Money tip #123 – Packaged bank accounts are a con – except for a very select few people

Packaged accounts are current accounts which charge a fee in exchange for a range of additional benefits. Typically these benefits take the form of breakdown cover, mobile phone insurance, travel insurance etc. The cost of packaged accounts usually range from £5 - £25 a month (that works out at up to £300 per year!).

So are packaged accounts worth it?

Packaged accounts are huge money spinners for the banks yet are cleverly marketed as offering value for money. But often this could not be further from the truth, as laid out below:

• Mobile phone cover – is often included in packaged accounts but your phone might be covered by your home insurance anyway. Generally, most mobile phone policies are expensive and don't offer the level of cover that you'd expect once you look at the terms and conditions.
• Identity theft assistance - a number of packaged accounts have identity theft assistance, which usually consists of a telephone helpline, or identity theft insurance, which can include access to your credit reports, emergency cash and cover for irrecoverable losses or the expenses of sorting out the problem. But you don’t need identity theft insurance, see my article Money tip #122 – Avoid taking out identity theft insurance. And as for identity theft assistance, why pay to have someone tell you what you already know or can find out here for free.
• Car breakdown cover and travel insurance – these are often included in packaged accounts and usually are the hooks that catch consumers. But the insurance world is increasingly competitive so you can almost certainly get equivalent or better contracts cheaper directly by yourself. The breakdown sector is dominated by big names such as the AAcheaper breakdown cover alternatives. When it comes to travel insurance the policy included with the packaged account will not necessarily be the most suited to your needs. But more importantly if, like me, you have a pre-existing medical condition then you will unlikely be covered if you make a claim on the packaged travel insurance. For help in finding the most suitable travel insurance then read my article seventeen tips to ensure you have the best travel insurance policy.
• Commission-free foreign currency – the fact remains that your bank won’t necessarily offer you the best exchange rate anyway so what good is the promise of no commission?  There is an easy way to find the best deal on foreign exchange which takes seconds but can save you a lot of money. Read the Money tip #107 – How to secure the best exchange rate on foreign currency.
• Preferential interest rates or overdraft charges – some accounts claim to offer preferential rates to packaged account holders. While this may be the case when compared to the bank’s non-packaged account you will likely find a much better rate with another bank for free by shopping around.

So for the majority of people packaged accounts do not represent value for money as customers won’t use all the benefits that they are paying for, benefits which they could purchase cheaper themselves separately. Packaged accounts are simply huge profit makers for the banks. Which? Magazine even named them among their top 10 ‘useless financial products’ last year.

The people for who packaged accounts might be a good idea

People over 65 will not only find travel insurance more difficult to come by (usually having to resort to a specialist insurer) but their premiums will be more expensive. But if they travel regularly and don’t have any pre-existing medical conditions then the saving they make by using the packaged travel insurance may well will pay for the packaged account’s fee.

Also people who regularly have very large overdrafts may benefit from the reduced overdraft fees.

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