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Banks pushing people to look for new current accounts

The banking industry is offering customers yet more reasons to look for new current account providers, as its stream of alarming financial disclosures threatens to turn into a torrent.

COUNTING THE BENEFITS: Muriel Cameron is cashing in on a current account that pays 3% interest on balances over £3000. PIcture: Steve Cox

Earlier this week, Co-op Bank revealed that it made a loss of more than £1.2 billion last year and will need to raise £400 million from new shares to plug a black hole left by a catalogue of poor management decisions. If it fails to find the cash, the consequences could be dire.

Charlotte Webster, director of pressure group Move Your Money, said: "The Co-operative Bank has suffered from serious mismanagement over the past few years, sadly, like many of Britain's big banks, it is a result of putting short-term profit over long-term stability and good service."

Ironically, the Co-op had been one of the principal "ethical alternatives" flagged up by Move Your Money from its inception.

Also this week, Santander was fined nearly £12.4m by the Financial Conduct Authority for providing poor investment advice in branches prior to 2012, when it stopped offering this service.

Last week, the Office of Fair Trading announced 17 banks and building societies had agreed to repay an estimated £149m in interest and charges to around 497,000 customers after failing to provide legally required information in credit agreements. Meanwhile, earlier this month, Think Money revealed almost one in three account holders paid bank charges last year, and more than half of them ended up with an unauthorised overdraft as a result.

According to the provider of budgeting accounts, that meant more than eight million people's finances were pushed further into the red because of penalties applied by their bank or building society.

Thankfully, there are also an increasing number of positive reasons to consider moving to a different account provider.

Tesco Bank and Virgin Money recently announced plans to enter the market, and earlier this month, M&S bank, which currently offers a packaged account, revealed it is launching a version with no monthly fee.

The M&S account, available this summer, will have no minimum funding requirement. It will give loyalty points on spending and an automatic £500 overdraft, the first £100 interest-free. Customers switching from other banks and building societies will also receive a £100 gift card.

Almost immediately, Santander unveiled a children's version of its 123 current account. Like the adult account, 123 Mini will pay interest of up to 3% on credit balances - but only up to £2000, a tenth of the adult maximum. The bank's hope is that children who take up the offer will remain with it when they reach adulthood.

TSB, which was recently spun off from Lloyds Bank, has countered with a free-in-credit account of its own that pays 5% interest on balances up to £2000.

Jafar Hassan, personal finance expert at uSwitch.com, said: "This is the latest addition in an increasingly competitive current account market. Although the 5% interest rate only applies to balances up to £2000, customers only need to deposit £500 each month to get the rate - much less than other high-interest current accounts.

"More good news is that the 5% rate is not limited to one year, unlike Nationwide's account that offers 5% interest on balances up to £2500 but only for the first year."

He added: "However, for people with balances of £4000 and over, the Santander 123 account paying 3% interest works out better."

TSB's former owner will launch a new interest-paying current account of its own on Monday. However, the Club Lloyds account has a minimum funding requirement of £1500 a month or a £5 fee will be applied.

The seven-day switching guarantee, introduced last September, makes it easier to change accounts. Providers must ensure all switches are completed within seven working days of the new account being approved.

All regular payments to and from the old account must be automatically transferred to the new one, with a redirection continuing for 13 months so annual payments such as subscriptions aren't missed, and any fees or charges incurred because of errors during the process must be refunded by the new provider.

Ms Webster said: "There is huge demand for good banking here in the UK and now people are aware of other options, millions are switching to banks more reflective of their own values. For those wanting to look at their options, it's possible to compare over 70 banks on the MoveYourMoney.org.uk switching scorecard."

By the end of the year, it should be even simpler for people to compare accounts and choose the one best suited to their needs. The Treasury announced last week the major banks and building societies had agreed to start providing account data in a standardised format that can, for the first time, be fed into comparison sites.

Richard Lloyd, executive director of consumers' organisation Which?, said: "This information should make a big difference, as people could be thousands of pounds worse off by having the wrong account."

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