Competition in current account market is finally getting serious
YOUR CURRENT account should be the workhorse for your money. Do not assume that your present bank or building society offers the best deal for your needs as, at long last, some competition is emerging.
Providing current accounts generates £8.7bn in revenue and so is good business. The market is dominated by four banks which control 73 per cent.
According to the regulator, the Competition and Markets Authority, current accounts are shared as follows:
Lloyds (including Bank of Scotland, Halifax, Intelligent Finance) 25 per cent Barclays 18 per cent Royal Bank of Scotland (incl NatWest, Ulster) 18 per cent
HSBC (incl first direct, M&S Bank) 12 per cent
Santander (incl cahoot, Cater Allen) 10 per cent
This leaves 17 per cent which is divided among the likes of CYBG (Clydesdale and Yorkshire Banks), Bank of Ireland (which holds the banking deposit licence for Post Office Money) and Citibank.
Several newcomers have entered the market in recent years like Danske, Metro, Tesco and Weatherby’s, the latter largely to help the horse racing community.
Two high street retailers – M&S and Tesco – offer current accounts although Tesco Bank has not been without controversy. Some 9,000 customers had £2.5m stolen in a cyber attack. It was established in 1997 as a joint venture with Royal Bank of Scotland but bought out by the grocer nine years ago.
Technical developments have been few in recent decades. Since the ATM emerged half a century ago, mobile and online banking have been introduced.
Shortly customers of the nine major lenders will be asked if their personal data can be shared with third parties. Known as ‘open banking’, this will allow newcomers to offer services that many providers largely or completely ignore, such as inexpensive foreign currency, ready-made investment funds or mixed currency accounts.
It is now comparatively easy to switch banks. They have signed up to guarantee that the transfer of standing orders and direct debits will be completed within seven days. Any loss incurred will be covered by the bank or building society to whom you are switching.
Last month Halifax increased its switching incentive from £75 to £125, provided the previous account is closed, but the Co-op closed its £110 gift. HSBC will now pay £150 and a further £50 on the anniversary of the account opening provided it is operated online or by mobile telephone.
Metro Bank is one of the newer arrivals, operating retail hours, not banking times. Its branches – which will soon extend to Yorkshire – are open seven days a week. They provide on the spot bank cards and cheque books, free coin counting and are dogfriendly with water bowls and biscuits. It now has over 1m accounts.
There are 18 basic accounts with no minimum funding requirement. The cash machine limit varies between £200 (TSB Cash Account) and £500 (such as Bank of Ireland, Halifax, Post Office Money). Just one – Virgin Money – pays interest, although it is only 0.75 per cent.
Accounts without overdrafts form the next tier. Research by Moneyfacts shows five of which Bank of China is one. With assets of almost $200,000m, it is the fourth largest bank in the world.
If the idea of using a mutual appeals, two building societies offer current accounts without overdrafts: Coventry and Cumberland. The former does not include a debit card. Two provide accounts with overdrafts: Cumberland and Nationwide.
When selecting an account with an overdraft facility, obtain a clear understanding of what charges may apply if an overdraft should be required. The term ‘free-if-in-credit’ describes 62 per cent of the 68m current accounts but the phrase is misleading according to the Transparency Task Force, which presented its findings to an all-party Parliamentary group last month.
It claims that many customers do not see the pitfalls and that pricing and comparability remains complex. Several charges can arise: fee and interest for an authorised bufferzone, an arrangement charge and an unauthorised fee. Keep your bank informed as the rate on unauthorised can be 19.89 per cent (Lloyds), 25 per cent (Cater Allen) and 29.8 per cent (Citibank).
Saving is at its lowest level for 50 years at 1.7 per cent of disposable income, which might in part be because of the derisory rates of interest offered. Only four free current accounts provide over one per cent: Bank of Scotland (two per cent on Classic with Vantage), Nationwide (five per cent with FlexDirect), Tesco (three per cent), TSB (three per cent with Classic Plus).
Halifax pays Reward customers £3.75 gross monthly with at least £750 funding and two direct debit mandates. It has no fee.
Five packaged accounts charge but pay interest above one per cent: Bank of Scotland two per cent (Platinum with Vantage £17 monthly), Lloyds two per cent (Club Lloyds £3 monthly and Platinum Club £17 monthly), Nationwide three per cent (FlexPlus £10 monthly) and Santander 1.5 per cent (123 £5 monthly).
Under the personal savings allowance introduced in April last year, up to £1,000 annually can be earned interest-free for basic rate taxpayers and £500 for higher-rate taxpayers. The concession is not available to top rate income tax payers.
Check the required funding before switching. Weatherby’s, for instance, needs £300,000 annually whilst Danske’s Cash Reward account requires £1,200 monthly to qualify,
Several offer cashbacks with a fee-based account. NatWest and Royal Bank of Scotland, both part of the same group, have a £2 monthly ‘rewards’ account which pays two per cent. In addition, payments made for household expenses including broadband bring a rebate, such as 60p on £30. Spanish-owned Santander gives one to three per cent cashback on direct debits with its 123 account. Repayments on financial products are excluded apart from customers with a home loan with the same bank who enjoy one per cent rebate on monthly payments up to £1,000.
One little publicised benefit of holding a particular account is the facility to join a bank’s monthly saver scheme at a higher interest rate.
To gain five per cent – noticeably above inflation at 3.7 per cent (Retail Prices Index) – seek First Direct, HSBC and M&S Bank (£25-300) and Santander (up to £200 with 123 account operated by internet).
Increasingly packaged current accounts can offer a range of services.
Nationwide, the UK’s largest building society, has four key insurances for FlexPlus customers for £10 monthly: worldwide family travel, breakdown assistance, mobile phone cover and extended warranty in addition to identity theft and emergency card assistance.