Packaged bank accounts & the missing 'free lunch'.

By Charlotte Yau

It’s often said that there is no such thing as a free lunch and the same goes for banking.

You may already have a ‘free’ current account, but you may pay an arm and a leg for using your overdraft. An overdraft isn’t the only extra you can get from your bank account.There are loads of bank accounts that charge you a monthly fee in return for freebies ranging from mobile phone insurance to breakdown cover. But are the benefits really worth paying for?

Packaged accounts do offer some top deals but complaints about these products are on the rise as often you may be paying over the odds for these so-called freebies.What is a packaged account?

What is a packaged account?

A packaged account is a standard bank account that bolts on extras in return for a monthly fee. You can get stuff like a fee-free overdraft, cashback or mobile phone insurance. However, deals will vary between accounts and between banks and you need to be sure you will make use of the bolt-on products to make paying for the account worthwhile.

Not surprisingly, banks are keen to shift customers over to these accounts. According to financial research company Defaqto, the number of packaged accounts available has more than doubled.

What’s the problem with these accounts?

Packaged current accounts are among the most complained about financial products according to the watchdog the Financial Ombudsman. In some cases, people had been ‘upgraded’ to one without being told.

Banks often claim that the savings to be made on these types of accounts can amount to hundreds of pounds, but sometimes the added extras are either unnecessary or could be bought cheaper elsewhere.

Do the maths

When you weigh up the benefits with the costs and compare deals, you might find the figures don’t stack up. For example, if you get breakdown cover thrown in with the account could you have bought it far cheaper separately?

Other ‘benefits’ include mobile phone insurance and home emergency cover, but you might already have both as part of your home insurance policy. Card protection is another feature, but it’s unnecessary as banks are obliged to refund card fraud anyway.

With some accounts you also need to pay in a minimum amount every month too, or you’ll be hit by a higher monthly fee. So make sure you read the small print!

Value is in the eye of the account holder

A current account is only ever good or bad depending on what you want out of it. You might value travel insurance and motor breakdown cover over visits to the theatre or eating out or vice versa.

Insurance add-ons can also prove handy if you can’t spare the minutes to compare standalone insurance deals. However, you should always take the time to check the terms and conditions are suitable.

Customer service is another consideration, as not all banks are rated equal and it could be a waste of time having a card with rewards if you can’t speak to someone over the phone to resolve problems.

Top takeaway

Before signing up to any packaged account, you should find out exactly what is included in the package. Compare the cost of the account, to if you went out and bought those benefits individually. This should give you clear idea of whether a packaged account is value for money. Remember there are other things to consider, such as the level of customer service from the account provider and how often you will use the added benefits.

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