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Now is the time to switch current accounts

Now is the time to switch current accounts
Sunday Herald 5:50pm Saturday 6th October 2007
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The battle is on to win your current account. Over the past few weeks a number of the big banks have made changes to their accounts to attract more customers - and to fend off an attack by the Office of Fair Trading (OFT).
The OFT is due to haul the banks to the high court in January over their punitive overdraft charges. The banks would rather not face the full force of the law, so are hurriedly tarting up their offerings.
Alliance & Leicester, First Direct and Lloyds TSB have all recently made changes to their current accounts - and more are expected to follow.
So will the changes prompt us to switch our accounts? We are more likely to get divorced than move our bank account, even though many of us could get a better deal. Nearly two out of five current accounts pay just 0.1% to customers in the black, according to research from MoneyExpert.com. Another 9% pay one 1% or less.
They also charge eye-watering rates of interest on overdrafts, particularly unauthorised overdrafts, which can be nudging 30%.
First Direct has even recently decided to pay no interest at all on its current account from November 1. It will instead offer customers access to a 5.5% instant access account or an 8% regular savers account.
It's not as if it's a hassle to switch. The Banking Code states that banks and building societies must provide details of standing orders and direct debits within three working days of a request from a new bank. The new bank has to provide details of the new account within 10 working days after approving an application.
If you want a high rate of credit interest, Alliance & Leicester's Premier Direct Current Account pays interest of 6.5% fixed until the end of October next year. The rate then falls to one percentage point below the base rate, or 4.75% at today's rate.
There are a number of conditions, though. You have to pay in at least £500 a month to earn the higher rate of interest - and it is only paid on balances up to £2500. If you have any more money in your current account, you get just 0.10%.
Premier Direct is an internet account, so you have to be happy to bank online.
You might be able to squeeze a higher rate of interest out of the Abbey Account. The bank is offering interest of 8% on credit balances up to £2500 to customers who switch from a rival bank or building society and credit their account with at least £1000 a month. But the deal only lasts a year and the normal rate is 2.5%.
Lloyds TSB is enticing new customers with an interest rate of 6.4% on credit balances up to £2500 in its Classic Plus account. Again, you have to credit the account with at least £1000 a month and the offer runs for 12 months. It then reverts to the standard rate of 4.25%.
But you'll have to hurry. The offer only applies if you switch to the Plus account before October 9.
They are not the only banks to offer high rates of credit interest. Coventry building society pays 6.35%. You can earn 6.17% in the Bank of Scotland's High Interest Current Account. Or there's the Nationwide FlexAccount at 4.25%.
It's easy to be distracted by the flashy offers of high interest, but most people should pay more attention to the overdraft charges on a current account.
Alliance & Leicester recently decided to abolish overdraft interest rates on its Premier Direct and Premier Current accounts. But overdrafts won't be free. A&L will instead charge 50p a day, capped at £5 a month, for authorised borrowing. If you go over the overdraft limit, the charge jumps to £5 a day. There is also a £25 charge for unpaid direct debits and bounced cheques, although this is lower than the previous £34.
Andy Bayes, head of current accounts at A&L, says: "The changes mean that customers using their agreed overdraft will never pay more than £5 a month, regardless of the amount they are overdrawn or the number of days - and very many will pay less."
However, research by uSwitch.com shows that an authorised overdraft could cost customers up to £5 a month, or £60 a year. That's equivalent to an overdraft interest rate of 6.15%, which is slightly higher than the previous rate on the Premier Direct Account of 5.9%.
However, the average authorised overdraft rate is 12%, so it's still a good deal.
Lloyds TSB is not so generous with its overdrafts. It charges authorised interest of 18.9%, or 29.8% if you go into the red without permission.
However, from November the bank will charge customers the same lower rate for both types of overdraft. Lloyds TSB is also cutting some of its overdraft fees.
Bank of Scotland charges a relatively high overdraft rate of 15.9% on its High Interest current account. Its Moneyback account charges just 6.9% on authorised overdrafts, but beware: the rate for unauthorised borrowing shoots up to 28.8%. You pay for the low authorised rate with a paltry credit interest rate of just 0.1%. However, you can earn cashback of up to 1% on debit card purchases.
Nationwide's FlexAccount also offers a good deal on overdrafts, with an authorised rate of 7.75%. But again, the rate for unauthorised borrowing is a high 24.9%.
Sean Gardner, chief executive of MoneyExpert.com, says: "The choices in the current account market are becoming clearer. On one side there are banks making a big deal of paying interest on current accounts while others are cutting overdraft rates and charges for going into the red. Customers now have to decide what they want from an account and then switch accordingly."
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