Last week, Halifax launched an account called Extras that offers free breakdown cover and travel insurance as well as discounts on car and home insurance.
Most banks charge up to £150 a year for these “packaged” accounts, but Halifax does not levy a fee. However, you must pay in at least £1,000 a month to qualify.
Alliance & Leicester already has a fee-free package called Premier, which offers free travel insurance and special rates on mortgages, loans and investments — as long as you put at least £500 a month into the account.
So is it worth picking a packaged deal? Standard current accounts may be better if competitive interest rates are your priority.
Halifax Extras, for example, pays interest of 2% if you are in credit and charges 12.9% on overdrafts. The account is reviewed once a year and if you have failed to pay in at least £1,000 in either of the two months prior to the review, the overdraft rate rises to 18.9%. What’s more, the credit rate falls to 1.76% if you have more than £500 in the account and 0.25% if you have a smaller balance.
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Halifax’s standard current account pays 2.5% if you are in credit and charges only 8.9% on overdrafts if you pay in at least £1,000 a month.
One of Lloyds TSB’s standard accounts, Classic Plus, offers the best rate on the market — if you meet its criteria. It pays 3.15% if you deposit at least £2,000 each month. If not, the rate drops to 0.1%. Lloyds also pays the lower rate on balances above £5,000.
Even if the packaged account has a preferential rate, the fee may wipe out the benefit. NatWest, for example, has a standard account with a rate of 0.1% and a packaged scheme, called Advantage Premier, that pays 0.65% on balances of £5,000. A customer would therefore get extra interest of £27.50 a year with Advantage Premier, but this would be wiped out by the annual fee of £150.
If you are regularly overdrawn, Alliance & Leicester Premier charges nothing on the first £2,500 of your overdraft for 12 months. After that, the rate is 6.9%. Nationwide’s standard current account has an overdraft rate of 6.75%.
You should also assess the perks on offer. If you receive free travel insurance, for example, check the quality of the cover. Experts recommend you are covered for medical expenses of at least £2m, personal liability of £1m and cancellation costs of £3,000.
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The insurance that comes free with Halifax Extras offers cover for medical expenses of up to £10m, personal liability of £1m and cancellation costs of £5,000.
However, the policy is for only one person travelling in Europe. If you upgraded to a worldwide family policy, Halifax would charge £87.56. The cheapest policy for a family of four costs £70, according to moneysupermarket.com.
Lloyds TSB has a packaged account called Gold Service with a fee of £96 a year. Members can take out the Gold Saver account, which pays 2.45% on balances of £10,000, compared with 0.2% on the bank’s standard instant- access savings accounts. But once you take the fee into account the rate is just 1.49%.