Thousands of Santander customers will soon be moved to free accounts with the formal scrapping of packaged current accounts. Will other banks follow?
Customers with a Santander ‘packaged’ current account will soon be moved to a free account with no extra benefits.
These packaged accounts, which offer extras such as mobile phone and travel insurance in exchange for a monthly fee of around £20, will be completely scrapped by 18th October.
The bank says the move is part of a programme to simplify the financial products it offers. but it also comes after a regulatory crackdown on these accounts.
Packaged accounts
Around one in five adults now pay for their current account in return for a bundle of extras, such as travel and home insurance.
But these accounts have been under fire from the financial watchdog as it’s believed many could have been mis-sold.
The regulator launched an investigation into the selling of packaged accounts last year, before its rebrand as the Financial Conduct Authority. It also introduced new rules around the handling of these accounts. As a result providers are now required to send out annual policy statements explaining to customers their eligibility for any insurance policies included in the account.
Santander has only ever had a small percentage – just 3% at its peak - and stopped selling them back in March 2012.
Santander current accounts
In October, customers who pay for a current account will automatically be switched to a free account and stripped of any extras they’re currently receiving.
[SPOTLIGHT]This will happen to anyone with the following accounts: Reward Current Account, Premium Current Account, Travel Reward Current Account, Family Reward Current Account and Premier 50 Current Account.
Customers will get 60 days’ notice and will then be switched to the Everyday Current Account, which has a four-month fee-free overdraft but pays no in-credit interest.
In September 2014 customers with a Premier or Premier Direct current account, which are both free accounts, will also no longer be able to benefit from travel insurance.
Alternative packaged accounts
Although this area of the market has been under fire, there are still a lot of accounts to choose from.
Some accounts, such as the NatWest Select Silver Account, will offer you a range of set products in return for a fee. However, other providers, such as Barclays and Halifax, allow you to tailor the extras to meet your needs.
The Santander 123 account works in a similar way, but is not a packaged account. It instead pays cashback and 3% interest on balances of more than £20,000, in return for a £2 monthly fee.
|
Account |
Fee |
Overdraft rate |
Benefits |
|
£10 a month |
£10 fee-free buffer, 19.89% after this |
European travel insurance, mobile phone insurance, LoveFilm membership, HMVdigital download subscription, identity theft assistance, |
|
|
£16 a month |
£10 fee-free buffer, 19.24% afterwards |
Worldwide travel insurance, mobile phone insurance, UK car breakdown cover, Two family passes for the National Trust, Tastecard membership. |
|
|
Halifax Ultimate Reward Current Account |
£15 a month |
£50 fee-free buffer, after £1 a day from £300.01 to £1,999.99, £2 a day up between £2,000 to £2,999.99 and £3 a day over £3,000 |
Travel Insurance, AA breakdown cover, mobile phone cover, home emergency cover, card protection |
|
£7.50 a month |
Fee-free buffer of £200, 19.3% afterwards |
Mobile phone insurance for two phones, gadget cover up to £750 |
The pros and cons of packaged accounts
The idea behind packaged accounts is simple. You pay for your standard bank account and then receive a bundle of extras on top.
But if you’re not using the extras then it is a waste of money. As I don’t drive and my phone is already insured with my contents insurance, there is little incentive for me to start paying for a packaged account.
If, like me, you don't need the extras included then opening a standard account - such as the First Direct 1st Account, for which you’ll receive £100 - and then buying separate insurance, when you need it, on top is more cost-effective.
Across the market there are plenty of accounts around which you don’t need to pay for. The Nationwide FlexDirect account, for example, is also free, has no fees on arranged overdrafts for 12 months and pays in-credit interest of 5% for balances up to £2,500.
The type of insurance included with packaged accounts has also been slated in the past as not meeting customer needs and several of the standard 'extras' - such as identify theft assistance – are already provided free by all UK banks and building societies.
As the regulatory framework tightens up around these accounts it’s likely more providers will follow in Santander’s footsteps and either tighten up these accounts or scrap them altogether.
Do you have a packaged account? Do you think it provides value for money? Let me know in the comment box below.