Current account affairs can be a real headache

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A CURRENT account can be as simple or complex as both a banker and their client wish to make it. The range now available is vast but the standards of service appear to be falling as new products are created.

Banks are keen to attract new clients, not only first timers like students but wealthier individuals from their rivals. Most have dedicated transfer teams. One of the frequent drawbacks of such plans is whether the bank or client has to contact every standing order source to advise such a change and so expect some turbulence in the process.

Recent research from YouGov suggests that current account switching is set to rise in the next 12 months. Almost a quarter (22 per cent) of respondents are considering switching. Perhaps those who have switched either made the wrong choice or are constantly chasing better terms as 32 per cent of those who have moved bank in the last two years are considering switching again.

The three main factors attributed to switching current accounts are a pain-free switching service, better value for money and lower bank charges.

Among aspects cited for a move are a better level of customer service, extra features and benefits and improved overdraft deals.

The Payments Council will introduce a new current account switching service from September 2013, which should reduce the time taken from around 18 to seven working days. There will also be an account switching guarantee that customers can rely on.

Current accounts are broadly divided by whether an overdraft facility is offered or not. Basic accounts have no minimum funding requirement, usually accept unlimited numbers of direct debits and standing orders but offer no overdrafts.

Internet and telephone banking is included with such accounts except with Leeds Building Society’s Albion Cheque account. Debit cards are available at a few including Co-op (Cashminder), Halifax (Easycash), Nationwide (Cash Card), NatWest (Basic), Royal Bank of Scotland (Basic) and Yorkshire Bank (Readycash).

Some banks offer basic accounts which are Shariah-compliant, notably HSBC (Amanah) and Lloyds TSB (Islamic).

If you are more likely to have cleared funds in credit, two of the top interest rate accounts, according to website, are:

• Lloyds TSB three per cent with tiered rates and minimum £1,000 monthly funding;

• Santander three per cent with tiered rates and minimum £500 monthly payment

For those where overdraft arrangements are more pertinent, consider both the authorised fees and limits and the unauthorised. Based on going overdrawn by £500, there is currently no fee and a nil rate to borrow for six months with Norwich & Peterborough, four months at Santander (provided £500 is credited monthly) and three months with Nationwide.

Interest rates on overdrafts which have not been approved can be horrifically high, such as 29.99 per cent at Yorkshire Bank, 29.8 per cent with both Citibank and Northern Rock (now Virgin Money) and 26.53 per cent at Leeds Building Society, all on an EAR basis except AER for Northern Rock.

Many may find a buffer-zone helpful in case an expected payment arrives one day late. Bankers vary this facility depending on the account. Barclays, for instance, offers up to £300 with its Additions Active and Current Account Plus accounts but not on either its straightforward Bank or Premier Life accounts.

In a survey by Moneyfacts, it shows Citibank has a £500 such zone, Co-op £200-300 (depending on account), Coventry £250, Leeds £100, Lloyds TSB £10 (apart from Gold and Premier), £20 Nationwide, £6 NatWest and RBS, £12 Santander, £260 Smile (for Smilemore) and £100 Yorkshire Bank’s Current Account Tracker.

Regular credits are required for many accounts. Typical monthly examples include £500 at HSBC, £800 at Co-op (Current Account Plus), £1,000 at Halifax (Reward Account) and Lloyds TSB (Classic with Vantage), £1,500 First Direct and £1,800 at Citibank (Plus Account).

Banks are increasingly offering text alerts if this is the way you prefer to manage your money. This could mean, for instance, that the bank informs you when the credit balance reaches a specified low point. The newest technology – being able to send money via a mobile telephone – is available through Barclays, the first bank in Europe to offer this facility.

Free banking is still widely available although 54 per cent now pay by comparison with 47 per cent three years ago, according to data specialists Defaqto. A variety of packages has been introduced to justify charging but check if the facilities offered are really required or if they can be obtained on better terms or more cheaply elsewhere.

Travel insurance, for instance, is often included but the wording may be too restrictive. Consider, for instance, the single article limit, excess and acceptable reasons for cancelling a holiday. The age limit may be lower than the bank client, making such cover invalid. Mobile telephone insurance, legal help and motor breakdown protection are also popularly offered.

Campaigning consumer group Which? calculates that 25 per cent never use the additional services offered. Since the annual cost can be £300 (Bank of Scotland with Premier, Barclays Premier Life, Citibank Citigold, Lloyds TSB Premier, Yorkshire Bank Current Account Tracker), the charge can be £12,000 over a 40-year banking life, not allowing for any increase.

From July, banks and building societies will be required by the Financial Services Authority to check if clients are eligible to claim on policies that form current account packages.

Some packages are provided free which can be a good carrot to switch provider. Nationwide, the world’s largest building society, provides complementary European multi-trip insurance for those aged 18-73 years with its FlexAccount, provided £750 is credited monthly.

A novel approach has been taken by Santander. For an annual £24 and paying in at least £500 monthly, its 123 account pays a cashback on direct debit payments: one per cent on council tax and water bills, two per cent for electricity and gas and three on broadband, landline, mobile and paid-for TV packages. If proximity to a branch is important, check before making a move. This can be difficult for those planning to switch to Lloyds TSB as it is in the process of selling 632 sites.