Punk band The Ramones were famous for starting all their songs with the words “one-two-three-four”, right from their debut single Blitzkreig Bop, which then continued “Hey ho, let’s go”. That came to mind this week when Spanish-owned bank Santander announced it was increasing the cost of its popular 123 accounts by 150 per cent.
That should certainly be enough for thousands of fed-up customers to decide “Hey ho, let’s go” and head off to track down a less expensive current account.
The Santander deal has proved attractive as it allows savers to earn up to 3 per cent interest on balances of up to £20,000. The bank blamed the increase on the rising cost of banking.
But Nicolas Frankcom, banking expert at uSwitch.com, said: “An almost threefold increase in fees is a huge kick in the teeth for Santander 123 customers. Many will feel cheated by the bank moving the goalposts, and those drawn in by tempting cashback offers will have to spend more on household bills to break even.”
Santander will increase the 123 monthly fee from £2 to £5 with effect from 11 January 2016. That means the yearly cost will soar from £24 to £60 – a high enough sum to make many people think again about the value of the account.
“For someone with a smaller balance, it could be a game changer,” reckons Andrew Hagger of the personal finance site Moneycomms.co.uk. He points out that if you keep a £3,000 balance, you’ll earn £90 a year (£72 after 20 per cent tax), but you’ll be paying £60 in fees – so giving you a benefit of just £1 a month.
There is also a higher fee planned for Santander 123 credit card holders – a rise from £2 a month to £3. Interestingly, Tesco Bank has pledged to scrap a £5 monthly charge on its current account.
The changes should act as a clarion call for all bank account customers. The fact is that millions are left out of pocket every year because they stick with the wrong account.
If you’ve remained loyal to the same bank for years, you’re almost certainly losing out in charges or fees. In some cases that could mean being hundreds of pounds worse off, especially if you pay a monthly fee for your account.
But finding the right deal is difficult. Why? Because comparing accounts for value is almost impossible due to different types of charges, fees and interest. Research published earlier this month suggests 55 per cent of us find it very hard to judge how good an account is in terms of cost and what we receive in return.
One of the biggest problems is that – even though new rules came into force two years ago making switching much easier – people are confused about which account to choose and are even scared that they may end up with a worse deal than they already have.
According to the research, by Tesco Bank, only 14 per cent of consumers believe there are big differences between current accounts, meaning most are completely ignorant of the savings they could make by switching.
Some accounts pay a decent interest on credit balances, for instance, while others pay none. Meanwhile, some charge daily overdraft fees while others have monthly charges or set fees.
If you keep a lot of cash in your account then you may be happier with the one that pays the most interest, although with some accounts offering other benefits, you could be better off with one of those.
If you often slip into the red then it’s even more important to find the right account – one that charges you the least for your type of borrowing. For instance, a £100 fee-free buffer could mean avoiding all charges.
But there is hopefully some good news ahead. The Competition and Markets Authority is investigating the current account market and is set to report later this year.
Hopes are high that it will demand a shake-up to make accounts easier to compare and ensure banks play fair with customers – and don’t confuse them into staying in the wrong account.
Free Banking? It could disappear in five years
Banks may start charging customers to hold current accounts within five years, reckons Steve Davies, head of retail and commercial banking at the accountancy firm PwC. He warns that free accounts will disappear as banks move customers into expensive package deals.
“We are all paying for current accounts anyway,” he said. “But are there going to be direct charges? Yes. It’s already happening.”
He points out that customers with free accounts pay in other ways. Those who stray into being overdrawn are hit with severe charges, while customers who keep their balance in credit generally suffer low interest.
Banks also make money from the financial information they hold on their customers. “A bank has data on us and is using that to recommend products. That can be helpful, but it is cross-selling at the end of the day,” Mr Davies believes.
The UK is the only developed country in the world to offer free current accounts as standard. For that to change, one of the big four banks – RBS, HSBC, Barclays and Lloyds – will have to make the first move, Mr Davies added. Banks are unlikely to break ranks for fear of losing customers, while politicians are unlikely to advocate such an unpopular idea.
Hazel SheffieldReuse content