Money Insider: Consumers in no rush but an itch to switch banks accounts will come
Friday 25 October 2013
Figures released this week by the Payments Council showed that around 89,000 people have switched bank accounts since the enhanced switching service and guarantee was introduced last month.
That number is up by around 10 per cent on the same period last year, so despite the big advertising drive and joining incentives on offer from the banks, it's been a fairly muted start.
Some of the price -comparison sites have been boasting of a sharp increase in the number of visitors to the current account sections of their websites. However, the actual number of completed switches suggests that many consumers are still merely at the browsing stage.
It hasn't helped that some media outlets have done their best to put a spanner in the works by digging around for isolated and obscure cases where the transfer timescale of seven working days hasn't been met.
I think it's going to be slow but steady progress and that numbers will increase when people hear from friends or family that transferring their bank account was a simple, speedy and rather painless transaction – and that they wish they'd made the move years ago.
One of the major obstacles that is yet to be addressed is helping consumers work out which is the most suitable current account based on the way they usually manage their day-to-day banking.
There's a baffling array of overdraft charging tariffs to consider for those who dip into the red, and a range of credit/reward options for people who always maintain a credit balance, so it's no big surprise that hordes of people haven't rushed to switch providers in the first four or five weeks.
With all the price hikes in the energy market during the last fortnight, it's highly likely that consumers have been more focused on finding a cheaper gas and electricity tariff than a new bank account.
One of the aims of the improved switching service was to increase competition in the market, and more evidence that this is happening was provided this week as Yorkshire Bank/Clydesdale Bank unveiled details of a very competitive new current account.
The new Current Account Direct offers attractive terms for both overdrafts and credit balances.
Credit interest of 4 per cent is paid on balances up to £3,000 until March 2015, at which time the introductory rate is reduced to 2 per cent – still much better than many of the instant access savings accounts currently available.
To break this down into hard cash terms, if you maintained the maximum £3,000 in the account, a 4 per cent rate would earn you £96 per year after basic-rate tax. When the rate dropped to 2 per cent, your reward would be £48 per year or £4 per month.
Some people will point to the Halifax Reward account, which pays £5 per month net as long as you remain in credit. If you go overdrawn, however, the daily fee is very expensive when compared to the new Yorkshire/Clydesdale offering.
The interest rate for agreed overdrafts is 9.9 per cent EAR – by far the lowest around, with some banks charging almost double this figure.
You need to pay in at least £1,000 to qualify for this account, which is designed to be operated via "direct" channels – internet and telephone – although you can still pay in cheques and cash in Yorkshire/Clydesdale branches.
The new switching service has removed the main fears that stopped many account holders changing banks. The service is guaranteed to be swift, all payments are automatically redirected, and if for some reason your account goes overdrawn in the process then there's a promise in black and white that any charges incurred will be refunded.
If you're one of the millions of customers who put up with a sub-standard service or poor deal at your existing bank, there's never been a better time to start afresh with a new provider.
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