The 'bank for life' is history, but think before you switch
The Independent Published: 06 November 2005
It used to take an iron bar to prise apathetic customers from their bank current account. No matter that the rate of interest on balances in credit was paltry, or that overdraft charges were punitive - people would stay with the devil they knew.
But that's all changing now. New research from the Group 1 Software consultancy reveals that banks are losing customers twice as fast as they did in 2003. The "defection" rate to rivals is now nearly one in five, 17.5 per cent, it finds.
"The industry can no longer rely on customers being reluctant to change their bank," says Andrew Greenyer, director of marketing at G1S. "Annual bank [customer] losses have traditionally been less than 10 per cent, but these have now rocketed to the same level as [those] for general insurance."
That the nation's 21 million or so current account holders are now so willing to shop around and switch is at least partly attributable to the special offers that seem to flood daily from banks and building societies.
Latest temptations include a savings account offering 10 per cent from Alliance & Leicester if you switch, or a free £5,000 overdraft from Barclays.
The competition is largely down to a bitter battle fought by A&L, Abbey and the Halifax to win new customers from the "big four" banks - NatWest, Barclays, Lloyds TSB and HSBC.
After reeling you in via a current account, they will then try to sell you more lucrative products, such as a mortgage.
If you're a "big four" current account customer, there's no good reason not to see what else is out there. However, to make sure you're not so dazzled by all the offers that you choose an unsuitable deal, take two precautionary steps. Always check the terms and conditions before you switch - a set minimum salary being ploughed in every month is the main criterion - and ask yourself what you really want from your bank account.
"Those always stretching the limits of their overdraft need an account levying the lowest charges, rather than one offering generous interest on balances in credit," says Sue Hannums of independent financial adviser Chase de Vere.
And those with finances in ruder health should look for more interest than the insulting 0.1 per cent offered by many high-street banks, she adds.
Don't worry about the switching process; once a request is made, your old bank has three working days in which to provide details to your new one, which should then ensure that everything is correctly set up.
In any dispute, complain first to the bank, although the Financial Services Ombudsman can also help you.
To help with your search, here are some areas to consider.
Watch the overdraft
If you occasionally slip into the red, look for a fee-free or interest-free buffer of at least £100, to avoid unnecessary fines for the odd indiscretion.
If you spend most of the month in the red, though, a cheap overdraft is a must.
Barclays last week offered to match any overdraft limit - up to £5,000
- at 0 per cent for 12 months, to consumers prepared to switch accounts. But you'll only qualify if you meet its credit- rating requirements: a recent history of breaking limits and incurring penalties, and you won't be eligible.
Elsewhere, A&L is offering 7.9 per cent on its Premier and Premier Plus current accounts and the Halifax 7.9 on its Moneyback deal, says financial analyst Moneyfacts.
Don't forget that rates can change at the bank's discretion. And don't forget, either, that charges for unauthorised overdrafts will hurt the most. Break your limit and the Co-op Bank levies one of the highest charges: 29.9 per cent.
Staying in credit
If you're prepared to bank online, you get much more interest than that
0.1 per cent with the "big four". Cahoot offers 3.93 per cent, Smile 3.25 per cent, and Intelligent Finance 2.47 per cent - and you don't have to put in a minimum salary.However, meet these monthly requirements - usually between £500 and £1,000 - and much higher rates are available. These include A&L's Premier Direct at 4.89 per cent, and Nationwide's FlexAccount at 3 per cent.
Even Lloyds TSB breaks the mould and offers 3.93 per cent, but to qualify, you need to use the web regularly.
Cash inducements
Lloyds TSB and A&L offer £40 to customers who introduce friends or family (the former also gives £50 to new switchers). But the price of a night out is no reason to pick an account that may not suit your needs.
Big spenders could consider the Halifax's "Moneyback" account, giving you 1 per cent cashback on all debit card purchases but limited to £100 a year.
Cheap currency
If you're a frequent traveller, Nationwide's FlexAccount has a debit card that levies neither a currency "loading" fee nor a handling charge when you use an overseas ATM. Most rivals charge at least 4.25 per cent.
Nor does it insist that you switch your existing current account to open it; simply put enough cash in for your holiday.
Packaged accounts
Some current account customers prefer to pay for extras at a bank, such as free travel insurance and a dedicated "personal assistant" with specialist knowledge of their requirements.
But while the personal touch has its own appeal, a little shopping around can lead you to the same insurance benefits, at a cheaper price, elsewhere.