Mark Adams looks at two radical changes that have taken place since the banks won their multi-million pound overdraft charges battle.
The UK banking sector received a significant boost last month after the new Supreme Court ruled that - despite earlier legal victories for consumer watchdog the Office of Fair Trading (OFT) - banks can continue charging high fees for customers who go overdrawn without permission.
The decision helped protect an estimated £2.6bn of annual income for UK banks and has - for now - enabled the banks to avoid a multi-billion pound payout to consumers who have contested the legal status of unauthorised overdraft charges. Consumers argued that the one-off fees as high as £35 were "excessive" - but the Supreme Court didn't agree.
As part of their defence, the banks argued that such fees helped subsidise free banking for consumers and claimed that they had in recent months implemented major changes to current accounts that would help consumers avoid costly fees.
Banks certainly did move to lower the level of unauthorised overdraft fees ahead of the Supreme Court ruling. In August 2008, Barclays moved to replace high fees for unauthorised overdrafts with a flat charge for people who used a so-called "personal reserve" - which amounts to an additional overdraft facility with extra charges.
This October saw RBS / Nat West halve its charge for paying an item on an overdrawn account and slash charges on bounced items from £38 down to £5. Halifax soon followed suit with a blanket £5 per day charge on overdrawn accounts - which actually proved more expensive if you were overdrawn for several days.
These moves represent lost revenue to banks. We've already seen a massive move towards fee-paying packaged accounts as well as the scrapping of in-credit interest payments, as our banks try to balance the books. Yet more radical changes could be on the way, as Santander and Lloyds TSB launch two very different current account offerings. We put the new deals to the test.
Santander Zero
Following its acquisition of Abbey, Alliance & Leicester and Bradford & Bingley, Spanish banking giant Santander is looking to increase its market share with the launch of its Santander Zero current account in January 2010. The deal has no overdraft fees, no unauthorised charges and no charges with withdrawals or purchases overseas.
What's more, the account pays a very generous 6% interest on in-credit balances during the first year of opening. Yet if you're looking to switch, you may be out of luck - the account
will initially only be open to available to anyone who currently holds a mortgage (i.e. former Abbey and Bradford & Bingley customers) or opens one with the bank, before being made available to Alliance & Leicester customers later in the year.
Santander claims it can offer such an attractive package due to using their competitive cost advantage to give customers better value-for-money products and keeping them loyal. The account certainly helps promote its more profitable mortgage business - but does it represent a good deal?
The absence of headline charges is certainly welcome and the in-credit interest rate is only matched by Alliance & Leicester's Premier Direct account. The only possible 'catch' we can identify is while you won't incur any charges for creeping over your overdraft limit, don't expect that all transactions will automatically paid - it's quite likely they'll be declined instead.
The key question you'll need to ask before you opt for this account is whether you're willing to switch your mortgage - with all the fees that entails - to a deal that may be less competitive to enjoy the current account's facilities. Use our mortgage search to find the best deals currently available from Santander.
Lloyds Control
Another radically different current account option has been re-launched by majority state-owned bank Lloyds TSB. Its 'Control' account is a facility added to its existing current account range that allows account holders to pay a monthly £10 fee in exchange for no unauthorised charges being levied.
People who sign up will enjoy a new level of financial discipline - the service will prevent any payments from going through if there are not enough funds present. Consumers will still have to pay £10 for each refused payment, in addition to the monthly fee, but will escape Lloyds' standard £15 monthly charge and further fees of up to £25 a time if the payment is honoured or £20 if it is declined.
The Daily Mail reported that at least one other major bank is thinking of trailing a similar scheme - so is it worth your while?
A recent Which? survey found that almost half of all current account holders would like payments that would carry them into an unauthorised overdraft to be blocked - but you don't have to fork out £10 a month for the privilege. Just get a basic bank account. These accounts don't allow you to go overdrawn by more than £10, although the bank may still charge you for rejected direct debits. Find out more about basic bank accounts (PDF).
What else does the Lloyds account offer? The interest on in-credit balances is a paltry 0.10% unless you sign-up for the bank's free Vantage or Plus services - and even then you'd need to be in the black to the tune of £5000 to earn 4% interest.
What's more, the damage done to your finances by having items rejected could be worse in the long-run than paying penalty charges. The Control facility will turn down items at checkouts as well as mortgage payments if there are insufficient funds in your account - which could mean you only delay your debt problems.
What's next?
We would suggest that some banks may ape the Santander and Lloyds offerings but the key change will be the increase in fee-charging services that come with current accounts. The number of so-called 'packaged accounts' of dubious value has surged in recent years - expect that trend to continue. Plans are afoot, meanwhile, to offer no-frills banking facilities through the Post Office - expect more new entrants in the banking arena in 2010.
In the meantime, to get a better deal from your bank, check out our current account best buys. Or hop over to Q&A and get tips on the best current accounts from other lovemoney.com readers.
Compare current accounts at lovemoney.com