Don't pay a packet for a packaged current account

Banks try to entice you with the promise of `free' insurance and a collection of goodies with their packaged current accounts - but you may end up paying through the nose for them!

I'm a sucker for 'free' goodies. I just can't help myself. I remember as a kid buying magazines with a 'free CD' even though the magazine mysteriously cost £1 more than usual. It's just that word that chimes with me I guess.

And I'm clearly not alone. We all love a bargain, and if you can get something for nothing, why wouldn't you? That's part of the reason banks are happy to put out such a wide range of packaged current accounts - and make a mint from them.

They work exactly like normal current accounts, but charge you a monthly fee of anything up to £25 and offer a range of goodies to make you feel special. These can range from free home insurance or discounted travel insurance, to free roadside assistance from the RAC.

The lenders love them

The fact that lenders are such big fans of offering packaged current accounts should tell you all you need to know about them.

According to Defaqto, there are now 57 packaged current accounts available in the market, up from 41 in April last year, while the average monthly fee has also grown from £12.79 to more than £15.

What do I get?

Let's take a look at the Alliance & Leicester Premier 50 Current Account first, an account just for the over 50s. Now for a fee of £10 a month, you not only get an account paying a whopping 6% (the best in the market), but you also get a vast array of add-ons. They include:

Exclusive deals on the PlusSaver account, credit cards, Legal & General Investment Bonds and Unit Trust products and mortgages
Two free out-patient private medical consultations per year, and up to £750 worth of diagnostic tests (up to age 79)
Replacement service of lost/stolen credit, debit and store cards. Emergency cash advances while you're abroad for travel, accommodation and spending while funds are unavailable.
Free Experian credit reports (with the option of registering for fraud alerts, to monitor changes in credit status)
Up to £50,000 worth of insurance protection to restore identity following identity theft
Access to 24hr health information service
Worldwide annual multi-trip travel insurance (available up to age 79)

That's a lot for £120 a year, but does it work out as value for money?

Identity theft cover, which is a mainstay of such accounts, is essentially a rip-off - have a read of Avoid this expensive rip-off! to see just why it's not worth the money.

As for the card replacement service, banks have to replace lost or stolen cards anyway. The emergency advance is only for a maximum of £1,500 for accommodation costs and £1,500 for expenses, and you must repay it within 28 days.

And I did a little research on a worldwide travel insurance policy, and the cheapest premium for a 50 year old male was £24.09.Of course, if you are older than 60, then the cost of such travel insurance tends to move upwards pretty sharply, so in this case, the package could present a more attractive option.

And while credit reports are always useful, you get the first 30 days free with Experian anyway, before a monthly charge of £6.99. So over 12 months (including one free month) that's only £76.89.

Mind you, with private consultations costing anything from £50 to £150, this is quite an attractive benefit. But if you already have private medical insurance, the free consultations and tests will be worthless to you.

So, as you can see, you need to weigh up the benefits of the Alliance & Leicester account very carefully, according your individual needs and circumstances.

If you are likely to use most of those add-ons, then this account may present good value for money. But if not, you'll most likely be out of pocket.

Other deals aren't so good

It's one thing to pay £10 a month for your current account - it's quite another to pay £25, which is what the Lloyds TSB Premier Current Account will set you back. That's £300 a year!

You'd imagine for that kind of outlay, you'll get a great return for your money, right? Well the account is paying a frankly embarrassing 0.1% in interest. Oh dear.

Never mind, I'm sure the added extras will be amazing? Here's what you get:

Premier will writing at discounted rates
Identity theft protection - includes insurance up to £25,000
Mobile phone insurance - cover for loss, theft and accidental damage at home and abroad. Save My Numbers - store and retrieve mobile numbers
Home emergency cover
Shareview dealing available at discounted rate
AA breakdown cover including home start, relay and stay mobile
Worldwide annual family travel insurance including winter sports cover
UK Airport Lounge Access and Meet and Greet when you book a holiday or international flight through Travel Service in partnership with Airmiles. You'll also get a 7.5% discount on selected package holidays and charter flights
Removal of £1 point of sale fee for foreign debit card transactions

Pretty underwhelming isn't it?

Ok, the Airmiles stuff looks nice - who wouldn't want a nice valet service at the airport, and a discount on your holiday? But the fact that you have to go through the Lloyds Travel Service to book the holiday massively restricts your choice, and it's not like you can shop around for the best deal.

What about the AA cover? Well, according to their website, you can currently get that exact package for just £99 a year. And the travel insurance policy, even for a family and with sports cover added, is available from as little as £56. Meanwhile, home emergency cover, as a standalone policy, can be nabbed from £6 or £7 a month.

So is the rest of the package - a will writing service (which you surely won't need every month), rip-off ID theft insurance, mobile phone insurance (another scam, generally), a Shareview discount and a meet and greet at the airport - worth the best part of £150 a year, every year? Not likely!

They aren't for everyone

The easiest conclusion to draw from all of this is that packaged current accounts are not for everyone. If you really want the extra services they are offering, and the sums add up, then sometimes they can be a pretty good option.

But even then, you'll need to do your sums to check whether you'd be better off shopping around and paying for the individual benefits yourself.

If, on the other hand, the account is offering lots of benefits you either already have, or have no intention of ever using, then chances are you will be wasting your money by signing up to them, particularly if they are also offering a pitiful rate of interest on your money as well.

There are far better current accounts out there - in fact, here are the top five.

Whichever current account you go for, always do your homework and read the small pring to work out just how much the account's benefits are worth to you. Only then will you be able to say with any certainty whether the account is right for you.

Personally, I won't be switching to a packaged current account any time soon....

More: The top five current accounts | Make a mint from your current account