Szu Ping Chan looks at a current account shake-up that could be a bad sign for British banking as we know it.
This article was first sent to Fools as part of our Good, Bad and the Ugly email campaign.
In today's instalment of The Good, The Bad and The Ugly, I'm going to be looking at one current account shake-up that could be a bad sign for British banking as we know it.
Earlier this week, HSBC became the latest bank to announce it was revamping its current accounts. From Monday, anybody opening one with the bank will be offered one of two new packages.
The first is the HSBC Current Account - the facilities of which remain mostly unchanged from its predecessor. However, those crediting more than £500 per month into their account will qualify for HSBC's Current Account Advance, which comes with free mobile banking, ID theft assistance and access to the HSBC 8% regular saver - currently only available to Plus, Premier and Passport customers.
Both accounts are fee-free and include standard facilities such as a debit card and the ability to set up standing orders and direct debits.
Existing customers will be transferred to one of these accounts on 1st December. If you're one of them, you'll receive a letter from the bank informing you which account you will be moved to.
Incredibly shrinking interest rates
Interestingly, HSBC has also decided to scrap credit interest on both accounts. However, this isn't much of a change from the derisory 0.1% the bank was paying before.
They aren't the first bank to make this move either. Barclays removed interest on its standard current account in June, and this time last year, HSBC's sister bank First Direct announced it was scrapping credit interest on its current accounts.
Although HSBC does now reward those customers who pay an income to the account, I think this is ultimately just another tactic to squeeze as much money from customers as they can. You could get one or more of these new perks for free from products with other providers. In addition, the Regular Saver now offered with the Advance was available to all customers until a few months ago, when it became limited to select customers only.
So, with more banks moving towards the no credit interest model for their current accounts, is this the start of a shake-up of British banking as we know it? And more importantly, is it time to switch to a better deal?
Taking the plunge
Switching accounts is something we often talk about but never do. After all, it takes time which we don't have, effort which we'd rather not exert and often a lot of phone calls to make sure everything goes smoothly.
However, the process can be simpler than you think, and if you don't switch and you could be stuck in a poor value bank account.
For a better rate of interest, Alliance and Leicester's Premier Direct Account pays 8.5% on balances up to £2,500. Abbey is second best, paying 8% on balances up to £2,500.
However, both of these great rates only last a year, after which they revert to bank of England base rate less 1% and 2.5% AER respectively.
If you want a great rate on more of your money, Coventry Building Society pays 5.6% AER on balances up to £250,000, although it does include a 0.85% bonus that lasts a year.
Alternatively, Lloyds TSB has just introduced its `Vantage' current account add-on, offering tiered interest rates of up to 5% AER if you keep a balance of £5,000 to £7,000 in your account. Lloyds is also still offering (thought not marketing) its Plus service, where you can currently receive 4% AER on balances up to £2,500. All these accounts remain free as long as you are in credit.
Free cash!
If perks are more up your street, both First Direct's One account and Alliance and Leicester's Premier Account will give you £100 if you switch to them.
Not to be confused with the Premier Direct account, the Alliance & Leicester's Premier Account also comes with free annual European travel insurance, but a slightly lesser in-credit interest rate of 1% AER.
And, when it comes to First Direct, although you'll get no interest, the bank is well known for its excellent customer service. In fact, they are so confident of this that if you decide to leave them after six months, they'll give you another £100 for leaving them!
Overall, a big but small change for many HSBC customers. However, I think this news is just the shape of things to come in the British banking system. Banking as we know it will change. It's just a case of when - and whether you're Foolish enough to keep up.
Points to note
Most banks and building societies now have a current account switching service, where in most cases a couple of signatures will transfer your standing orders, direct debits, and in some cases even your salary from your old to new account.
Read the small print, as high-interest current accounts often require a minimum monthly credit (e.g. First Direct requires £1,500 and A&L £500).