offer consumers little to no value for money. In fact, customers with Santander Premier or Premier Direct accounts saw them converted into Everyday accounts as recently as 30 September.
So to cut a long story short, just three high street banks offer premier bank accounts to new customers - HSBC, Barclays and NatWest/RBS.
Am I eligible for a premium account?
A minimum annual salary or level of savings and/or investments usually applies. Barclays sets the minimum annual salary at £75,000, which must be paid into the account, while the threshold for savings and investments is £100,000.
HSBC's minimum level of savings or investments is lower at £50,000 but the annual income is higher at £100,000. But even £100,000 a year isn't enough to get you in, you'll still need a mortgage with the bank or an investment, life insurance or other protection product.
Eligibility for the NatWest/RBS Black Account is also restricted to those who earn £100,000 a year, customers with a minimum outstanding NatWest/RBS mortgage of at least £300,000 can also apply, as again can those with savings and investments of at least £100,000 at the bank.
How much will it cost me?
Of the three UK high street premier account providers, only NatWest/RBS charges, for its Black Account at £24 a month. However, banks inevitably claw back cash through product and commission fees.
Should I open premium bank account?
One wealth manager told Moneywise that most of his clients have some form of packaged or premium account and view them positively. However, he says: "I question the value of such accounts when a monthly fee is involved.
The banks rely on inertia - the fact that customers are unlikely to take full advantage of the rewards on offer to make the fees worthwhile. So I'd advise clients paying for such accounts to look at other alternatives such as the Santander 123 Current Account that pays 3% on balances between £3,000 and £20,000 in return for a much lower monthly fee of £2."
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
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.
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.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
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.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.