Paid current accounts are an increasingly popular option because of the extra benefits they offer for a small monthly fee.
Why get a paid current account?
In the UK, most people assume their banking is free, so why would anyone want to pay? Well, free is a very subjective term. Is an account free if the occasional charges incurred are disproportionately high? Is an account free if it offers no interest when the bank can use your balance to lend at very healthy returns?
When we think about free banking, what we really mean is free “in credit” banking. That is obviously very advantageous for people who can regularly maintain their account in credit, but for many people it means higher charges.
Other than credit/debit card transactions, where banks can make money on interchange fees charged to retailers, almost every account function of a bank incurs a charge. It costs banks money to set up an account, to produce and mail debit cards and chequebooks, for your use of ATM, etc. Paid accounts, albeit not perfect, are starting the process of increasing transparency within banking, by being more honest with customers.
What types of paid accounts are available?
In the UK, the paid current account category is dominated by packaged accounts. These accounts offer the same functionality you would expect from a traditional free account, but they also offer a host of other features and benefits, including (depending on the particular account):
Travel Insurance – The exact detail of each travel insurance policy varies from account to account. Sometimes they offer worldwide cover, sometimes Europe only. Sometimes the policy includes family members and dependants; sometimes it is personal cover only. More often than not, there are exclusions for particular medical conditions, so if you are depending on the policy, you should check this carefully before you apply.
Breakdown Cover – As with travel insurance, the breakdown cover offered with paid bank accounts differs depending on the account provider. Generally though, it will provide personal breakdown cover (so you are covered in any vehicle) or vehicle cover (for all the cars you own), for the whole of mainland UK, though some do offer limited European cover too.
Mobile Phone Insurance – Sometimes the cost of a packaged bank account with mobile phone cover is less than the cost of getting a stand-alone policy, which can be attractive. However, you should check the details before applying. Some policies limit cover to particular handsets or impose high excesses (which can vary by manufacturer). Nevertheless, if the policy is suitable, you can save money and get other benefits effectively for free.
Cashback – Cashback is the latest trend in the packaged account market. As consumers have become more familiar with the concept, due to the increasing popularity of cashback websites, banks have sought to capitalise. Cashback tends to be linked to particular payment categories (eg. utility bills) or for particular transaction types (eg. Apple Pay). However, most banks cap the amount of cashback available per month, so you need to ensure that the value of cashback you receive will exceed the cost of the account.
Lifestyle benefits – Some accounts offer free membership to paid organisations or discount schemes.