We're being conned on our current accounts

Banks are getting away with offering rubbish accounts because they know we won't move.

The current account market is beset with lazy, uncompetitive providers, poor accounts, and customers who are too confused to consider switching accounts, according to a new report.

The Independent Commission on Banking was charged with looking at how the banking sector could improve its financial stability and competition, and last week published its initial findings in its Interim Report. And one of the most interesting sections of the report covered current accounts, and the way that we are being fobbed off with shoddy accounts and service.

It all comes down to competition, or rather a lack of it – according to the report, there have been just six new entrants into the personal current account market in the past decade, and only four have stuck around. Just two of them have managed to secure a significant market share.

With the same old names providing the same old accounts, there isn’t too much in the way of innovation taking place.

Switching issues

The report also highlighted that competition within the sector is stunted because of the difficulties associated with switching accounts (both real and perceived), while poor choice only worsens matters. Less than 4% of respondents surveyed as part of the Commission’s research had switched account in the past 12 months, indicative of the apathy many Brits feel towards chopping and changing their current account.

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And with customers unlikely to move, the banks have no incentive to improve their offering.

Understandably, this is a cause for concern.

Improving switching process

So how can we improve this situation? The Commission’s report includes a number of recommendations which it believes will speed up the process and give us all a lot more confidence when it comes to switching.

1) An improved challenger

The Lloyds Banking Group is due to split off the TSB brand, handing it 4.6% of the personal current account market and 600 branches across England and Wales. However, according to the Commission the existing plans would leave this new brand as a very weak challenger in the marketplace, failing to address the current concentration of providers.

The Commission called on the Government to convince Lloyds to enhance the new brand’s offering, so that it will be an actual player in the market, providing more competition and therefore improved choice to people like you and me.

2) A faster process

Banks should have to guarantee that the switch of accounts will take place within a certain time period (for example, seven days). The current system could also work more quickly and efficiently according to the commission.

3) Automatic direct debit switching

A more fundamental change, and one that would take a year or two to implement, the Commission suggests the creation of a redirection system to automatically transfer direct debits from the old account to the new one, avoiding any inconvenience to the account holder.

From personal experience, I know that while most banks offer a switching service, the time taken to move over your direct debits is variable at best. And this can cause real problems with missed payments.

4) Account number portability

By far the daftest of the Commission’s suggestions in my view – apparently we would all be more likely to switch accounts if it meant that we didn’t have to change our account number, in much the same way you can keep the same mobile phone number now even if you move networks.

This would apparently eradicate direct debit switching issues.

5) Improving transparency

Finally, current account providers need to drastically improve the transparency of exactly what the accounts provide, particularly regarding the interest (or rather lack of it) customers are earning on their cash.

It’s not all bad

Clearly, we are getting a raw deal from many current account providers, and on many accounts. However, it would be remiss of me to ignore the fact that there are still a number of accounts that are pretty great and deserve consideration from all of us. Below are my three favourite accounts currently on the market.

The Halifax Reward account

My wife and I have the Halifax Reward account as our joint account, and I reckon it’s pretty amazing. Each month, so long as you pay £1,000 in, you’ll get a £5 payment from Halifax. It doesn’t matter whether your account finishes the month with a balance of £1,000 or £0, you’ll still get that £5. In effect, you can Earn £60 a year from an empty current account!

The first direct 1st Account

There are few accounts that garner such universal praise as the 1st Account. On the surface there’s nothing too spectacular about it – you don’t earn interest on your money and have to pay in £1,500 a month, though there is a £250 interest-free overdraft.

However, what sets the 1st Account apart is the remarkable customer service that you’ll enjoy – the account has won virtually every customer service award going, making it The sexiest bank account in Britain.

First direct is so confident that you’ll love the account they’ll give you £100 for taking it out, and another £100 if you decide to leave after a year. Free money and a brilliant current account? Yes please!

The Santander Preferred Current Account

Neither of the accounts I’ve mentioned so far offer much in the way of a return if you’re the sort of person with a lot of cash in your current account.

The account that currently offers the best return is the Santander Preferred Current Account, which pays a whopping 5% on balances up to £2,500. That’s better than most specialist savings accounts!

And as with the 1st Account, you will enjoy £100 cashback if you take up the Santander Preferred Current Account.

Of course with Santander, the elephant in the room is the standard of customer service. Santander regularly gets a kicking in this regard, so it’s something to consider before applying. However, my own current account is with Santander, and I can honestly say I’ve had no issues at all, so they aren’t all bad!

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