Don't be wedded to your bank account

[Legal Beagles]

Banks are wooing new customers with enticing offers – but are there hidden catches that will turn the relationship sour, asks Emma Simon

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[Amethyst]

Re: Don't be wedded to your bank account

s it time to give your bank the elbow? It is a well-known fact that people are more likely to get divorced than they are to move bank accounts. But if you feel that you are stuck in a financial relationship where the other half is not pulling its weight - then it is time to ditch and switch. Fortunately there are plenty more fish in the sea. The current account market has always been competitive, but last week several providers renewed their efforts to woo customers from the clutches of the big high street banks.
Alliance & Leicester is now paying 8.5pc interest on credit balances on its Premier Direct account (up from 6.5 per cent) while charging no interest at all on its overdraft.
This looks a lot more attractive than what is on offer at the UK's biggest banks. Barclays, for example, pays 0.1 per cent on credit interest and charges a whopping 16.6pc on overdrafts (for a full list of rates see tables).
A&L isn't the only bank out to impress. First Direct is still running its highly publicised campaign where it is offering customers who switch their bank account up to £100.
Even one of the biggest high street banks, HSBC, has been tinkering with its rates. Customers paying for its packaged account will now be offered interest at 8 per cent on credit balances while overdraft rates have been halved to 8pc.
But customers are advised to look behind these headline figures. The A&L deal, for example, is an introductory offer, albeit one that lasts a year. After this initial period the attractive 8.5pc disappears, and customers will be paid 1 percentage point less than the base rate (this would give a rate of 4.25pc today).
Customers can still enjoy an interest-free overdraft but they will pay a "usage" fee instead, being charged 50p per day that they are in the red, up to a maximum of £5 a month. There are more severe uncapped fees for those who breach authorised limits. It is also worth noting that even in the first year the 8.5pc is only payable on balances up to £2,500 a month.
So higher earners may not pay quite as much as they would first expect. The HSBC only pays 8pc on balances up to £1,000. Again this is just a year-long "introductory" offer. After the honeymoon period customers receive just 2.5pc on credit balances while the overdraft reverts to the more punitive 16.1pc rate.
As Mike Naylor, the personal finance expert at uSwitch.com said: "These rates don't look that great." He also pointed out that customers have to pay a whacking £155 a year for the account, although customers get annual family travel insurance thrown in as well.
The First Direct offer is certainly the simplest of the three. Switchers will get £100 paid into their account when the move, and if they are not happy with the service, they will get a further £100 paid if they switch again. First Direct says it is confident that few of those moving will ask for the second instalment. Although customers should bear in mind that this account no longer pays interest on credit balances.
But many of these accounts still offer better value than the bog-standard current accounts offered by most big high street banks. But despite the fact that A&L – along with Nationwide BS, Halifax and Abbey – have been offering better deals for years, most people still refuse to switch.
Figures show that eight out of 10 people have not moved their bank account within the last five years. A Mintel report published last summer shows that over the last three years A&L's share of this market had not increased, despite its market-beating rates and aggressive sales drive.
Kevin Mountford of Moneysupermarket.com said: "Over the past five years consumers have become far more empowered, and will seek out the best deals for their money. But sadly we have yet to this same drive in the current account market."
He points out that people are happy to chop and change credit cards, switch savings accounts, remortgage, change their gas and electricity suppliers and shop around for car and home insurance every year.

[Amethyst]

Re: Don't be wedded to your bank account

So why are customers so reluctant to switch? Paul Davies, the head of money research at Which?, said it is inertia, rather than the fact that they are happy with their current banking arrangements.
Which? conducts regular customer satisfaction surveys. Time and time again it is the big banks that score badly, and the likes of First Direct, A&L, Nationwide, etc that come out top.
Davies said: "Customers seem to be trapped in a failing relationship. They don't like the service, the rates are poor, yet they still seem reluctant to leave."
The main reason is the hassle factor. People get comfortable with what they know and think it will be an upheaval to move direct debits and standing orders and learn new PIN numbers.
What's more, there is the fear that it could cost them, and they may be hit with unexpected banking charges should something go awry.
But as Davies pointed out, the switching process has become far easier in recent years. Most banks have dedicated "switching" teams that will transfer your direct debits, standing orders and even contact your employer to move your salary.
What's more, most banks pledge to meet any costs, should problems emerge, even if this is the fault of a third party that has failed to process the bank's switching request on time.
But despite improvements some people still do run into problems. Mountford took his own advice and switched his bank account a couple of years ago. He described it as a "painful process".
He added: "I am sure the processes have improved, but I would recommend that anyone going down this route makes sure that the bank takes full responsibility for moving all your direct debits and to ensure they have a fee-free overdraft buffer in place for at least the first few months."
The second issue is that most of us do not keep vast sums of money in our current accounts, so the net financial gain can be limited. For example, Davies pointed out that even if you keep an average balance of £1,500 in your account, then you would only earn an extra £53 a year if you move from an account paying 0.1pc to one paying almost 4pc.
But the same is not true of those who regularly dip into their overdraft. As the table shows, the difference between the best and worst providers is substantial, and it is here that significant savings can be made.
Unfortunately many people still labour under the misapprehension that if they are in debt they cannot switch providers. But as many experts have pointed out, banks are often more than happy to take on such customers, provided they can manage their debts sensibly and do not breach lending limits. After all it is these customers, who pay interest charges, that can prove the most lucrative for the profit-hungry banks.
But do check you will be offered the same sized overdraft with any new provider. If you regularly need overdraft facilities of £500, it makes no sense to switch to a provider who is only prepared to grant you a £200 limit, even if they are charging interest at half the rate. Before long you are likely to go into unauthorised borrowing, which will cost far more and could easily wipe out any savings made to date.
The other factor that may be holding people back is the ongoing court case regarding unauthorised overdraft fees. Although you should still be able to reclaim these (provided the Office of Fair Trading wins its case), if you have switched accounts many people may feel it lessens their chances of a full refund.
The bad news for those in this situation is that the current case, plus any subsequent appeal, may take at least a year, possibly two, to resolve.

[Amethyst]

Re: Don't be wedded to your bank account

Those left in the lurch have to weigh up whether they are better off staying put or jumping ship and getting a better deal from the bank account today. Remember these "refunds" only apply to those who have been charged penalties for breaching overdraft limits in the past.

[Delta]

Re: Don't be wedded to your bank account

My other half is considering a divorce from his mortgage provider, he's somewhat jittery at the thought of being tied to the gubberment for the next 20 years.