Money Insider: Changing banks is not like switching energy providers
Saturday 09 April 2011
I was surprised to learn that there is a lack of choice and competition in the retail banking sector, according to the latest findings of the Treasury Committee.
It sounds as if it is banging the same old drum we have become accustomed to over the last decade with no new startling revelations or anything that would really be considered as news. The crux of the issue appears to be that it is difficult for consumers to work out how much their banking services cost them and that the process of transferring their current account is a cumbersome and risky process.
If you keep your current account in the black then it's quite simple, there are no bank charges to worry about, and yes I agree that in reality the banks are making money by paying you little or no interest on your current account credit balance. But by the same token you are not being charged for online banking, the convenience of payment mechanisms, including direct debits, standing orders and debit cards, plus access to a vast network of ATMs.
If you apply for an agreed overdraft limit on your account you will receive written confirmation of the charges that will become payable, the problem of comparison is far more of an issue when it comes to unauthorised borrowing charges, but why should that be the factor that leads you to choose where to bank? After all, surely nobody sets out with the intention of deliberately exceeding their overdraft limit.
There is no shortage of competition in the current account market with a number of high-profile providers even offering financial incentives to switch. As for the process being "cumbersome and risky", is this really the reason that people don't move their current account on a frequent basis? Or is it more down to media scare stories or perhaps that they don't see their current account as something they wish to move from provider to provider at a drop of a hat.
Switching your energy, telephone or broadband provider may be the norm to save a few pounds but switching current accounts in the same way or frequency just isn't going to happen.
Most banks have dedicated switching teams in place and will guarantee that you will not incur any charges due to the transfer process. However, the thought of moving your direct debits and standing orders, a new debit card and Pin and new internet banking to get used to are more likely to be the barrier rather than a lack of competition and choice in the market.
I'm not sure what the Treasury Committee expects a new entrant to do differently; they too will still be strangled by consumer credit regulation that automatically doubles the word count of any customer literature.
It's easier to be different when you're a new player with a handful of branches and a few thousand customers, but when you build a larger, more complex customer base over a number of years, the initial gimmicks that set you apart from the "big boring banks" will be cast aside in search of a better profit margin and a need to satisfy the City in fear that your share price will suffer.
If there's no competition out there at the moment, I would like to know what you call it, providers have been falling over themselves in the last 12 to 18 months, offering loyalty incentives to their current account customers, realising at long last that looking after existing customers is equally as important as recruiting new ones.
AA leads the way as new ISAs launched
Just a few days into the new tax year, it's no surprise to see much of the marketing is still focused on the ISA market.
Some of the more notable accounts to hit the shelves this week include the re-launch of the table-topping instant access ISA from AA at 3.35% AER, although it doesn't permit the transfer in of previous ISA balances.
Looking at fixed-rate, tax-free savings, Birmingham Midshires is paying 5% AER for a five-year fix and includes a useful monthly interest option as well as allowing you to transfer in.
If five years is perhaps too long to consider, maybe the best-buy three-year fix from Leeds Building Society at 4.16% AER will appeal, again it is for new ISA money only, but it does offer the flexibility of penalty free access to 25% of your capital.
If you're an existing saver with Nationwide Building Society, you'll have the option to open a three-year fixed-rate loyalty ISA at 4.2% AER, 0.35% higher than the non-customer equivalent. Although again there is a maximum balance restriction of £5,340 (the 2011/12 cash limit)
Andrew Hagger is a money analyst at Moneynet.co.uk
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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