Penny-wise, pound-foolish
By Rebecca Brennan
Research from Abbey has revealed that although 86% of us are dissatisfied with our bank, a third of us have banked with the same institution for more than 20 years, and almost half of us have had the same account all our working lives.
According to Halifax, keeping an account with one of the big banks has cost customers £2.2 billion in low rates of interest on balances and high rates of interest on overdrafts in the last five years.
But banks are not just offering us a poor deal, many are also providing a disappointing service. The Banking Code Standards Board (BCSB), which monitors banks that subscribe to the banking code, received 3,500 complaints in 2005 – an increase of 50% on the previous year.
Despite the level of dissatisfaction, one of the main reasons people don’t switch banks is that they are concerned about the amount of work involved.
This, however, is a misconception. “It’s actually much simpler than people think, as the new provider will sort everything out for you,” says Sue Hannums of AWD Chase De Vere. In order to authorise the transfer you simply have to sign a form detailing any direct debits or standing orders that are paid out of your account, and your new bank will look after the rest.
Another reason people don’t switch is a presumption that one bank is as bad as the next. However, the current account market is more competitive than ever, meaning the difference between the best current accounts and the worst is enormous.
For the second year running, Alliance & Leicester’s Premier Plus Current Account comes out on top as the Moneywise ‘Best Current Account’. This is certainly a great all-rounder, but to make sure you get the best account for you, you need to think about your own personal circumstances.
First, look at your income. Many providers’ offers are dependent upon you paying a salary or pension of over £1,000 a month into the account.
If you’re usually in the black, check how much interest you’ll earn. Many banks still only offer 0.10% AER interest or less on credit balances, but some banks are now topping savings rates, with Halifax paying 5.12%, Coventry Building Society paying 5.10%, and Alliance & Leicester 5%.
More banks are also offering current account holders access to high interest savings accounts – Barclays and Alliance & Leicester’s accounts pay 10% AER. Given that most competitive savings accounts are currently paying in the region of 4.5% to 5%, these can be a great deal. However, it’s worth checking the small print first.
Also, remember that the banks are using these accounts as sweeteners. Current accounts are a goldmine of information for banks’ marketing departments and the cross-selling opportunities are immense.
It’s also no use having an account with a great rate of credit interest if you’re more often in the red than the black. You need to focus your attention on the rate you pay on overdrafts. Coventry Building Society’s Coventry First Account and Barclays Additions range offer £250 interest and fee-free. Alliance & Leicester’s Premier Direct Current Account offers new customers a 0% overdraft for 12 months after opening their account, reverting to a variable 5.9% EAR thereafter.
Overdraft charges vary widely from bank to bank. A few providers will charge a monthly fee for an authorised overdraft – for example, the Co-operative Bank charges 1% of your overdraft limit (minimum £15). Some impose a fee for overdrafts over a certain amount – for example, First Direct, which levies an arrangement fee of 1.5% (minimum £20) for overdrafts over £1,000.
Most banks will charge a higher penalty for unauthorised overdrafts, but there is no standard method for applying these fees. Some apply fees on a monthly basis, such as Royal Bank of Scotland, which charges £28 a month. Others make an additional charge when the overdraft increases, such as the Co-operative Bank, which charges a £25 monthly fee plus £15 each day your unauthorised balance increases, up to a maximum of five days a month. Some providers also penalise you if you haven’t bought your account back into credit (or back into your authorised overdraft) within a specified number of days.
However, the Office of Fair Trading has been investigating these high charges. Which? has also long been campaigning for these fees to be slashed. Doug Taylor, campaign team leader, says: “The charges for someone who strays into their unauthorised overdraft are disproportionate and unfair.”
Charges are just one of the aspects of providers’ customer service that could influence your decision about moving your account. In Mintel’s Current Accounts UK report, 33% of those questioned said that their current provider’s poor service might prompt them to switch to a new company. Which? conducts an annual current accounts service survey. In its 2005 study, the Smile and Smilemore accounts received the best satisfaction rating, with Nationwide and First Direct also receiving above-average scores.
You can communicate with your bank in a variety of different ways, so it’s important to identify how most of your interaction will take place. If you prefer face-to-face contact, you will need a provider with a branch near you. You might, however, prefer to use telephone or internet banking. Some banks, including Lloyds TSB and Cahoot, will even text you information about your balance and transactions.
It’s certainly worth considering internet banking as some of the best deals are only available online. However, if you decide to bank in this way, it’s important to look at the security measures your provider has put in place. There are a number of other websites that can provide help and advice on all aspects of online banking fraud, including banksafeonline.org.uk and getsafeonline.org.
Finally, even if you’re happy with your current provider, it’s worth checking regularly that the account is still best suited to your personal needs.
The Top Five Current Accounts – Best of the Best
1 Alliance & Leicester – Premiere Direct Current Account – 5% AER*
2 Alliance & Leicester – Premiere Current Account – 1.5% AER*
3 Nationwide – Flex Account – 4.25% AER*
4= Norwich & Peterborough – Gold Current Account – 2.78% AER*
4= Smile – Current Account – 3.04% AER*
