Expensive wrapping on empty bank current account packages

Current account banking in the UK is generally free - if you behave yourself and don't breach overdraft limits, or have need of some of the more expensive services that the banks offer, such as international money transfers.

However, despite this amazingly good value service, which is generally available in most high streets, a growing number of customers are paying for their cheque accounts - some of them apparently unwittingly. The banks created a rod for their own backs in 1974, when Williams & Glyns Bank now part of Royal Bank of Scotland became the first British clearing bank to offer free banking for personal customer accounts in credit.

Other banks followed the marketing ploy like lemmings, in an attempt to lure new customers and keep their existing ones. The tactic was fine while interest rates were high - in 1974 inflation was running at 16% and rising. This meant that it was not hard for the banks to make a tidy profit on the cash sloshing around in non-interest bearing accounts and still offer the "free" service.

Since that time, customers have demanded interest on their current account balances, while interest rates in general have plummeted as inflation has eased. Hence the invention of the "packaged account" as the next ruse to part current account customers from their cash - and they are a nice little earner for the banks, bringing in around £530m in fees last year. The trend is set to continue. The packaged current account banking market has shown a steady growth of around 2% each year since 1998, from just 6% of the total current account market then to around 20% in 2006.

How packaged bank accounts work

So how do packaged accounts work? For a fee of between £2 and £25 a month, packaged accounts offer bells and whistles ranging from "free" travel insurance and AA membership to discounts on the bank's mortgage rates.

But are these accounts good value? The blunt answer is probably no, as research shows that only a quarter of packaged account holders ever use the perks they are supposedly getting for their fee. Of those who do use the so-called perks half use them just three times a year at most. For example:

• half of customers have worldwide travel insurance as part of their packaged account deal, but only a third have ever used it;
• around a quarter have retailer discounts on offer, but only 6% have ever used them;
• and although a fifth of customers think they have a 24-hour legal helpline on offer, only 4% have chosen to, or been in a position to, use it.

Additionally, the value placed on some of the perks could be overestimated. For instance, insurance such as travel cover can often be found elsewhere at a cost less than half the ascribed value placed on it by the bank.