Banks offer a wide range of incentives to consumers to encourage them to switch their banking. Packaged current accounts often offer travel insurance, an interest-free overdraft and mobile phone protection to account holders who move their current account, while some deals offer preferential rates on other financial products.
Now, however, a leading newspaper has found that some of the best packaged bank accounts offer poor rates of interest on bank savings accounts. While many banks advertise ‘preferential rates on savings’, the reality is that rates on offer can often be very low.
The best packaged bank accounts
Banks have increasingly managed to sell customers so-called ‘packaged current accounts’ over recent years with the Financial Times suggesting recently that over a quarter of consumers are thought to have been sold such an account. These products have a monthly charge but offer a range of insurance and other benefits in addition to standard banking facilities.
The FT has found, however, that the rates offered on bank savings accounts frequently fall below the Bank of England Base rate of 0.5 per cent. The newspaper highlights two leading banks who charge for their accounts but offer rates of 0.2 per cent or below on savings.
Banks have defended the low rates, pointing to the high cost of providing banking facilities and the record low Base rate.
Compare bank accounts with other products
When you compare bank accounts it is worthwhile checking both standard and packaged current accounts. You may even be better with a separate bank account, high interest bank savings account and specialist insurance rather than taking the best packaged bank accounts.
This is a view shared by the City regulator, the Financial Services Authority (FSA). The FT reports that ‘the FSA has suggested that customers are often better off purchasing services offered within these accounts separately, or not at all.’