Packaged accounts: are they worth it?

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Consumer researchers Mintel estimated that in 2009 there were 8.5m packaged bank accounts in the UK. Now, it says, there are more like 10 million.

Certainly, anyone with even the briefest acquaintance with their bank is likely to have noticed the difference.

The number of packaged accounts available almost doubled between 2007 and 2010 and, during that same period, banks have gone down the most surefire route for signing up new recruits: targeting their own customer base.

But, the FSA has warned banks and building societies that too many consumers are ending up paying over the odds for their banking.

Are they right? Are packaged current accounts worth it?

What's in a packaged current account?

According to Defaqto research from 2010, packaged current accounts typically include:

• Commission free foreign currency and travellers' cheques (91%)
• Travel insurance, often travel accident insurance instead of full cover (81%)
• Discounts or better rates on the bank's savings accounts (80%)
• Mobile phone insurance (72%)
• Other insurance such as ID theft protection (more information here)
• And some also promise enhanced customer service

Some accounts also offer motor breakdown assistance or home emergency cover and banks often promise preferential rates on borrowing, a huge potential saving for those using their existing current account provider as a lender.

The same Defaqto research found that fees charged on packaged current accounts increased by 42% in the same four year period: from an average of £10.51 to an average of £14.89 a month.

Are they worth it?

Research suggests that it's unlikely that most consumers paying for their current accounts are getting good value for money.

A Moneysupermarket survey found whether or not they checked before applying 48% of those with packaged current accounts don't take full advantage of the benefits.

And of those that said they do use some of their accounts' benefits, half don't do so on a regular basis.

Useless policies

"We are concerned that it may be too easy at the moment for firms to sell customers something they do not understand or need," said Sheila Nicoll, the FSA director of policy.

"We want to make sure that packaged accounts are only being sold to customers who have actively decided it is the right product for them."

Year after year, packaged current accounts, alongside many of the products that they sell, end up in lists of the most pointless financial products: expensive and often offering insurance cover that's likely to either be unlikely to ever pay out or just doubling cover that consumers more than likely have elsewhere.

The onus is on consumers to check that they'll be able to take advantage of all the benefits of the packaged accounts they're being sold.

If they find that they won't be using a significant proportion of the products included in the monthly price it's highly likely that they'd get better value by getting a free account and taking out any additional products separately.

New rules on selling

Even so, new guidelines aim to give those getting the hard sell on current accounts more protection.

The FSA says that financial providers should take reasonable steps to establish whether a customer is eligible to claim the benefits that they're being sold.

In particular, it said, banks and building societies must tell the customer if they'll be ineligible to claim for at least three years under the policy terms.

Customers should also be provided with an annual letter setting out their eligibility for their products.

Providers must also keep a record, for at least three years, of the suitability assessment and of the advice given.

The fact that the FSA is insisting that firms keep impeccable records suggests that it's taking a hard line on mis-selling, as it should following the PPI debacle.

It's up to consumers to make sure financial providers stick to that line.

Changing the rules

Finally, however, there's nothing to stop current account providers from changing the rules on their customers.

In August 2011, for example, Halifax increased the price of their Ultimate Reward account and changed its benefits.

The account's AA breakdown cover, for example, started to include Home Start which is just what it sounds like (help if your car doesn't start in the driveway) and is worth £50.

And the account's Home Emergency Cover got an upgrade to include tenants as well as home owners.

Of course, though, even those upgrades are only good value if they're actually used.

For those that own rather than rent, for example, the Home Emergency Cover change makes not a lick of difference.

All in all, it seems unlikely that all of Halifax's customers are benefiting fully from the extras included in the packaged account price.