Tony Levene is a renowned financial journalist, who has previously been a columnist for Guardian Money. He has written several books, including 'Investing for Dummies' and won the ABI Lifetime Achievement award and the Headline Money award.
Free current account banking for in-credit customers is under fire. In May, UK chief banking regulator Andrew Bailey called for a debate on the long-standing scheme. And in June a departing boss at a high street bank said regulators should ban free accounts.
They argue that “free banking” is a misnomer – that it has to be paid for somehow, just as a licence fee finances the BBC, taxes the NHS, and advertising Google.
'Packaged accounts' cost from around £7 to £25 a month depending on the bank and the deal choosen.
The hidden costs of in-credit banking are virtually invisible interest on balances and high costs for those who overdraw, especially inadvertently.
Most banks would probably prefer to stick with the present model, remembering that 20 years or so ago, some tried imposing annual credit card fees. Customers migrated to non-charging providers.
But the majority of high street banks are already charging some customers a monthly fee in return for a bundle of additional benefits.
“Packaged accounts” cost from around £7 to £25 a month depending on the bank and the deal customers choose. In return, they get “extras” on top of the usual current account features.
These additional benefits vary according to the price level and the bank. But most provide travel insurance, car breakdown cover, and a policy that promises to replace your mobile phone (increasingly tablet computers as well) if it's lost or stolen. Many also give discounts on the bank's own mortgages, pay a little extra on savings accounts, offer reductions on travel and theatre tickets, as well as a legal helpline. Some top end packages offer “concierge” services that help visitors in foreign cities.;
According to the Financial Conduct Authority, there are some 10m packaged accounts in use – roughly one in four people pay the monthly fees, twice as many as four years ago.
Comparison rule one is to turn monthly fees into annual costs – so the packages range from £80 to £300 a year. Then see how relevant the components are to you - rather like there's no point buying a supermarket “cheese selection” if you only eat Stilton.
The insurances – travel, phone and car breakdown – are the major attractions. Not everyone needs these – your mobile phone may have seen better days, many either don't own a car or have a rescue service built into their motor cover, while not everyone travels.
These plans vary tremendously in quality so consumers need to compare like with like to see if they can do better buying the components individually.;
Some travel policies may have exclusions such as anything outside Europe, winter sports, people over a certain age, other family members, or luggage over a certain value.
Road rescue may exclude “at home” or help getting to your destination. And look carefully at mobile phone policies – they may duplicate household contents insurance or limit theft to acts of violence so you can claim if you are mugged but not if the phone is lifted from your handbag or pocket.
Mortgage discounts are only worthwhile if the loan is already a best buy while many discounts on hotels, travel and entertainment are easy to find elsewhere. And what is the point of access to airport lounges if you travel from small airports which do not have these facilities?
According to banking analysts Defaqto, there are some 70 packages to choose from.
Many banks now offer a wide variety, often presenting customers with pick'n'mix options so those not needing roadside help or mobile phone cover or travel insurance can deselect unwanted elements.
In part, this is a reaction to the FCA which, last November, warned banks against selling insurances to those who could never claim. The watchdog launched a consultation on these accounts and will make a final announcement in July (2012).
But irrespective of whatever the regulator may determine, packaged accounts are only worthwhile if you can use all or most of the elements – and provided the quality of the components meets your needs.