Is it ever worth paying for a bank account?
Remember when paid-for bank accounts were the exception rather than the norm? The preserve of the rich, or posh, or impressionable? Of course now that the banks are also ‘suffering’ as a result of the economic crisis, free banking is getting harder to find, and banks are now offering the best interest rates and deals on accounts that carry fees in an attempt to woo us over. In addition to the obligatory travel insurance.
But is it worth it? New research carried out by the data firm Defaqto has found that the average interest paid on a fee-charging account that is kept in credit is now 0.56% a year, against 0.34% for accounts with no fees. Similarly, the average rate charged on authorised overdrafts, where you do not exceed your agreed limit, is the lower 14% for fee-charging accounts, but14.9% for fee-free accounts.
Assuming a monthly fee of £9.99 for a paid-for account, you would have to have a credit balance of almost £54,500 to earn back £119.88 in extra interest back in a year. And if you were overdrawn? You’d need to find a bank that would give you a whopping £13,320 limit.
But if you could bag yourself one of those rewards, like the £100 Santander started offering a to those who switch to one of its accounts charging £10-£20 a month, maybe it would be worth it? Well if you have a credit balance of £9,091 or an overdraft of £2,222 it would be. For a year.
But what about the travel insurance? That’s got to be worth £120 a year hasn’t it? Er, no. Annual travel insurance policies for a couple in their thirties start at under £70 for worldwide travel. And if you are cutting back on the number of trips or only travelling to Europe you can likely get it cheaper than that.
But what about the other deals you can get? Well, some banks will offer you a discount on their other products, like car or home insurance. And with the cost of these products rising astronomically, a 10% or 15% discount could actually be worth a lot. However, this does rather assume that you would take your car or home insurance from your bank, when in practice, they are often far from the cheapest.
So overall, fee paying accounts are a fantastic deal. For the bank. Did you ever doubt it?