Don't Be Mugged By Your Bank!


Updated on 16 December 2008 | 0 Comments

Packaged bank accounts charge monthly fees in return for services of dubious value. As this survey proves, they're pants.

According to a report from uSwitch, we Brits are wasting hundreds of millions of pounds every year, thanks to packaged current accounts.

These current accounts charge a monthly fee in return for a package of 'free' additional services of dubious value, such as travel insurance, car breakdown cover, free card protection, etc. Note the ingenious use of the word 'free' to mean 'paid for', because you really do pay over the odds for these services!

The report found that one in six UK adults has a packaged current account -- a total of eight million people. A sixth of these customers (16%) believe that they were 'automatically upgraded' to a packaged account by their bank, so 1.3 million people have been duped into accepting a costly upgrade. Another third upgraded after being persuaded to do so on their banks' advice, which adds another 2.7 million people to the list of those who've been conned into buying overpriced rubbish linked to their current accounts.

What's more, it's reckoned that one in nine of the UK's forty million current account holders pay a monthly fee for packaged accounts, which comes to 4.4 million people. With the average fee being over £10 a month, we Brits are wasting a whopping £530 million a year on packaged bank accounts. Ouch!

Frankly, upgrading to a packaged account is the same as paying a monthly fee for the privilege of being cross-sold additional financial products by your bank, which is absurd. The most popular products cross-sold to packaged account holders are savings accounts (37% of customers opened one), overdrafts (32%), travel insurance (28%), card protection (23%) and credit cards (22%).

Alas, this research found that over a quarter of packaged account holders (26%) don't even bother using the "free" perks on offer, as they have these benefits elsewhere! Nevertheless, the market for packaged accounts has grown strongly, growing from just 6% of the current-account market in 1998 to a fifth (20%) today. This is largely down to the sneaky marketing strategies used by banks to switch customers to these accounts, while upping their monthly fees every few years to boost profits.

Now for the really bad news: despite being promoted as 'premium' or upmarket current accounts, packaged accounts pay truly awful rates of interest on credit balances. As the table below reveals, the average rate of interest before tax on packaged accounts is less than 1% a year, which is pitiful -- and the overdraft rates aren't so great either!

Packaged current accounts with monthly fees

Bank/Account name

Credit
interest
rate
(% AER)

Overdraft
interest
rate
(EAR)

Monthly
fee
(£)

BARCLAYS

First Additions

0.10

9.90

5

First Additions (Option A)

0.10

9.90

5

Additions

0.10

9.90

10

Additions (Option A)

0.10

9.90

10

Additions Plus (option A)

0.10

9.90

13

CO-OPERATIVE BANK

Privilege

0

12.90

7.50

Privilege Premier

0

9.90

12

FIRST TRUST BANK (NI)

Packaged Account

1.81 (tiered)

9 (ABR)

8

Bonus

0.10

9 (ABR)

2

HSBC
Bank Account Plus

0.10 (tiered)

12.80

12.95

LLOYDS TSB

Select Plus

4 up to
£5,000

14.80

7

Select

0.10

17.70

7

Gold Service Plus

4 (tiered)

14.80

10

Gold Service

0.10

16.20

10

Platinum Plus

4 (tiered)

10.00

15

Platinum Current

0.10

11.20

15

NATWEST

Advantage Gold

0.25

15.98
(tiered)

12

Advantage Private

1 (tiered)

9.92

18.50

NORTHERN BANK (NI)
Northern Choice Plus

2.52

7.44

10

ROYAL BANK OF SCOTLAND

Royalties

0.20

15.98
(tiered)

6

Royalties Gold

0.50

14.03
(tiered)

12

Royalties Premier

0.5 (tiered)

9.77
(tiered)

15

SMILE
Smilemore

3.04

9.90

7.50

ULSTER BANK (NI)

ufirst Current

1 (tiered)

9.30

7

ufirst Gold

2.02 (tiered)

7.10

11

YORKSHIRE BANK
C/A Plus Private Offset

0.10

8.29

12.50

Average

0.98%

11.73%

£10.04



Source uSwitch, 13/09/06

(Note: ABR = above base rate, which is 4.75% a year at present)

In summary, it's almost always a terrible idea to buy most or all of your financial products from a single source, particularly high-street banks. If you're too lazy to shop around for Best Buys, let your mouse do the work for you, because it's a doddle to find great financial products online. So, if your package isn't up to scratch, get rid of it -- you can compare current accounts via the Fool.

Happy hunting!

More: You deserve a better current account, credit card and personal loan!

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