HOW would you like your bank to provide you with travel insurance or motor breakdown cover as part of your current account?
Before you get too interested there's a catch: you'll have to pay them a monthly fee. That's the deal on offer from many added-value current accounts.
Most adults need a current account and it is seen by many banks as the foundation stone of their
relationship with each customer.
Banks are increasingly taking this opportunity to try and cross-sell their other products or services to you and indeed many of their staff are incentivised or set targets to do so.
One of the accounts that they will often propose is their paid-for added-value current account. For the banks each new customer will provide them with a guaranteed income stream as they levy a monthly charge ranging from £3 up to £25, with the average account currently charging about £14 every month.
That's what's in it for the bank but what's the attraction for the customer and how do they get you to sign on the dotted line?
The golden rule is to look at the incentives and work out which of them you actually need, and, if so, whether it is suitable for your circumstances. Also think about whether you could buy a similar product or service cheaper independently. The two highest-value incentives tend to be travel insurance and motor breakdown cover.
Travel insurance cover varies widely. Some things to think about include:
• Who does it cover? Just yourself or your partner and family too?
• Is there an age restriction? Many policies have a maximum age limit of mid to late sixties.
• Where does it cover: Europe? USA? Worldwide?
• Does it cover winter sports?
Motor breakdown cover also varies:
• Is the cover roadside assistance only?
• Towing to a garage or home?
• Recovery with replacement car or hotel expenses?
• European cover?
Circumstances vary so, for instance, if you're a keen skier, having an insurance policy that excludes winter sports isn't going to fit your needs.
Incentives on offer vary from account to account. Other incentives available include shopping discounts, concierge services, airport lounge passes, gadget insurance and discounts or preferential rates on bank products.
It's also becoming increasingly common for banks to offer several differential added value account options. These can include an entry level added-value account at a relatively cheap monthly fee; an intermediate account costing more but offering better incentives; or a premium offering which levies a higher fee but boasts an even more impressive list of incentives.
Current accounts generally are under the spotlight at the moment and not just in the media. The Office of Fair Trading has an ongoing court case with seven banks and one building society concerning the fairness of unauthorised overdraft charges and is also in the consultation period following a market study in which it contends that the "current account market as a whole is not working well for consumers".
How all this pans out remains to be seen, but the current account landscape is likely to change fairly radically over the course of the next two or three years.
If charges get capped it's inevitable that banks will seek to regain lost income elsewhere and this could herald the eventual demise of free-in-credit full service current accounts as banks modify their charging structure.
One thing you can be sure of is that added value accounts are going to become increasingly prominent in the market place.
• David Black is principal consultant for banking at Defaqto
