D.I.V.O.R.C.E- Switching Fever Hits Current Accounts
By Nick Funnell
Tuesday 10th July 2007
“The only solid and lasting peace between a man and his wife is, doubtless, separation.”
Thus wrote Lord Chesterfield in the eighteenth century, giving some rather sour advice on life to his son. It has often been said that UK consumers divorce their partners more often than they change bank accounts- but the latest figures suggest that this age of fidelity may be coming to an end.
Yes, it had to happen- the behaviour of regular switching learned by the UK consumer when dealing with suppliers of gas, electricity, broadband and credit cards has now spilled over into the traditionally staid world of bank accounts. The figures are clear- according to a YouGov survey 2.3m of us switched current accounts during the first quarter of 2007 - that’s 5% of all UK account holders. This shows an increase of nearly 0.5m compared with the last quarter of 2006, contrasting with the levelling off of activity seen in more youthful, ‘tarty’ areas such as credit cards and mobile phones. It may well be the case that the traditional post-Christmas financial trauma felt by many would have fanned the flames, providing the last straw of irritation with their bank’s charging structure and overall service level.
Current Bunfight- the Banks’ Competing Offers
According to a recent survey by Abbey, 49% of respondents thought that all current bank accounts were pretty much the same- a poor assumption to make these days. Over the past few years banks have increasingly differentiated their current account packages, hoping to gain a competitive advantage against their rivals over some or all of the following:
If you are usually in credit on your current account, you need to be looking at a decent rate of return on your money. The differential here can be huge, with the best on the market paying 5%+, as opposed to around 47 out of the 105 accounts on the market currently paying one per cent or less- the main high street banks’ standard current accounts are among them.
Regularly slipping into the red? Then you need an account that will shoulder the burden without too much pain. With standard high street accounts charging up to 20% APR, it’s well worth shopping around. Many accounts offer introductory 0% deals for a limited time period (similar to balance transfers on credit cards), then relatively low rates thereafter. Watch out for the overdraft limit, and charges for exceeding it (see below).
Charges for unauthorised overdrafts and/or bounced cheques are currently a hot topic in the news. Customers are fed up with in some cases racking up £1000s in £20-£40 hits and are looking to claw the money back through both the courts and regulatory bodies. However, the banks are resisting and the penalties are best avoided in the first place.
Even if in credit, your account may not be free- be on the look-out for regular monthly fees, increasingly charged for balances below a certain level. For example, First Direct announced earlier this year that they would be charging £10 per month on all balances below £1500 - but nothing above. See ‘Packaged products’ below for more.
This used to be a bit of a ‘sexy’ extra, but has increasingly become the norm as busy customers come to demand the convenience. Check availability before applying.
As the market for account switching hots up, the banks look to tempt us with juicy introductory offers. These may come in the form of good old-fashioned cash- for example, First Direct is currently offering to deposit £100 in any new account opened with them, provided at least £1500 per month is paid in for a three month period. Time-limited interest-free offers on overdrawn balances are also on the market.
Many accounts offer packaged bolted-on products, usually for a monthly charge. Sporting names such as ‘Advantage’ and ‘Premier’, they offer wide-ranging and sometimes obscure benefits, from handy-to-have travel insurance and breakdown cover, through to will writing and discounts on specific hotels. But let’s not get over-enthusiastic here. Last year, Abbey warned that while one in five people pay fees of up to £150 per year for extra services, only one in a hundred actually use them.
Top of the league here has to be Lloyds’ ‘Mayfair’ current account, which offers such delights as “A range of travel benefits … including annual travel insurance, UK airport lounge access…savings on over 6000 branded electrical goods…” . Costing a whopping £40 per month and paying no interest on credit balances, Mayfair is only available to those with salaries in excess of £250k. Think I’ll stick to my ‘Old Kent Road’-style account for now, thanks!
Ah, yes, that critically important but difficult to measure factor- customer service. Fed up with surly cashiers, limited opening hours and an endless tangle of recorded messages on the helpline? Now could be the time to stick it to your present bank, and switch.
It’s Easier than you Think
One of the main reasons why current accounts are so ‘sticky’ is the perceived hassle of having to change over a whole range of standing orders and direct debits, in addition to salary payment details. Certainly, it may have been the case in the past it that banks dragged their heels over customer ‘disloyalty’ in daring to move their business elsewhere, but these days all major UK banks have signed up to the British Banking Association’s Banking Code . This states:
Your old bank should provide your new bank with all direct debit and standing order information within three working days. Indeed, once you have provided the requisite proof of ID to your new bank and filled out the transfer forms, the whole process should simply be an automated information exchange between your old and new banks.
Your new bank should have your account up and running within ten working days of your application being approved.
The main piece of advice to follow to ease yourself through the process is to keep your old account open (with enough funds in it) until you are entirely happy all payments and receipts are going through the new one . Six to eight weeks should be long enough to provide reassurance, and some banks provide interest-free overdrafts for up to three months to cover this ‘bridging’ period. Once everything has been done, close the old account (transferring any remaining cash over to the new) and make sure you destroy all unused cheques and cheque guarantee/debit/cash cards . These days, you can’t be too careful in the battle against identity theft.
Potential Downsides
While you should never be afraid to switch accounts if the benefits are obvious, there are potential drawbacks to be aware of, beyond the possibility of the odd standing order being missed. Banking with one institution for several years can help demonstrate a level of financial stability- useful when applying for a mortgage or a loan. Often, lenders look back up to ten years into an individual’s history to verify credit-worthiness , and the length of time you've had a bank account, been at your address and been in your job are all relevant. With concern growing over UK consumers’ over-stretched borrowing, tightening of these criteria could well be the trend going forward. While an occasional switch could demonstrate sound financial judgement, regular chopping and changing of accounts may begin to look a little feckless.
So, just look in the mirror and ask yourself the question- is my current account loyalty really being rewarded? There’s no need to put up with paltry interest rates, extortionate charges and poor service any longer- ten minutes completing a transfer form could be time very well spent.
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