How far will the banks go to entice new customers? - Spend & Save - Money - The Independent

How far will the banks go to entice new customers?

Nationwide is offering a cash incentive for switching current accounts. Chiara Cavaglieri reports

Nationwide is the latest bank hoping to draw in customers by offering a short-term, £75 switching incentive. The offer expires on 5 March, but how does the Nationwide FlexAccount compare with the other big current account players on the market?

In purely financial terms, the building society's cashback incentive is not the most generous around – Alliance & Leicester's (A&L) Premier Account and First Direct's 1st Account offer a £100 switching incentive – although the A&L offer is due to end on 7 March. But, the first hurdle when comparing current accounts is to decide how the various options might fit in with your needs over the lifetime of the account.

"Current accounts are quite difficult beasts to compare because of the array of costs and features, and the fact that different people have different usage profiles," says David Black, a banking specialist at Defaqto.

Although it falls short of the best cashback offers, Nationwide comes into its own when you look at the terms of holding the account. First, there are no stipulations about the amount of money you deposit into the account, whereas First Direct demands at least £1,500 for three months and charges £10 for any month this is not kept up. Similarly, Halifax's Reward current account has a £5 monthly bonus but only for months that you deposit at least £1,000. A&L customers must pay in at least £500 a month to secure their £100 cash bonus. And, if you fail to pay in this money, A&L levies a £5 monthly fee.

The Nationwide deal is also open to existing customers, whereas most incentives are only for new customers, and if you have held an Abbey or Cahoot account in the previous three months you cannot get the A&L bonus because they are all part of the Santander banking group.

"Any switching incentive should be a bonus and not the main reason," says Michelle Slade of financial comparison site Moneyfacts.co.uk.

If you regularly dip into your overdraft, compare the facilities available. A&L is highly competitive with a 0 per cent equivalent annual rate (EAR) overdraft and no fees for pre-agreed overdrafts for the first 12 months. Even after the first year, there is a 50p daily charge which is capped at £5 per month. The First Direct account also looks good with the first £250 interest free and 15.9 per cent payable above this amount. In contrast, Nationwide charges 18.9 per cent EAR for authorised and unauthorised overdrafts and the Halifax account could be a real sting, charging £1 per day for being in the red and £2 if your debit balance reaches £2,500.

Halifax's £5 monthly incentive applies whether you are in credit or overdrawn. The £5 reward is fixed and ongoing, so as long as you can guarantee depositing £1,000 a month, you can rely on having an account paying you £5 every month. Santander's Preferred In-Credit Rate current account offers an impressive 6 per cent AER on balances up to £2,500, which is fixed for the first 12 months, as long as you deposit at least £1,000 a month.

Keep an eye out for additional perks. For example, the accompanying debit card to the Nationwide FlexAccount is ideal for travellers because it charges nothing for European transactions and just 1 per cent in the rest of the world. For other travel goodies, the A&L Premier account comes with free annual multi-trip European travel insurance. Also, once you're a customer you can apply for the Santander Zero card and enjoy 12 months at 0 per cent interest on balance transfers.

A bank's reputation is another consideration. The big high-street names don't often fare well in this area, but First Direct prides itself on its customer service to the extent that it will give you £100 if you aren't happy and want to move to another bank.

"All that some people want from their bank is a reliable and consistently good level of service," says Andrew Hagger of Moneynet.co.uk. "When you look at surveys, you'll see First Direct, Smile and The Co-operative Bank at the top for customer satisfaction."

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