Money Insider: Confusion that means bank customers are staying put

Last week Lloyds TSB announced a raft of changes across its range of current accounts, including packaged accounts which already come with a monthly fee. Some of the pricing changes were positive whereby customers are given a little more leeway before being charged fees or interest on planned overdrafts. For example on the no-frills Classic current account, an interest and fee-free buffer of £25 will be introduced from 2 October.

The downside is that the overdraft interest rate is going up from 19.28 per cent EAR to 19.94 per cent and the monthly overdraft fee is being increased from £5 to £6.

Although this type of tweaking of rates, fees and allowances isn't anything new, the baffling array of different overdraft charging structures used by banks and building societies makes the task of finding the best account far from easy.

With some banks charging you interest on the amount you borrow, others charging a "more transparent" (but often more expensive) daily fee and Lloyds TSB charging a combination of a monthly fee and daily interest, it's no wonder that consumers haven't got a clue what's the best option for them.

There's not one bank that's cheapest for overdrafts in all situations. Factors including the amount you're in the red and the number of days you use your agreed limit.

For example if you are overdrawn by £250 for a full month, you will pay £25 (£30 less £5 monthly rebate) net in charges with the Halifax Reward current account and £9.73 with Lloyds TSB Classic Account (from October).

However, if you bank with First Direct (minimum £1,500 monthly income required) the first £250 borrowed is free of interest charges or fees.

If you are £500 overdrawn for just two days during the month the Halifax Reward current account is a far better option in that you will pay a £1 daily fee for each of the two days but will receive your £5 monthly rebate, so in effect will have paid nothing. In the same situation, the First Direct overdraft would cost you 22p and with Lloyds TSB Classic account £6.52.

Selecting the most appropriate current account isn't just about how much an overdraft costs or how much interest you'll earn on credit balances.

There's another area to consider these days, namely the charges levied when using your debit card abroad.

Most banks and building societies will charge you a foreign transaction fee of 2.75 per cent on each cash withdrawal and purchase made by debit card, with a few banks also charging an additional transaction charge of between £1 and £1.50 per purchase.

if you use your card to spend £1,500 during your two-week holiday overseas, in most cases you'll pay at least £41.25 in foreign charges and even more with some banks that sting you for transaction fees on top. Compare this with the interest return you can earn on your current account. If you had a credit balance of £2,000 in a Lloyds TSB Classic Account with Vantage, which pays a competitive 2 per cent at this level, even if you manage to maintain this size balance for a whole year, your interest return after basic rate tax amounts to just £32.

If you've got a balance of between £3,000 and £5,000 the rate increases to 3 per cent, yet another option to factor into the equation.

Debit cards that don't levy a charge for overseas transactions are pretty rare, but if you are a frequent overseas traveller, take a look at the Gold Classic current account from Norwich & Peterborough Building Society, where you get free overseas debit card transactions as part of the deal.

You only need to pay in a minimum of £500 per month to qualify for the free bank account, which is much less than with many competitor accounts. Alternatively you could consider the debit card with no foreign usage charges from Metro Bank.

It's no wonder that the number of people switching bank accounts remains at such a low level.

Despite the promise of instant cash hand-outs, confusion reigns and many customers stick with their existing bank, despite there being better value options out there.

There has been talk of providing portable account numbers so that people can switch accounts in just a few days. However, until there's a way that people can simply work out the best home for the way they run their bank account, this portability won't make a jot of difference.

bank account customers are seeking more clarity, not more speed.

ahagger@moneynet.co.uk

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