/ Money

Is it worth paying for your bank account?

Bank account package

A recent survey of 8,815 Which? members found that 30% of them pay a fee for their current/packaged bank account, with the majority believing they get a good deal. But is it really worth paying a fee for these accounts?

I’ve had a packaged back account for years. Twenty, to be precise. But it’s only in the past year that I’ve really thought about the benefits I get and whether they’re worth paying for.

Paid for accounts

Last December, a colleague wrote a piece about mis-sold package bank accounts and used mine for research. After a bit of digging, she discovered I probably had a very good case against my bank for mis-selling.

Back in 1996, I’d recently graduated from university and still had the debts to show for it. My local bank branch invited me in to discuss my finances and told me I had to clear my overdraft with a loan. Said loan, as it informed me then, was only available if I opened a packaged account. This came with several ‘benefits’, including travel insurance and car breakdown cover, although I didn’t really give them a second thought at the time.

With my colleague’s help, I sent off a letter of complaint and following a few phone calls with the bank, I was refunded £1,400 – the fees I’d paid over the years plus interest at 8% – within a fortnight.

Still paying the price

But that’s not where the story ends. At some point over the years, my account got upgraded. It too came with travel insurance and breakdown cover plus mobile phone insurance, only it was several pounds dearer per month.

When I got my compensation, I swore I’d sit down and work out whether it was really worth shelling out for. Would I be better off switching to a fee-free account and paying for the different insurance separately?

It’s only now that I’m revisiting it. Turns out I pay £204 per year for the account. If I got equivalent level multi-trip worldwide travel insurance, breakdown cover and insurance for my iPhone 5 separately, I’d pay around £50, £120 and £82 per year respectively. That all adds up to £252 per year, meaning – on paper, at least – I’m actually £48 better off if I stick with the package.

Value for money

Only I’m not. In the past 10 years, I’ve rarely stepped foot outside of Europe and definitely can’t afford to go there more than twice a year. That makes multi-trip worldwide travel insurance pretty redundant. Similar level single trip cover would only set me back around a tenner a trip. Then there’s the phone insurance. I’m probably already covered by my home contents.

In fact, the only benefit I’m likely to use in the package is the breakdown cover. And when you think about it like that, I’m paying an extra £84 per year for it.

Guess that’s that settled then…

Do you pay for an account? If so, why? Have you ever worked out if the benefits you get in a packaged deal are right for you?

Comments
Profile photo of VynorHill
Member

My bank has never offered me anything I would want to pay for except an annual fee for document storage. The day it begins to charge for my current account transactions is the day I leave it. If I want any added extras I’ll buy them as required.

Member
kel meyler says:
22 September 2016

I recently changed when my Bank closed its local branch and moved, the nearest branch contact 8 miles away [providing you have transport], then the new bank I moved to [no names but start speaking Spanish and counting from 1 up and you will know], they charged a £5 monthly fee and originally gave 3% back on balances up to £20k. But that is changing all I get at the moment is a reduction in this and a reduction in that from current accounts to ISAS, They say banking terms are changing to reflect the current financial market. There is no doubt they will still make their millions but the people who are losing out are the ones who have basic bank accounts with them. I think if truth be told their ??? account came to popular and they were looking for a way of not giving their customers to much financial benefit. I don’t doubt though the celebrities fronting their promotional TV adverts will still be well in pocket.

Member
John Rigby says:
23 September 2016

My current account is with a Building Society and last year I chose to pay £10 monthly when I upgraded to a ‘plus’ account. I now get interest on my credit balance and I usually this makes the net monthly cost around £3. The benefits I receive are free car breakdown cover in UK and Europe, loss or theft of my mobile phone, and holiday travel insurance at very reduced rates (I am 76)
I think this is often referred to as a ‘no brainer’

Profile photo of John Ward
Member

Just to be clear, John – are you saying you are getting £84 p.a. in interest on the average balance in your current account as well as the free breakdown cover, travel insurance, and mobile phone insurance cover? That really is a no-brainer [depending on how much you have to leave in the account to achieve that level of interest].

Profile photo of malcolm r
Member

Thing is, John W, we have to use our brains to work out whether a deal – like a bank account – is worthwhile or not, just like John R has. We cannot wander through life without making considered decisions, relying on “someone else” to do it all for us.

I must confess to not liking the term “no brainer” becasue essentially it means the opposite – you have used your brain to work out what is worthwhile, even if the decision seems clearcut. Some ignore clearcut benefits – like many of those on standard energy tariffs. 🙂

Profile photo of John Ward
Member

Yes indeed – it takes a decent brain to work out what is and what is not a ‘no-brainer’!

I just hope John R is getting what he says he is because it sounds a bit too good to be true to me. My average account balance in a Nationwide Flexaccount [current account] would not produce enough to justify switching to a Flexaccount Plus [packaged current a/c] so despite the constant recommendations on-line and in the branch I stick with the old trusty [which also provides ‘free’ travel insurance].

Member
John Rigby says:
24 September 2016

I have to respond to this. I have just checked my bank statements and since April when the interest on my credit balance became tax free, I have received on average £6 to offset the £10 monthly charge. I have kept around £4000 in credit balance because the interest I would get from my ISA is so ridiculously low. So a correction- I am getting back £72 per annum- but still a good deal.

Profile photo of John Ward
Member

Yes – you are working that account well, John, but, as I thought, at the cost of keeping a high average balance in the account. Very few people could [or would] do that which is why the banks have been pushing these packaged accounts as they expect to make money out of them.

I assume you are taking advantage of the fringe benefits on the account to effectively neutralise the residual £4 monthly charge [car breakdown cover, travel insurance, etc].

I agree with you that ISA yields are derisory and I wonder why they even exist given the new savings interest personal allowance.

Member
Panicos Nicolaides says:
9 October 2016

Panicos Nicolaides: I have a Nationwide FlexPlus packaged current account and a benefit you don’t mention in your October report is the facility of drawing cash from ATM’s anywhere in the world in local currency without any cost in commission charges or fees. As I spend a lot of time abroad, this is most valuable to me and the exchange rates are most competitive.

Profile photo of John Ward
Member

That is a good point Panicos. The equation will be different for each customer and those that can use most of the benefits should be in pocket at the end of year. I assume you have calculated that your savings on overseas cash withdrawals [and from any other benefits you avail yourself of that are not included within ordinary accounts] compensate you sufficiently for the monthly charges for running the packaged account. For example, free foreign travel insurance is included within certain current accounts where there are no service charges [although there might be a minimum monthly deposit requirement].

Profile photo of PanicosNicolaides
Member

John W. Yes, I’m at least £150 better off per annum with just the foreign cash withdrawals.

Profile photo of John Ward
Member

That is good, and I am glad the packaged account works for you. I expect you are one of the leading beneficiaries.

Member
Phil Ellaway says:
22 April 2017

I was paying Lloyds £25 a month for my Premier account, which gave me AA cover, mobile phone insurance, and travel health insurance for Free?.
I just complained and got over £5000, and signed up with Start rescue a Which service of the year in 2016 for £35, i’m not bothering with the phone and travel insurance, we don’t use it; and if we do we shop around.