The number of packaged current accounts offered by big
banks in the UK is increasing but lack of transparency and
difficulties around switching current accounts make it difficult
for consumers to choose the right one. Meghna Mukerjee takes a look
at the current bundled accounts on the UK market.


Bar chart showing the average monthly fee for a UK packaged account since October 2006The ‘Big Four’ banks in the UK – Lloyds, Barclays, Royal
Bank of Scotland (RBS) and HSBC – account for 77% of personal
current accounts in the UK retail banking market, and competition
is on the rise among lenders to attract new customers and retain
existing ones, alongside differentiating themselves.

A primary method of doing so for
banks is offering customers more ‘value’ through packaged

The average monthly fee for a
packaged account has increased from £11.59 ($18.4) in 2006 to
£15.44 in 2011, with monthly fees ranging from £6.50 to £40.

With around 10m packaged accounts
in the UK and each account costing customers an average of around
£185 per year, the market is worth around £1.8bn in fees for 2011,
according to RBI estimates.

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As regulation in the UK increases
and banks continue to face margin pressure in a low interest rate
environment, the attraction of growing fees based revenue from
packaged accounts is understandable.

Packaged accounts (or added value
accounts, as banks prefer to call them), have not been greeted by
all parts of the press with universal acclaim, while a number of
consumer groups argue that they can be unnecessary, expensive and
offer poor consumer choice.

A packaged account is typically a
current account bundled with a range of incentives such as
insurance policies – mobile phone insurance and car insurance,
other preferential financial services such as overdraft, personal
loan or mortgage, as well as non-financial products and services –
for which the customer pays a monthly account fee.

According to financial research
company Defaqto, there were approximately 54m active current
accounts in the UK in 2011 and packaged current accounts made up
about 17% of the UK retail banking market.

The number of packaged current
accounts available to consumers has increased by 109% since 2006,
says Defaqto research with the number of bundled current accounts
on the UK market hitting 69 – more than double the number available
five years ago [33].

Defaqto adds that since November
2009 there have been more packaged accounts available than free
in-credit accounts.

Bar charet showing how the UK packaged account market has changed since October 2006 According to the Packaged and Premium Accounts
report [June 2010] by UK-based research firm Mintel, approximately
one in five of the UK adult population already held a packaged
account in January 2010, and that number is expected to double by

Packaged accounts present customers
with more choice but they could also, potentially, increase the
risk of consumer detriment if users “find it difficult to make
informed decisions about the complex range of choices available”,
according to the Financial Service Authority’s (FSA) consultation
paper, Packaged bank accounts: New ICOBS rules for the sale of
non-investment insurance contracts
, released in October

The FSA has kicked off a review of
packaged accounts to understand the product and the market

The complexity of packaged accounts
offered by banks may “further limit already low switching rates
between accounts and providers of packaged bank accounts’,
according to the FSA.

Defaqto argues that the
“difficulties of switching between providers” and the “lack of
transparency about banking services on offer” makes it difficult
for consumers to make knowledgeable decisions about the range of
choices available by competing banks.

Defaqto insight analyst for banking
David Black says: “The three high-value incentives currently
offered by most packaged current accounts are travel insurance,
motor breakdown cover and mobile phone insurance.

“For each benefit, it is important
for people to look at the type and level of cover that is actually
being offered – and to compare these against other accounts and
also standalone alternatives.

“People need to be mindful of
duplicating cover they may already have in place, for example as
part of workplace benefits.”

Table giving details of packaged accounts offered by leading lenders to retail banking customers in the UK


Packaged accounts are generally
sold rather than bought, and consumers do not tend to proactively
search for this type of account but are more likely to be upgraded
by their bank.

RBS and England-based
retail-subsidiary NatWest each offer two core packaged

A spokesperson from RBS tells
RBI: “We have approximately 12m customers, with 19% of our
customers having a packaged account. Our commitment to ‘helpful
banking’ means that we offer a range of current accounts from which
customers can choose the product that best suits their needs.”

RBS refreshed its choices in July
2011 “in line with customer feedback” and launched its new
simplified range of accounts “designed with features and benefits
to meet our customers’ needs at every stage of their lives”.

The RBS spokesperson adds that
customers are provided with “clear information about how they can
make best use of their account” as well as access to an online
portal to manage their benefits.

Among the 2.4m customers of The
Co-operative Bank (Co-op), 18% of the current account users have
packaged accounts. The Co-op also believes it offers the “best
value packaged account in the UK”.

The Co-op head of banking Robin
Taylor says: “Since our packaged accounts were first introduced we
have been monitoring customer use and feedback closely to ensure
that the benefits we offer still meet customer demand.

“Features such as the breakdown
cover have proven really popular with customers so we have focused
on really improving these benefits.”

Big lenders in the UK are under
further pressure to improve their packaged account offerings as
relatively new players such as Tesco Bank and Virgin Money have the
potential of providing stiff competition.

A third of consumers surveyed by
Mintel in 2011 said they would be prepared to consider switching
their main current account to a challenger brand, and men aged
between 25 and 34 who own fee-based packaged accounts were
significantly more likely to consider switching.

Black adds if customers are
considering opening a packaged account, they should look at each of
the incentives offered and decide whether or not they fit the needs
and represent good value against the monthly fee.

One way in which banks could more easily comply with the FSA’s
proposed rules on the sale of packaged accounts would be to follow
the lead of the Co-op Bank and create menu-style accounts where
customers select the benefits they want to attach to the


LSG forecasts AVA market to reach 30% by

Lifestyle Services Group (LSG), the largest single
provider of added value account (AVA) products and services to the
retail banking sector in the UK, has forecast such products will
account for 30% of the UK current account market by 2020, up from
around 17%.

Since setting up in 2005, LSG
has grown to become one of the UK’s biggest providers of lifestyle
assistance solutions with banking clients including Barclays,
Lloyds (and sister brands Halifax and Bank of Scotland), Co-op Bank
and Metro Bank.

In early February, LSG
extended its contract with the Co-op Bank, following a successful
three year relationship. The renewal agreement will see LSG
continue to provide insurance, value added benefits products and
support services to The Co-op Bank’s Privilege, Privilege Premier
and smilemore account holders.

The Co-operative Bank and
Lifestyle Services Group partnership was the first in the UK to
offer a ‘customer choice’ platform whereby individuals can choose
from Travel, Gadget or Safeguard benefits on top of their other
core benefits including Car Breakdown and Mobile Phone Insurance.
An annual statement of benefits is also sent to customers to
highlight what they are using and what they are not

LSG business development
director Andy Morris said: “Our relationship with The Co-op Bank is
a good example of how we are working with our clients to help them
engage their customers with their products and services and we’re
thrilled to be able to continue this partnership.”

The Co-operative Bank head of banking Robin Taylor added:
“We are looking forward to continuing the excellent partnership we
have enjoyed with Lifestyle Services Group, and utilising their
support and expertise to enhance our packaged account propositions