Four per cent doesn't add up to much

Halifax has opened a new front as the banks battle for customers

As the traditional high-street banks respond to the threat of new internet upstarts by introducing more competitive rates on accounts, the temptation for customers to switch providers should be huge.

As the traditional high-street banks respond to the threat of new internet upstarts by introducing more competitive rates on accounts, the temptation for customers to switch providers should be huge.

But when it comes down to it, few of us can be bothered. Changing current accounts, in particular, is seen as being notoriously difficult. According to research from Abbey National, only 5 per cent of us are prepared to go to the effort of switching - changing standing orders, direct debits and informing the payroll - just to get a little bit more interest.

Despite this evidence of our apathy, the Halifax last week announced that it will pay 4 per cent interest on its current account from January, a significant increase from its current rate of 0.5 per cent. This will make the Halifax's current account the best-paying of its kind on the market, comparing very favourably with the big four high-street banks - Barclays, HSBC, Lloyds TSB and NatWest - which each pay 0.1 per cent interest.

James Crosby, chief executive of the Halifax, says the move will cost £50m in extra interest, as half of the bank's two million existing current account customers are expected to switch. Yet he hopes that the rate will also attract many new customers from rival banks, particularly the big four: they will be encouraged to take out other Halifax products, such as mortgages, personal loans and individual savings accounts.

If it sounds too good to be true, that's because it is. Customers qualify for the 4 per cent interest if they meet the account's criteria and pay in £1,000 a month or have a credit balance of at least £500. But if they need an overdraft, there is a £5 monthly charge. And if they slip into the red without permission, there's a £28 charge on top of that.

The Halifax set the minimum investment criteria on the basis of research from the Office of National Statistics. This indicates that the average net monthly salary is £1,200, suggesting that the majority of people will be able to meet the basic minimum.

Even if they do qualify for the higher rate, though, customers won't end up with that much more money in their pocket. A £1,000 balance in a current account paying 4 per cent interest would earn approximately £2.60 a month after tax, or just over £30 a year. And if the average salary is £1,200 a month, most people are unlikely to keep £500 in their current accounts from one pay day to the next.

Banks have traditionally paid low interest rates on current accounts because they are expensive to run. Gordon Maw at Virgin Direct argues that while the increase makes little difference to the average Halifax customer, it will cost the bank a lot of money to make the gesture.

This is why other banks seem reluctant to increase their own rates of interest. "We pay the same 0.1 per cent to customers regardless of the amount they pay into the account," says a spokeswoman for Barclays. "A current account is transactional, so it is not meant to have large amounts of money in it."

Few customers consider the rate of interest on offer when picking a current account, anyway. Even though the high-street banks have been offering just 0.1 per cent for some time, around 65 per cent of us still bank with them. Research from Virgin One reveals that our choice of bank has nothing to do with the rate of interest on the current account. If we want higher interest, we shift any remaining money into a savings plan.

Current accounts, on the other hand, are used for paying bills and the mortgage. People tend to choose a bank because it has a branch close to where they live, or because their parents banked there, or following a recommendation from friends or colleagues.

"Service counts," says Janet Connor, director of banking at Abbey National. "How many errors the bank makes is a key point which this [rate rise] is not answering."

As you are unlikely to be that much better off if you switch accounts, it is probably not worth the hassle involved in moving your money. However, this should become easier over time, with a number of banks beginning to offer dedicated switcher services, whereby your new provider changes direct debits and standing orders for you. The Government is also demanding that banks make it easier for customers to switch accounts from next year.

* Contacts: Abbey National, 0800 100801; Barclays, 0800 400100; Halifax, 01422 333333; HSBC, 0800 520420; Lloyds TSB, contact local branch; NatWest, 0800 200400.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
scotland decidesIs a huge gamble on oil keeping the First Minister up at night?
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Life and Style
techApple has just launched its latest mobile operating software – so what should you do first?
News
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
PROMOTED VIDEO
Arts and Entertainment
Lionel Messi in action for Barcelona
filmSo what makes the little man tick?
Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
News
i100
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Sport
Cesc Fabregas celebrates his first Chelsea goal
footballChelsea vs Schalke match report
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes the hobby look 'dysfunctional', they say
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

News
i100
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant Birmingham

    £18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Recruitment Consultant - Soho - IT, Pharma, Public Sector

    £20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

    Sales Executive

    £20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week