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New proposals promise to make the changing your bank account simpler and risk free. Rupert Jones looks at what's on offer
Switching your current account to another bank will become easier and less risky under new rules proposed this week.
One of the key recommendations of a report from the Independent Commission on Banking is that accounts must be transferred within seven working days. And, to allay people's fears that their direct debits or standing orders might go astray, banks would operate a "redirection service" to catch all credits and debits going to the customer's closed account.
It's all good news, but it's not yet clear how long we will have to wait for these changes to be made; they could be years away. However, the banks would argue that it is possible to make an easy, painless switch now. The past few years have seen improvements made to the process, and the official industry guidance now states that:
• Direct debit and standing order information should be sent by your old bank to the new one within three working days of receiving a request from the new bank;
• Once your application has been approved (ID checks carried out etc), your new account should be operational within 10 working days. That means you should be able to pay money in and make withdrawals;
• If you incur any bank charges as a result of a mistake or delay by one of the banks, these should be cancelled promptly and any money reimbursed.
There are plenty of carrots on offer to tempt people to switch, though the Office of Fair Trading (OFT) concluded that people "tend to be pushed away from their current bank by a problem rather than pulled towards another bank by a better deal".
This was backed up by research this week from Norwich & Peterborough building society, which found that poor customer service, or a single bad experience, are the most common reasons for people to switch their account.
Anecdotal evidence suggests some people haven't switched because they feel that in the current climate, if misfortune were to strike, they would be treated better by a bank that has known them for years. It is difficult to say whether there is any truth in that.
Some people haven't moved to another bank because they are worried things will go wrong as a result of switching. A survey carried out for the OFT found 70% of switchers did not encounter any problems – though that means 28% did (2% were "don't knows"). This research was carried out more than three years ago, so may not reflect the current situation.
Many institutions have introduced dedicated switching teams who will do all the legwork for you, and some will pay you money if things go wrong. For example, Norwich & Peterborough will give customers £50 if it fails to move all their direct debits and standing orders over within 10 working days.
First Direct says if you are not happy with its service after six months, it will help you move to another bank and give you £100 to make up for the inconvenience.
If you are considering a move, you need to look carefully at the different offers to see which will suit your needs.
If you stay in the black
If you keep your current account in credit and rarely or never dip into the red, you will probably be looking for a decent in-credit interest rate.
The Halifax Reward Current Account and Santander's Preferred Current Account top the Moneyfacts best-buy table. Both require a £1,000 minimum monthly deposit, but they are very different beasts. The Santander account pays switchers a fixed 5% interest for 12 months on balances up to £2,500, which is a very good rate. After 12 months the rate falls to 1%. The Halifax account simply credits your account with £5 each month that you pay in £1,000, whether you are in credit or overdrawn. This payment is net of income tax – the gross amount is £6.25.
If you go into the red
Look for the cheapest overdrafts. Some banks offer special deals to encourage you to move to them. Customers who switch to Santander's Preferred Current Account can get a free arranged overdraft for 12 months, "depending on circumstances".
It says it will typically match your previous overdraft up to £5,000. After 12 months you move to daily arranged overdraft fees – 50p per day, capped at 10 days per month.
High up in the best-buy tables is the Co-operative Bank's current account, which charges 15.9% EAR.
Best for freebies
Santander announced this month it will pay £300 cashback to customers who switch their main current account to it. However you must be an existing Santander mortgage customer who can deposit £10,000 in savings. Santander mortgage customers who don't have £10,000 in savings but switch their current account will get £200. Anyone else who moves their main current account will earn £100. This is available to customers switching to its Preferred Current Account, or the Reward or Premium current account.
First Direct is running an offer to encourage people to sign up for its 1st Account. Provided you transfer your monthly salary or income of at least £1,500 within three months of opening the account it will give you £100.
Best for service
This week Which? unveiled its latest customer satisfaction findings after asking its members to rate banks and building societies on current accounts, mortgages, savings accounts and credit cards. Regular readers won't be surprised to hear that First Direct came top, with an overall score of 84%. Its score on current accounts was even higher: 92%. The Co-operative Bank managed an overall score of 79%. By contrast, Santander had an overall score of just 41%, with Halifax/Bank of Scotland at 47%.
Rupert Jones
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