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.’

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You may or may not be aware that massive changes to the banking system are on the horizon – if not you should be.

On 16 June 2010, the Chancellor of the Exchequer announced the creation of the Independent Commission on Banking. The purpose of the commission is to consider reforms to the structure of the banking sector. They have been tasked with making recommendations to the Government to promote financial stability and competition with the aim to avoid the need for another bail out.

Why are the changes to the banking system needed?

The events of the financial crisis that started back in 2007 highlighted the need for changes to be made to the way banks operate. Lenders and borrowers took excessive risk while banks were lending too much money out without having the assets to support it. This is why the Government had to step in and inject vast sums of taxpayers’ money to avert crisis. The basic goal of the commission is to make the UK bank system stable and make the marketing of banking services more competitive. The final report is due at the end of September 2011.

The reforms put forward within the interim report broadly break into two parts:

1.    Increase competition between banks
2.    Reduce the risk to the public if banks collapse,

The question on everyone’s lips is “how will this affect me?”.

1.    Increased competition between banks

• Switching services – The general opinion seems to be that switching bank accounts is slow and complicated and only ever done if needs must or if a particular bank is running an attractive switching incentive. The commission want to make this a simpler, faster process which is more appealing. This will be great for consumers as the banks will need to be far more competitive in terms of products on offer and general service if they want to keep customers. They would also like to look at introducing portable account numbers to aid consumers and simplify the re-directing of regular bills after switching. Consumers would have one account number that would stick with them regardless of what bank they choose to move to. Customers wouldn’t be required to transfer direct debits or standing orders as the account number would remain the same.
• Making it easier for customers to compare current accounts – The commission wants the banks to label and price products clearly so that customers can compare easily and without confusion.
• Lack of competition within the current account market – Up to 70% of Brits bank with one of the ‘big four’, those being Lloyds TSB, Barclays, HSBC and RBS. Lloyds TSB, after its merger with HBOS back in September last year, dominates this market and the commission fears that this is stifling competition. It has suggested more branches to be sold off in order to get back in line with the likes of RBS, Barclays and HSBC. This in turn could lead to the emergence of entirely new banks.

2.    Reducing risk to public if banks collapse

• The final recommendation stated the need for Britain to have ‘stronger, safer banks’. This would involve separating, or ‘ring-fencing’, retail banking and separating it from riskier investment banking. By doing this the commission feels that it would protect retail customers from any future crisis and reduce the need for state-sponsored bailouts. Another suggested step here is for banks to hold more capital. At present, banks hold back £7 for every £100 that is free to lend; the commission suggests upping this to £10.

With customers being able to switch current accounts more easily, it is expected that the banks may take this opportunity to increase promotion of their best packaged accounts. These accounts normally charge between £10 and £15 a month but do come with benefits such as travel insurance and breakdown cover. Consumers wishing to seek an alternative should perhaps look into prepaid cards which offer a simple, cost-effective way to manage money. Wages can be paid directly on to the card and then used like a standard debit card. With many cards offering features such as ‘Credit Builders’ and ‘Budget Masters’, these products could work well for users looking to get their finances in order.

Whether you choose to stay with the banks or try out prepaid products, it’s clear that there are going to be some big changes on the horizon for both the banking sector and bank account holders. Now we just have to see what the final outcome will be.

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Packaged current accounts have been growing in popularity in the UK over recent years. In return for a monthly charge, these accounts offer a range of additional benefits such as travel insurance, mobile phone cover or lower overdraft rates.

However, over the last six months the Financial Services Authority (FSA) has been conducting an investigation into these accounts over concerns of mis-selling and the poor quality of the additional benefits.

So, if you are looking for the best packaged current accounts, it is important you find an account with perks that you will actually use.

7.5 million packaged current accounts in the UK

The Daily Mail recently reported that an estimated 7.5 million people have packaged current accounts, equivalent to around one in seven of the UK population. Charges on the best packaged bank accounts range from around £50 to £300 every year and the benefits range from cheap borrowing rates to a range of insurance covers.

The number of packaged bank accounts has increased as banks have tried to encourage customers away from free accounts. The Daily Mail reports that here are 43 such accounts today, compared with 38 in 2009.

Make sure you use the benefits included with a packaged account

If you don’t carefully compare bank accounts before choosing a product, you could end up paying hundreds of pounds for insurance that you do not use. So, when researching the best packaged bank accounts, make sure that you consider those which offer perks that will benefit you. If you’re not planning to go on holiday then free travel insurance may be unnecessary. Similarly, if you already have mobile phone insurance through your provider, you may be duplicating your cover.

Packaged current accounts can offer some terrific benefits and great value for money – just make sure you fully compare bank accounts before you sign up.

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Are you looking for the best bank accounts?

Brits are remarkably reluctant to compare bank accounts and switch to a new provider. That’s the conclusion of a recent survey, conducted on behalf of Santander by Datamonitor. The research found that just seven per cent of Britons had switched current account provider in the last year.

Despite our reluctance to leave our bank, there are some great deals available if you switch your current account. So, if you are thinking of looking for the best bank accounts, take these four factors into consideration.

1. Fees

Many banks now offer so-called ‘packaged current accounts’ which offer a range of benefits in return for a monthly fee. Alternatively, a basic bank account is likely to offer a debit card and ATM access without any charges.

When you compare bank accounts, always take the fees into account. Are you prepared to pay a monthly charge for additional benefits, or do you simply need a basic bank account?

2. Banking facilities

What facilities do you get with your account? The best bank accounts will offer a debit card, widespread ATM usage, a low cost overdraft and 24 hour telephone and online banking. Make sure you get the facilities you need to manage your money.

3. Overdraft rates

Many people use the overdraft facility on their bank account. Again, the best bank accounts offer interest and fee-free overdrafts, while a basic bank account may have no overdraft facility at all. If you plan to use an overdraft, compare the rates offered by bank accounts so you don’t pay the earth.

4. Associated deals

Many banks offer excellent deals on current accounts in order to attract new account holders. In addition, you will often find that you will be offered preferential credit card, loan or mortgage rates as a current account customer. When you compare bank accounts make sure you look out for deals on associated products that may also save or make you money.

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Switching your current accounts has never been easier. Gone are the days where you have to stick with your bank current accounts for life; you can now jump ship to another provider.

Here are five reasons you should consider changing your current account provider today:

1. More credit interest

Financial research firm Defaqto recently found that a total 57.4 per cent of current accounts no longer pay credit interest, compared with 23.2 per cent three years ago.

If you keep a credit balance in your current accounts, make sure you find a provider that will reward you with credit interest.

2. More benefits

Packaged bank accounts are increasingly popular with consumers. They offer a range of additional benefits such as travel insurance or lower overdraft rates for a small monthly fee. Shop around for those current accounts which offer benefits you will actually use.

3. Better service

There’s a strong chance that you will have experienced poor service from your bank. Perhaps you have had to wait for ages in your local branch or you have been slapped with charges that you think are unfair?

Whatever your gripe, there are plenty of banks out there who can offer superior customer service. Vote with your feet and find bank current accounts that treat you like an individual.

4. Lower fees

Competition between current accounts is fierce. This benefits you in the sense that you can find accounts that do not charge huge fees for overdrafts or other services.

5. Easy switching process

In the past, you may have been put off switching your current accounts because of the hassle involved. However, the switching process has never been easier. Your new bank will take care of all your direct debits and standing orders for you, meaning that it has never been easier to change to a better account.

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The “best” bank accounts differ for one consumer to the next, so what is best for you may not be best for someone else. Packaged bank accounts give you extra benefits in return for a monthly fee. Those benefits typically include things like travel insurance, breakdown cover, authorised overdraft, mobile phone insurance, and the accumulation of air miles. Packaged accounts usually cost £12 to £25 per month, or £144 to £300 per year.

You have to ask yourself if you need the perks that are included with packaged bank accounts, and if so, if you could get them cheaper elsewhere. For example, if all you need is simple breakdown and roadside assistance cover, you can get a basic policy from AA for around £28 per year, so there wouldn’t be much sense in paying £300 per year for a packaged account. Also, you do not necessarily have to have a packaged bank account to get an arranged overdraft, so be sure to ask at banks you’re considering.

The fact is, you’ll have a hard time beating inflation with your savings rate whether you go with a packaged savings account or not. As of mid-February 2011, the top instant access account is the Post Office Online Savings account, which pays 2.9% AER for 12 months and offers unlimited withdrawals.

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Three-quarters of consumers have never considered switching their current account. That’s the bold claim made by Consumer Focus as new figures reveal that fewer and fewer bank accounts are paying any credit interest to their account holders.

Michelle Slade from a leading financial data firm says: “People are more likely to get divorced than switch their current account. Most people see it as too much hassle, but all the major providers offer a switching service where they transfer your regular payments for you.”

If you are planning to switch, why not consider packaged bank accounts? Increasingly popular with consumers, they offer a range of benefits. However, when you compare the best packaged current accounts, make sure you take these three things into account.

1. Fees

Most packaged current accounts charge a monthly fee. Defaqto, a financial data firm, has found that packaged accounts charge an average fee of £14.92 a month.

You can easily end up paying over £200 a year in account fees, so make sure you will get your money’s worth.

2. Credit interest

Defaqto also found that 57.4 per cent of current accounts no longer pay credit interest, compared with 23.2 per cent three years ago. Main current accounts from large providers such as Barclays, HSBC, Nationwide and NatWest no longer pay any credit interest.

If you are planning to keep a credit balance in your current account, make sure that you compare bank accounts to find a provider who offers some credit interest.

3. Benefits

The benefits offered by the best packaged current accounts vary significantly from bank to bank. Many offer specific benefits such as travel insurance or mobile phone cover. Others offer lower overdraft charges or higher interest rates.

You can often also benefit from preferential deals on other bank products such as credit cards or loans. Make sure you compare bank accounts to find benefits which you are actually going to use.

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What were your New Year’s Resolutions this year?

For many people, getting around to organising their finances is a resolution that is high on their priority list. January is a great time to sit down and review savings, investments and insurance and is the perfect time to finally ditch those terrible current accounts.

Compare bank current accounts to get a better deal

There are dozens of reasons you may be considering switching bank current accounts. Perhaps you have been unfairly charged by your bank, received dreadful customer service or you are getting a paltry rate of interest on your credit balance?

Whatever your reasons for switching, you will find the best value current accounts by heading online. You can use the web to compare current accounts taking into account their interest rate, facilities and benefits.

Don’t be afraid to switch current accounts

Many Brits are reluctant to switch their current accounts. Indeed, a survey from the Co-Operative Bank in 2010 found that people were more likely to switch their football team allegiance than their current account.

However, the process for switching and transferring direct debits has never been easier. Many banks have helplines to make the transition smooth and hassle-free and the whole process can take as little as a couple of weeks to conclude.

Consider the best packaged current accounts

According to figures from The Guardian in June 2010, over seven million Brits now have a ‘packaged current account’. Fees for these current accounts typically range from £5 to £25 per month and you can expect to receive a number of benefits for your monthly charge.

The best packaged current accounts offer a range of benefits including discounts on other financial products, annual travel insurance, mobile phone insurance and breakdown insurance. However, before you sign up for a packaged account, make sure you intend to use the benefits on offer. If you don’t, you could end up paying for insurance you don’t need and won’t use.

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Are you looking for the best bank accounts?

Switching bank accounts is a commitment that can be found on many people’s New Year’s Resolutions list. Thousands of people use the New Year to spring clean their finances and finally get round to swapping their current account in search of a better deal.

If you are heading online to compare bank accounts, here are three things that you should look for in the best bank accounts:

They will pay credit interest

Gone are the days when your bank account had to pay a paltry rate of interest just so you could benefit from the convenience of a current account. These days, the best bank accounts pay credit interest that is often higher than many of the leading savings accounts on offer.

When you compare bank accounts, make sure that you check whether there are any conditions for securing a high rate of credit interest. For example, some banks will require you to credit a certain amount of money (£1,000 or your monthly salary) to your account every month to qualify for the higher rate of interest.

They can give you preferential rates on savings accounts

With many of the best bank accounts (certainly with so-called ‘packaged current accounts’) the bank will offer you a range of linked benefits such as preferential rates on personal loans or savings accounts.

They will give you additional perks

Many of the best bank accounts now offer a range of additional perks in addition to online banking, access to thousands of ATMs and a small overdraft facility.

When you compare bank accounts, find out what other perks they offer. Many now offer mobile phone insurance, discounts on other financial products or annual travel insurance for you and your family.

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How much do you pay for your bank account?

A recent survey by the consumer champion Which? found that 23 per cent of its members has a ‘packaged current account’. These accounts levy a monthly charge but offer a range of enhanced benefits not normally included with standard bank accounts.

The days of free bank current accounts are over for many.  But, is it really worth paying between £5 and £25 a month for the best packaged bank accounts?

What do you get with the best packaged bank accounts?

The benefits of these fee-based current accounts vary from bank to bank, but typically include:

• Worldwide travel insurance
• Car breakdown cover
• Mobile phone insurance
• Discounts on other bank products (for example car or home insurance)
• Identity theft assistance
• Lower rates on personal loans or mortgages

Many of the best bank current accounts also pay an enhanced rate of credit interest on your cash, or offer a larger interest free overdraft than their standard accounts.

Take basic current accounts and buy the additional products that you need

The Which? survey found that one in ten respondents never used any of the additional benefits offered by their packaged bank account. If you are one of these people, you are effectively paying for a service you never use.

An alternative to paying a monthly fee for a packaged bank account is to take a basic current account and buy any additional insurance you need elsewhere. Head online and shop around for the best travel insurance or car breakdown cover – you may end up paying less in total than the charged on the best packaged current accounts.

If you are planning to upgrade to a packaged bank account, make sure you do your research to find an account that offers value for money on products you will actually use.

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