The Nicest Current Account In Town

Szu Ping Chan takes a look at a bad type of bank account which could have some redeeming benefits.

This article was first sent to Fools as part of our The Good, The Bad and The Ugly email campaign.

Here at The Fool, we have a few basic principles we like to stick to. We call them `Foolishness'. Foolishness means you pay off your debts before starting to save, you shop around for the best deals and you don't buy unnecessary add-ons that could cost more than you bargained for.

However, I have a little bit of a dilemma. We've written about packaged current accounts for years. These accounts offer a range of benefits such as travel and mobile phone insurance in return for a monthly fee, and we've always said they are not worth the glossy welcome pack they're presented in.

On the other hand, when I discovered ethical bank the Co-op was launching a new range of these accounts, I couldn't help but take a second look. What happens when a good bank launches what we consider a poor value product?

Let's take a look.

Co-op's unique selling point is the pick `n' mix element of these accounts, allowing you to tailor some of the benefits towards your own needs. As well as worldwide travel insurance, mobile insurance, and a £200 interest free overdraft, the £8.50 monthly fee also gets you a choice of one of three extra benefits:

The first is labelled `Gadget', and provides insurance for personal possessions such your iPod, satnav and portable DVD player.

The second, `Safeguard', protects against ID theft and also includes a key recovery service and insurance for handbags and contents.

The third, `Traveller', provides four airport lounge passes per year, and a passport and luggage recovery service.

There is also the Privilege Premier package which gets you more enhanced benefits such as motor breakdown cover and a higher interest free overdraft of £300. This costs £12 a month.

Sizing up the benefits

Fellow Fool Neil Faulkner dislikes packaged current accounts, and examines some of the other options available in this article. For the most part, I agree with him. But just to balance the scale up a bit, what I will say is if you use most or all of the benefits included in these accounts, they could prove value for money.

For example, I think the optional gadget insurance offers decent value for money - providing your gadgets aren't top of the range (cover is only up to a maximum of £179.98).

Barclaycard offers a similar service called MyStuff, which for £6.99 a month gives you a higher limit of £500 to cover your personal items.

However, for an extra £1.50 a month with the Co-op, you'd also get worldwide travel insurance and mobile phone cover with the Co-op, so as ever it's important to weigh up what all these benefits mean to you.

On the other hand, something I've always disliked about these accounts is the value banks place on them. The Co-op claims these benefits could save you £700 annually. However, I think that this figure has been massaged, and you should never judge the value of an account by this number alone.

Fee-free add-ons!

If you were really canny, you could shop around and get some these benefits for free. For example, Alliance and Leicester offers free annual European travel insurance on its Premier current account for no additional monthly fee.

Capital One offers free ID theft advice to all its customers, and you can find discounts for several products, including home, car and travel insurance simply by shopping online. So for my money some of these `benefits' aren't always as valuable as they're made out to be.

There is also some serious cash to be had if you prefer to have your benefits up front. First Direct's 1^st Current Account comes highly recommended by fellow Fools, and the bank is currently offering £100 to anybody who currently switches their account to them.

Although First Direct won't give you any interest on credit balances, they do offer a sweep facility to a savings account, ensuring you never lose out on any interest on your money.

When it comes down to it, the Co-op's latest offering may not be that different to other packaged current accounts on the market. However, it is one of the cheapest on the market for what you get, and if you're looking to bank ethically, it could help you sleep easier at night too.

More: Overdrafts Are Getting Too Expensive | Don't Let Bank Blunders Cost You Money | Watch Out For This Current Account Shake-Up