Current accounts - dodge the charges and find a cracker!

We show you how to dodge current account charges and find cracking good value.

There are worrying signs that free banking as we know it may be coming to an end.

As lenders face defeat in the courts over bank charges - and margins shrink on the income from mortgages and loans - many are looking for new ways to make money. And that means slipping in extra fees and charges all over the place. We've also seen a rise in the number of packaged accounts which concerns me.

So what are these accounts all about? And are they ever good value for money?

Packaged accounts - the lowdown

In a nutshell, a packaged account is a current account with monthly fees. In return for your payments, you get access to a range of benefits not usually associated with current accounts.

These often include:

• Travel insurance
• Car breakdown cover
• Mobile phone insurance
• Discounts and preferential rates on the bank's other products
• ID theft insurance

You'll usually have to fork out a monthly fee of £10-£15 - though some packaged accounts charge as much as £25!

Pros and cons

On the plus side, you'll be presented with a neatly-wrapped bundle of products, so you won't have to go through the hassle of hunting them down individually.

You'll also be made to feel like a valued customer, and you'll be first in line for preferential rates on your bank's other financial products, like cash ISAs or savings accounts.

However, packaged current accounts make me twitchy for several reasons:

• Can you get it cheaper elsewhere? It generally doesn't pay to have all your financial products with one bank. If you do your research, put in a bit of effort and shop around, you'll usually be able to find a better deal.

• Will it stand up to the test? The benefits offered tend to come with lots of limitations and exclusions. For example, will the travel insurance cover your extreme sports holiday? Or will you, in fact, have to pay extra for that protection after all?

• Do you need it? I also question the value of many of the benefits offered. For example, people often pay through the nose for mobile phone insurance when they could get their phones covered for much less on their home insurance policies. Would you really have bought the product if it wasn't included in the package?

Essentially, you have to work out the real value of the package you're buying - and not get taken in by the warm, 'valued' feeling it gives you. Banks are not our friends!

I think a packaged account only makes sense if the benefits offered are genuinely good value and relevant to your lifestyle - AND you make full use of them.

The reality is, most people don't. I'm yet to find someone whose packaged account benefits match their needs perfectly - because we're all individual, and our specific needs are unique. Do let us know if you're the exception that proves the rule!

My lovemoney.com colleague Emma Lunn recently analysed a new packaged account - the Signature Current Account from Yorkshire Bank. To find out what she thinks of it, read this article.

And this excellent piece highlights the pros and cons of some of the other major packaged accounts on the market.

So, if you've decided this sort of account isn't for you, what should your next step be?

What's right for you

The current account that's right for you will depend on your personal circumstances and priorities. For example, are you usually in credit or constantly in your overdraft?

An account that fits one person like a glove may suit another... well, like a really badly-fitting coat.

However, I do have a particular favourite at the moment: The Premier Direct Current Account from Alliance & Leicester.

It's a great choice if you're usually in credit - because it offers a very juicy 5% interest on balances up to £2,500. That's a heck of a lot better than most savings accounts! Just bear in mind that this hefty rate only applies for one year - so you'll have to shop around for another good rate after that.

It's also a sensible option if your balance regularly goes into the red, because it offers 0% interest on arranged overdrafts (up to £2,000) for the first 12 months. An overdraft usage fee of 50p a day applies after that - but it is capped at £5 a month.

Finally, you don't need to be a big earner to make the most of the account. The minimum funding requirement is £500 a month, which means you can reap the benefits even if you're on a fairly low income.

Instant gratification!

And if it's hard cash you're after? You might also be tempted by the 1st account from First Direct.

In a nutshell, the bank will give new customers £100 if they switch to the account. Its customer service has had various glowing reviews - and First Direct is so confident you'll like it that it'll give you another £100 to leave if you're not happy after six months!

On the downside, the 1st account doesn't pay any interest on credit balances. And you'll need to be a relatively high earner, because the account requires monthly funding of at least £1,500 to qualify for the free cash.

Do your research

A common complaint from consumer groups is that banks don't make their fee structures and charging policies clear and easy to understand.

Great benefits usually do come with catches, which are often hidden away in the small print. So before you switch to a particular account, take the time to read all the terms and conditions - even the really boring bits.

Don't let lenders get away with huge profits because you've defaulted on the conditions of the account. Unauthorised overdraft charges can be as high as £5 a day!

More: Further delay on bank charges case | Earn £60 a year from an empty current account

Compare current accounts with lovemoney.com.