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FEATURE: A package deal

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16/05/2008

Kate O’Raghallaigh investigates whether good things come in packaged current accounts 

The phrase ‘package deal’ probably conjures up images of intoxicated, red-faced Brits on their merry way to some part of the Mediterranean. There are, however, other services besides the tourism industry, where you can get a number of so called benefits all rolled into one charge.

Packaged current accounts, while not the most popular form of bank account, offer customers benefits such as travel insurance, phone insurance and in some cases, an emergency cash service, all for a monthly cost. A number of packaged accounts, namely those at Lloyds TSB, Nastwest and RBS, have recently seen those monthly charges increased, which has prompted accusations that perhaps these banks are trying to increase revenue ahead of the result of the Office of Fair Trading (OFTtest case, which they are involved in, later this month.

Six banks, namely, Abbey National plc, Barclays Bank plc, Clydesdale Bank plc, HBOS plc, HSBC Bank plc, Lloyds TSB Bank plc, Royal Bank of Scotland Group plc, and Nationwide Building Society have been investigated by the OFT for unfairly charging customers for going over their overdraft limit. The ruling on whether or not the charges are unfair, will determine whether or not banks will have to shell out more compensation to customers, or be entitled to claim back some or all, of the refunds already dished out.

Higher costs

Lloyds TSB has recently increased the cost of its Gold and Platinum accounts by £2 per month, bringing the cost up to £12 and £17, respectively. Its Select account has increased by 95p. Such increases were implemented due to customers wanting more benefits, says Beth Longcroft, spokesperson for the bank. “Customers told us they would value additional benefits, particularly for their mobile phone, which is why we have added the “Save My Numbers” service and increased the mobile phone cover up to £2,000 per handset,” she explains. “We are also offering customers Airmiles when they book their holidays through the Lloyds TSB Airmiles Travel Service, alongside an Airport Meet and Greet service.

“To cover the cost of these new benefits, we have increased the cost of the Gold and Platinum accounts by £2 per month (and the Select accounts by 95p). It’s important to remember that we haven’t increased the cost of Gold or Platinum in four years, since May 2004. The price of the Select account hasn’t been changed since May 2005.”

RBS and Natwest (which is owned by RBS) have also increased the fees for their Royalties Gold and Advantage Gold accounts, by 95p per month to £12.95 per month. The accounts now offer new car breakdown cover, improved travel insurance and an emergency cash service. Nigel Owen, spokesperson for Natwest and RBS, says that any price rises came as a result of customer feedback.

“The packaged accounts now offer our best ever potential savings for customers with the addition of these new features, this has been reflected in modest price rises.

“NatWest Advantage Gold / RBS Royalties Gold will increase by 95p per month to £12.95 (annual fee £155 annually). This is the first increase for Advantage Gold in two years, and the first in over three years for Royalties Gold. The extra £11.40 per year is more than covered by our new car breakdown cover which is worth £69 alone.”

Predictions

David Black, principal banking consultant at Defaqto, says that it is certainly not unusual for banks to revise their current account charges and in light of pending litigation with the OFT, it’s not surprising that they’re trying to get money from elsewhere. He says: “Given the almost certain continuation of litigation over unauthorised overdraft charges it’s likely that we’ll see significant changes in current accounts over the next few years.

“My opinion is that unauthorised overdraft charges will ultimately be capped and that the banks will inevitably seek to recover such lost income elsewhere. This may result in the end of free in credit full service current accounts per se and may see the model move to a ‘pay as you go’ or a flat fee basis. In some instances it is likely that such fees may be reduced or waived if the customer has other specified products with the same bank. Against this backdrop, I expect the banks to place even greater emphasis on selling their added value current accounts.”

Kevin Mountford, head of current accounts and savings at price comparison site Moneysupermarket, says that banks are keeping a step ahead of the OFT’s ruling. “Banks are already trying to be creative with getting back some of their lost margins. Those who have put up the prices on their current accounts could have done so now, because to do so closer to the OFT’s ruling would be a bit too telling,” he says.

A part to play?

Mountford adds that packaged accounts certainly have a part to play in the market. “Take HSBC’s packaged account for example,” he says. “If you hold this account, you can get discounts on other HSBC products.”

However, customers, should always consider whether the relevant charge is worth paying – that is, if you never see yourself using the benefits, then there’s no point in paying something for nothing. “Consumers should always ask themselves if the cost matched the value of the benefits. These accounts are often pushed and sold without enough consideration given to the customer, so always bear in mind what you’re getting for your money and if you think you will actually benefit from it,” Mountford concludes.

There’s no doubt that car insurance, travel insurance, mobile phone cover and an emergency cash service could be of use to many people. If you think the most cost efficient way of accessing these services is through a packaged current account, then there’s no reason why you shouldn’t go for it. If, on the other hand, you either already have insurance, deem yourself reliable enough to never to have to avail of an emergency cash service, or just aren’t that bothered, then you’re probably better off sticking with your no-frills bank account. There is, after all, something to be said for simplicity.

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