When a packaged current account is worth it

Packaged current accounts offer a vast array of benefits - for a monthly fee. When are these accounts actually worth the money?

Everyone likes to feel a little bit special, and the idea of being part of an exclusive club is one that many of us aspire to -- something financial services providers are well aware of.

But we don't all have the bank balances for exclusive private banking, which is where the packaged current account comes in. It's a way of making the rest of us feel special.

These accounts elevate you above the bog-standard current account customer -- you get benefits, perks, and maybe even a 'relationship manager' whose job it is to look after your every banking need. It's no coincidence that these aspirational accounts have names like 'premier' and 'gold'.

What's new?

This week Abbey has launched a new packaged current account, the Reward Bank Account, available to new and existing customers.

The account offers customers a whopping in-credit interest rate of 6% fixed for a year, an interest-free overdraft of £100, and a package of benefits it values at £400 a year -- all for £10 a month.

This account is in addition to the two packaged current accounts Abbey launched last October, which are still available to its existing customers -- the Travel Reward account and the Family Reward account, where customers can choose the package of benefits that best suits their needs.

All three are aimed at different types of customer, making the benefits more relevant than with a 'one-sized fits all' packaged account.

The Coop Bank is another provider to offer this more tailored approach -- it's Pick n Mix packaged current account lets customers choose an additional bundle of features on top of their core account.

But what exactly is a packaged current account?

Packaged current accounts are offered by most mainstream banks for a monthly fee, which averages £13.87 according to financial information provider Defaqto, up from £10 in April 2006.

For this you get your current account, plus benefits which usually include a mix of free insurances, preferential borrowing rates, travel money benefits and other lifestyle discounts which differ from bank to bank. Below are some of the most common perks:

Card protection
Commission-free foreign currency
Lifestyle and travel benefits and discounts
Home, motor and travel insurance
Breakdown cover
Preferential rates for credit cards, mortgages, savings accounts and loans
A dedicated relationship manager

Account advantages

The benefits of packaged current accounts suit some people more than others -- homeowners, car owners, and those that travel abroad regularly tend to be able to make better use of the perks and freebies.

They are often more suitable for mature customers as some insurance policies, such as travel insurance, can get more expensive as you get older, making the insurance that comes with the package more valuable. Lloyds TSB's packaged account offers travel cover to customers up to age 80, for example.

It can also be very convenient to have your travel, home and motor insurance sorted out automatically for you as part of your current account -- and to have a relationship manager as your one point of contact in the bank.

Are they worth it?

However there is one big, obvious drawback to a packaged current account. Unlike standard current accounts, you have to pay for them. A monthly fee of approximately £13 means an annual spend of over £150, which of course is only worthwhile if the value of the benefits outweigh the cost -- and if you actually want those benefits.

Therefore working out whether you need the benefits is the first thing you should do. For example, if the package comes with free worldwide annual travel insurance think about how often you travel abroad. If you only go on holiday once a year to Europe you only need a single European trip policy, which can cost as little as £8 (Columbus Direct).

It's also worth shopping around to compare prices. Don't just trust the bank's estimation of what the benefit is worth.

Also, as with any insurance, it's essential you get the right cover for your needs. David Black, principal consultant of banking at Defaqto, points out that if your main holiday involves skiing but the insurance policy doesn't cover winter sports it will not be appropriate.

It's the same with home insurance, car insurance, and breakdown cover. Ask yourself if you need these insurances, if they are right for your circumstances and whether the policy on offer is worth the monthly fee.

You may well find it's not!

High rollers only

On top of the monthly fee there is sometimes a minimum income requirement with packaged accounts. You may need to fund your account with a minimum amount -- Alliance & Leicester's Premier current account requires a monthly sum of £500 (but has no monthly fee), for example.

Or it could be that you need to earn a minimum amount. The Barclays Premier Life accounts charges a £25 monthly fee, which is reduced to £17.50 if you earn £100,000 (£60,000 if a business customer or under 35), or have at least £50,000 to invest through Barclays.

Either way the bank ensures it gets either guaranteed regular deposits, or it bags an affluent client it can cross-sell other financial products to.

The value of special rates

One attraction of packaged accounts is the preferential rates you can access. Not only does this make you feel special it can come in handy if you need to borrow.

But it's essential you do your homework before signing up to an account. Can the preferential rates be beaten elsewhere for example? If so, why not bank for free and get the best products for your needs from the wider market. In the main, borrowing rates on packaged accounts do not beat the best buys on loans or credit cards.

You might find that a particular account offers a range of benefits that you really need and would buy anyway -- in which case they can be very cost-effective and convenient.

But you need to look at exactly what a packaged current account offers, price it up and see if you still think it is worth it.

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