What are packaged bank accounts?

If you have a packaged or ‘added value’ account, you pay a monthly fee in exchange for a bundle of benefits put together by your bank or building society.

Typically, they cost you between £5 and £15 a month (though premier accounts can cost more) and having one can give you preferential deals on other products offered by your bank such as savings, mortgages, travel insurance, or mobile phone cover.

In recent years packaged accounts have come under fire, with customers claiming they were mis-sold extras.

Package bank account complaints soar

In its latest annual review, the Financial Ombudsman Service (FOS) said it received more than 44,000 complaints about packaged bank accounts in the year to 31 March 2016, up 107% from the 21,000 recorded a year earlier.

The review found that 62% of packaged bank account complaints were made on behalf of claims management companies, while 35% were made by consumers themselves.

However, only 14% of complaints taken to the FOS were upheld. The Ombudsman said: “In most cases, the package of extras that came with someone’s account had been useful to them – or had saved them money. This was often the case even if they couldn’t use all the extras.”

Current trends in the packaged account industry

Defaqto research found that since 2012 there has been a marked decline in the number of benefits offered through packaged accounts.

In particular, the provision of mobile phone insurance has fallen, as has the proportion of accounts offering customers preferential deals on other banking products like mortgages, savings and credit cards. The one major area of growth has been preferential deals on personal loans to added value account holders.

Brian Brown, head of insight at Defaqto, said: “Customers opening a packaged account will usually do so because the overall bundle of tangible benefits is worth more than the annual account fee.

“Other benefits though might have much less customer value, or might apply in so few cases that the value is not achievable by the customer. For example, access to an airport lounge which might only be available in minor airports, or to the account holder but not their family.”

He adds the UK has a fiercely competitive personal current account market in which banks are trying new ways to appeal to customers to get them to switch from their rivals.

“We are seeing growth in the number of accounts offering ongoing cashback or rewards schemes, and alongside that a reduction in the number of ‘packaged’ accounts.”

Here are the common features included in packaged accounts which have consistently fallen between 2012 and 2016:

• Mobile phone insurance – from 73% to 58%
• Preferential deal for savings – from 82% to 56%
• Preferential deal for mortgages – from 65% to 50%
• Preferential deal for credit cards – from 53% to 37%
• Identity theft assistance – from 44% to 17%
• Home insurance – from 26% to 4%.

Accidental death cover, health benefits or discounts, and identity theft insurance are now not offered to new customers by any of the packaged account providers and it’s unlikely they’ll be continued for existing customers once the policy is up for renewal.

Are packaged bank accounts worth it?

Andrew Hagger of MoneyComms.co.uk says the issue with packaged accounts has always been whether the account holder is getting value for money.

“The crux of the problem for many is that they don’t make use of the associated benefits and are therefore wasting their money,” he says.

Further, Hagger says customers have been getting an annual breakdown of what’s included in their account for the last three years so it’s difficult for them to claim that they don’t know what they’ve signed up for.

But he says not all packaged accounts are a rip off.

“As ever it depends on the customer using the benefits included. Taking Nationwide Building Society Flex Plus as an example, you get worldwide annual travel insurance, comprehensive car breakdown cover, 12 month extended warranty on electrical purchases and mobile phone protection for the family – plus 3% interest on your credit balance (max £2,500) all for £10 per month.

“By contrast, if you wanted to insure your iPhone with Vodafone it would cost you up to £12.99 per month alone, so on that basis it’s hard to argue that the account doesn’t offer good value.”

Brown says the biggest benefits of these accounts centre on international travel, such as ‘free’ currency and travellers’ cheques and travel insurance.

Top packaged bank accounts

Here’s a list of the top deals currently on the market: