Why pay for your current account when the best ones are completely free?
You may have heard that free current accounts are on their way out. I’m not so sure this evolution in banking is as imminent as some might have you believe. But there’s no question that packaged or premium current accounts, which charge monthly fees, are becoming increasingly common. In fact, there are now more than fifty paid-for accounts on offer.
What is a packaged current account?
A packaged current account offers all the usual facilities you would expect from your bank, but it also provides some extra perks for a 'small' monthly charge. The range of benefits might typically include free travel insurance and AA breakdown cover, while add-ons such as mobile phone insurance, identity theft protection, preferential rates on the bank’s financial products and even a small fee-free overdraft may also feature.
You can expect to pay anything from £5 a month to £25 a month. But, of course, the more you pay for your account, the more extensive the benefits included in the package will be.
Why should I avoid packaged accounts?
This might sound like an attractive deal but quite simply, I don’t think packaged current accounts are worth the extra cost. To justify the amount you’ll be spending on your account over a year, you would really need to make full use of the free benefits on offer.
Recent question on this topic
- barbara legge asks:
I am incensed that as a customer of longstanding with Nationwide BS, I requested a free temporary overdraft and was told it was only for new customers
- MikeGG1 answered "I seem to recall a whole series of TV ads from Nationwide about how other banks put new customers..."
- JoeEasedale answered "No one will offer £6000 free. Having said that, having lots of money in an account that pays..."
- Read more answers
But the trouble is that most account-holders don’t, which means they end up paying over the odds for ordinary banking facilities which others are getting for free.
It’s also a great concern that some of the ‘free’ benefits aren’t really worth the paper they’re written on. For example, your mobile phone can often be covered under your home insurance policy so there’s little need for extra cover. Similarly, I think identity theft protection is an expensive rip-off since it doesn’t actually cover you for financial loss.
So, don’t be tempted by freebies unless you can be absolutely sure you’ll use them, and their value will easily outweigh the fees you’re paying for your current account. But take it from me, if you don’t drive or take holidays abroad, a packaged account will almost certainly be a total waste of your money!
Watch out for upgrades
Has your bank ever asked you if you want to upgrade? The chances are they’ll be offering you a fee-charging account to replace the free one you already have. Remember, you wouldn’t be offered a deal like this unless it was in your bank’s interests to do so. Ignore their persuasive sales tactics!
The best ones are free!
If packaged accounts are a no-no, but you still want to switch, which banks would be a smart choice? As you may have already guessed, I’m dead against paying for banking even with the bells and whistles of packaged account. But the great news is some of the very best current accounts on the market are absolutely free, and won't try to lure you in with so-called benefits that just aren't worth it!
The table below outlines some of our favourite simple, no-fuss current accounts and includes the best buys for those who stay in the black, and those who slip into the red:
Top six FREE current accounts
|
Bank |
Account name |
Rate paid on in credit balances |
Overdraft rates |
Conditions |
Freebies |
|
0.5% up to £2.5K, 0.1% above £2.5K |
0% for 12 months then 50p per day capped at £5 |
Must pay in £500pm + |
£100 cashback using A&L Switching Service. Free multi-trip European travel insurance. |
||
|
5% fixed up to £2.5K for a year, then 1% thereafter. 0.1% above £2.5K |
0% for 12 months then 50p per day capped at £5 |
Must pay in £500pm + |
None |
||
|
£5 reward each month £1K is credited |
£1 a day up to £2.5K, £2 a day over £2.5K. |
Must pay in £1Kpm + |
None |
||
|
Balances of £4K to £7K earn 4% |
18.9% |
Must pay in £1Kpm + |
None |
||
|
0.1% |
0% for 12 months, then 12.9% |
Must pay in £1Kpm + |
None |
||
|
5% fixed up to £2.5K for a year, then 1% thereafter. 0.1% above £2.5K |
0% for 4 months, then 19.9% |
Must pay in £1Kpm + |
None |
You’ll see all the best buy current accounts must be funded with a minimum amount of either £500 or £1K every month, but otherwise they’re open to everyone for free.
Accounts for those who stay in the black
The Alliance & Leicester Premier Direct Current Account and the Santander Preferred In-Credit Rate Account are both great choices if you generally keep a balance of up to £2,500 in your account. With both best buys you’ll earn a generous fixed rate of 5% for a year, which easily beats all easy access savings accounts.
Rachel Robson highlights three ways to tackle your overdraft and get rid of it for good.
Meanwhile, the Halifax Reward Current Account gives you a £5 monthly reward no matter whether you’re in credit or overdrawn as long as a minimum of £1K hits your account every month. If you tend to keep a larger balance in your account, the Lloyds TSB Classic with Vantage pays a reasonably generous rate of 4% on balances between £5,000 and £7,000.
Accounts for those who slip into the red
Finally, if you need to keep your overdraft costs down, try either of the Alliance & Leicester accounts which both offer an interest-free facility for a whole year. Just bear in mind, after the introductory period is up, you’ll be charged 50p for every day you use your overdraft, up to a maximum charge of £5 a month.
The Santander Preferred Overdraft Rate Account also offers the same year-long 0% overdraft deal, but the rates shoots up to 12.9% after this time, so do try to clear your borrowing as soon as you can.
Compare current accounts at lovemoney.com
More: Where to find the cheapest overdrafts | Earn more £££ from your salary!