Current accounts are the lifeblood of daily finance, providing the vehicle for so many transactions. Yet it is surprising how infrequently clients assess if their provider is offering a wide enough range of services at a competitive rate.
There clearly is no shortage of interest. Since 2008 the Financial Services Authority has issued 24 new banking licences of which 19 institutions were fresh to this sector in the UK. Expect more retail bankers to emerge, particularly from China and India.
Do not be surprised if current accounts are offered shortly by the likes of Aldermore and Virgin Money (which absorbed the ‘good’ part of Northern Rock).
It’s also possible that two supermarkets will extend their empire further into personal finance: Sainsbury’s Bank (half owned by Lloyds subsidiary, Bank of Scotland) and Tesco’s Bank already hold banking licences. Aldi, Walmart-owned Asda, Lidl, Morrison and Waitrose (John Lewis) seem less likely to follow.
Five banks control 85 per cent of current accounts: Barclays (with 1,614 branches), HSBC, Lloyds, Royal Bank of Scotland and Spanish-owned Santander. Several have subsidiaries with current account facilities:
n HSBC: First Direct
n Lloyds: Bank of Scotland, Halifax
n Royal Bank of Scotland: Coutts, NatWest
n Santander: Cater Allen
Clydesdale (148 branches) and Yorkshire Bank (182 branches of which 97 are in Yorkshire) belong to National Australia, which is widely rumoured to be seeking a buyer.
There are challengers: Co-op (including Smile), Danske (formerly Northern), Handelsbanken, M&S, Metro and, among mutuals, Coventry, Leeds and Nationwide Building Societies and Wesleyan.
Boutique banks still flourish for a dedicated clientele: Butterfield, C Hoare, Weatherbys (the latter for the racing community). Some famous names are now part of RBS – Adam (taken over in 1993) and Drummonds (whose customers included Disraeli and Josiah Wedgwood, taken over in 1924).
There are several organisations which may shortly capitalise on their trusted reputations by adding current accounts, notably the Post Office (whose licence is held by Bank of Ireland UK) and Saga (Bank of Scotland licence).
Around 1.2m switch bank accounts every year although 75 per cent have never switched. From September, new rules should make it easier to switch provider.
At the same time, both new packages and fresh providers are likely to emerge. Currently a switch takes eight to 30 days but the Payments Council assures the length will be reduced to a guaranteed seven days.
Many are deterred from switching because of inefficiency in moving standing orders and direct debits.
New IT plans costing £750m are being set to redirect switches. Metro Bank’s chief executive, Craig Donaldson, an ex-RBS executive, says, the “lack of confidence (in switching) is significantly holding up movement in the market”.
Metro launched three years ago and is gaining thousands of new clients each month.
Banks frequently use current account holders for more profitable sales, notably credit cards. With a five-fold cartel, they are aware that more resources will need to go into improved customer relations, better-designed products as well as switching technology.
The largest expansion this year is likely to be by the Co-operative Group which is finalising plans to acquire 632 branches from Lloyds.
This will bring 4.8m clients, £24bn loan assets and the TSB and Cheltenham & Gloucester brands.
Current account holders gain discounts if other financial products are purchased, ranging from ISAs, insurance and mortgages to bond and fixed term investments.
Handelsbanken, founded in Sweden in 1871, opened in the UK in 1982 and now has 147 branches with 19 in Yorkshire. There is no standard tariff and rates are set at the discretion of branch managers.
To encourage a switch, Leeds-based First Direct offers £100 with no fee for the first six months and only £10 monthly after that if less than £1,500 is credited monthly. Halifax, part of Lloyds, also offers £100 plus a fee-free overdraft for 12 months until March 3.
Newly launched M&S Bank is making a switching offer worth up to £600 with a gift card of £100 plus discount clothing and homeware vouchers. However, it charges monthly £15 or £20 if travel insurance is included.
Free banking is still the norm although fee-paying packaged accounts with benefits are growing. Midland Bank, founded in 1836 and taken over by HSBC in 1992, introduced complimentary banking 29 years ago.
It was so successful in increasing its market share that the other high street banks were forced to follow.
Interest on cleared credit is low to nothing. According to Moneyfacts research, the only significant rates depending on balance held are Nationwide, Santander and the Vantage accounts at Bank of Scotland and Lloyds TSB – both part of Lloyds Banking Group – with 1.50-3 per cent.
Nationwide pays one per cent on its fee-free FlexDirect but increases this to two per cent on balances up to £2,500 in the first 12 months of account opening. It has 700 branches with 20 in Yorkshire.
Chris O’Neill, 37, from Scarborough opened a Nationwide account in 2004 because it “offered a more personal service. I’m not just a statistic.”
He says the bank which previously supplied his current account was always trying to sell another product. He mostly banks online and now has his credit card, mortgage, savings and critical illness cover with Nationwide.
Santander charges £2 monthly for its 123 current account and requires at least £500 to be credited but in return pays one per cent on £1,000, two per cent on £2,000 and three per cent on £3,000-20,000, all AER. Additionally, it offers a cashback on council tax, utility and mobile phone bills.
Santander has 1,100 branches including 88 in Yorkshire.
If your bank pays virtually no interest, ask it to ‘sweep’ above an agreed level on a daily basis into an interest-bearing facility.
Most small businesses have such an arrangement but few banks publicise it for individ- uals.
Many clients are angry if a charge is raised when a cheque delay means that, even for a day, a usually healthy balance slips over.
Consider accounts that have fee-free and interest-free ‘buffer’ overdrafts. £10 clearance is offered by Bank of Scotland and Lloyds TSB, £200 by Co-op (Privilege), £250 by Coventry, £260 by Smile (Smilemore account), £300 by Co-op (Privilege Premier) and £500 by Citibank.