The world of current accounts is changing as apps take control
BANKS AND building societies are changing their traditional approach to current accounts and keen to offer customers a far broader range of financial products than ever before. If you have not reviewed the alternatives and how your provider compares, now would be an opportune time.
Much of this innovation is based away from branches as providers continue to reduce their high street presence, claiming that costs are rising disproportionately and that far more customers prefer to transact money matters in their own time. This means the internet and call centres are the faceless winners.
According to the National Payments Study, there are 52.1m current accounts, compared to 44.5m a decade ago. One of the changes has been the take-up of banking apps with the number of log-ins now at an annual 4.9bn, which equates to 159 customers every second.
The popularity of using banking apps is evident by a 12 per cent increase from 17.6m in 2015 to 19.6m last year. The trade body, UK Finance, says this corresponds to 37 per cent of the adult population.
If a basic current account is the only requirement with no overdraft and rudimentary facilities, there are several providers including three building societies: Coventry (MoneyManager), Cumberland (Day 2 Day) and Nationwide (FlexBasic).
They all provide standing order and direct debit arrangements, except Metro with only the former. Cash and debit cards are provided apart from Bank of Ireland and Coventry which only offer cash cards.
Internet and telephone access is available except no telephone with Bank of China and no internet with Virgin Money. The ATM limit can vary from £200 (TSB, now owned by Sabadell of Spain) to £500 (Bank of Ireland, Nationwide, Post Office Money and Virgin Money).
All basic accounts are free to open with three paying credit on cleared balances: 0.10 per cent with Coventry (from £1) and Santander-owned Cater Allen (from £100,000) and at 0.75 per cent with Virgin Money (£150,000).
To get into the banking habit, a few providers have arrangements specifically for youngsters. Barclays, for instance, offers two accounts with no fee, free day to day banking and mobile banking: Barclayplus for 11-15 year olds (with £50 access from a cash machine if the money is in the account) and Young Person’s account for 16-19 years (with a £300 daily ATM facility).
HSBC has MyMoney for 11-17 year-olds with a contactless Visa debit card and daily £100 ATM limit.
For an adult current account with overdraft and other facilities, consider the importance of:
■ Overdraft
■ Credit interest
■ Access arrangements
■ Fee and funding requirements
■ Use of other benefits. With deposit accounts providing really low interest rates – 1.20 to 1.30 per cent AER at best – many savers like the idea of using a current account to secure a higher rate. According to Moneyfacts, four accounts stand out, all free to open: Nationwide FlexDirect five per cent (introductory rate), Tesco Bank and TSB Classic Plus three per cent with up to £10 monthly with the latter, Halifax Reward £3 monthly.
Packaged accounts can also pay interest, notably three per cent AER with the Nationwide FlexPlus which costs £13 monthly to run.
It also provides free worldwide family travel insurance including dependent children who are not travelling with the account holder, global mobile phone cover, UK and European breakdown and recovery assistance, free foreign cash withdrawals and a fee-free arranged overdraft limit of £250.
Not all benefits require a fee. Lloyds Club account is fee-free if £1,500 monthly is paid in but otherwise costs £3 monthly.
In addition to discounted rates on home insurance and mortgages and preferential savings rates, it brings ‘lifestyle’ gifts from a choice of six cinema tickets, Gourmet Society membership or a magazine subscription.
Some accounts offer cashbacks on your regular expenditure. NatWest, part of The Royal Bank of Scotland Group but still retaining its own banking licence, has a Reward account for £2 monthly.
It pays two per cent on seven types of direct debit household bill and when £1,500 is credited monthly and one quarterly login online or to the bank mobile app. The rebate can be taken in cash or exchanged for retail vouchers or gift cards.
A cashback facility is also offered by Santander. Its 123 account requires £500 monthly to be credited, two active direct debits and costs £5 monthly. In addition to paying 1.5 per cent interest up to £20,000, it rebates one per cent on council tax and water bills, two per cent on electricity and gas and three per cent on mobile and home telephone invoices and TV packages.
Emergency help is one of the most attractive facilities offered with current accounts. Halifax’s aptly named Ultimate Reward account costs £15 monthly but its benefits include home emergency cover if an unexpected incident should occur as well as AA motor breakdown help including at home.
Worldwide multi-trip annual travel insurance including for winter sports and golf equipment and mobile phone cover are also provided. The fee is cut to £12 if in the previous month at least £750 is paid in and two direct debits are paid out.
Barclays takes a different approach. Its current accounts are free to open and then facilities can be added for a fee.
In this way customers are not charged for benefits they will not use. Its ‘tech’ pack costs £9.50 monthly and provides global cover for a mobile against loss, theft or accidental damage. Worldwide travel insurance, access to over 850 airport lounges, airport and hotel discounts up to 20 per cent, as well as RAC car breakdown in the UK and Europe come together for £15.50 monthly. Even gas boiler and central heating cover with extended warranties on your washing machine can form a package with Barclays (£12 monthly).
Depending on the way an account is used, it could be worthwhile to look at charges that may be raised from stopping a cheque to handling a nonsterling payment.
Smile, owned by the Co-op, removed its negotiation fee on foreign cheques in January, which previously could have been up to £60.
Where an overdraft is likely to be required, look at the charges including arrangement fee. On the interest rate on a monthly basis, Yorkshire Bank has an exceptionally low 0.99 per cent with its ‘B’ current account, followed by 1.1642 per cent with Post Office Money’s Standard account operated by Bank of Ireland and then 1.1715 per cent with Metro Bank, which is planning its first branch in Yorkshire shortly.
Some of the most competitive overdraft rates are often available through current account providers who are rising stars. In this context, consider M&S Bank (with a switching incentive available), First Direct and Tesco Bank. The first two are owned by HSBC.