M&S capitalises on the troubles of high-street banks
A new current account could be good news for loyal shoppers and others fed up with the big players.
Julian Knight is the Money and Property editor for the Independent on Sunday and interim Economics Correspondent, previously he was the personal finance reporter for BBC News and has published seven books.
Sunday 22 July 2012
It may have been three years in the planning but Marks & Spencer Money's launch of a current account couldn't have come at a more opportune moment. The reputation of high street banks is at an all-time low, following the banking crisis, persistent mis-selling scandals and, most recently, the Libor fixing. No wonder alternatives to the banks are seeing unprecedented numbers of customers moving their money to them.
A good time then for M&S Money, which already offers a suite of savings, loans, credit cards and insurance services, to start a current account. The account is fee charging – £15 a month without travel insurance and £20 with, and it comes with M&S specific extras, including shopping vouchers, birthday gifts for customers and vouchers for instore hot drinks. In addition, account holders can access a regular monthly saving account paying 6 per cent. Overseas debit card transactions are free. There is a £500 overdraft limit, the first £100 interest fee, and no authorised overdraft fees. If you are approaching your overdraft limits the bank will let you know with a free text alert service. Twenty branches will be open – in M&S stores – by the end of the year, with 50 planned for 2013 across the UK.
With 12 million regular shoppers M&S Money's chief executive Colin Kersley sees a huge potential customer base. "The timing of the launch with the Libor scandal is pure coincidence. We did a lot of customer research and found that what people wanted more than anything else was a combination of transparency over fees and rewards which are actually tailored to their shopping habits, this account is very much for regular M&S shoppers."
Outside of M&S's loyal shoppers experts see many of the rewards as not worth the hefty monthly account fee: "It will be popular among those loyal to M&S with many of the rewards within the package related to in-store spend, but I'm not sure that travel insurance, free debit card transactions abroad and a 6 per cent regular saver will be enough for those disillusioned with their current bank to fork out £20 per month to transfer their custom," Andrew Hagger of Moneynet.com says.
"It's good to have some new blood in what is quite a stagnant market, but I can't help feeling that the monthly fee will be a big barrier to overcome."
Mr Hagger said that he was "surprised" M&S Money chose to go down the fee-charging packaged current account as it will have limited appeal: "But perhaps that's the idea, M&S customers want good customer service and if they were inundated with account openings they may not be able to cope properly."
The high street banks shouldn't be losing too much sleep then over the entry M&S Money, which is owned by HSBC, into the market. And even regular M&S shoppers who are tempted should weigh up the pros and cons carefully according to Kevin Mountford from comparison service Moneysupermarket.
"Fee paying accounts are now very much part of the UK's financial landscape, but as with any paid for service, consumers need to consider if they will benefit from the 'add-ons'," Mr Mountford warns.
"Consumers need to work out whether they will use the additional benefits and ensure that these are suitable and take note of any exclusions that may apply."
Which current account is most suitable for you will depend on your needs and individual circumstances. If you're always in credit, the Halifax Reward Current account pays you £5 net each month as long as you fund the account with £1,000 a month. It's also currently offering £100 cash if you switch to the account using Halifax's switching service. However, if you're regularly overdrawn it's one to avoid as charges are high.
Those who keep their balance in the black could also consider the 123 Current Account from Santander which pays interest on credit balances of more than £1,000 plus you get up to 3 per cent cash back on household bills paid by direct debit.
"If you fall into the bracket of frequently using an agreed overdraft limit, then a decent option is the First account from First Direct," says Mr Hagger. "You need to be able to fund the account with a minimum of £1,500 a month, but you'll find the first £250 of your overdraft is interest-free and a competitive 15.9 per cent above that. Another plus is that you'll also get a £100 payment from First Direct when you switch."
Another account to check out is the FlexAccount from Nationwide building society which has a lower than average overdraft rate of 18.9 per cent plus free European travel insurance and a reputation for offering attractive loyalty deals for its current account customers.
If you're a frequent traveller it makes sense to pick a current account which gives you a debit card which is free to use abroad. The cost savings will make more financial sense than opting for an account that pays interest on your credit balance. There are two accounts that offer this: the Gold current account from Norwich & Peterborough building society and the current account from Metro Bank.
Metro celebrated its second birthday last month. It now has 12 branches, and there are plans to open additional ones across London and the Home Counties later this year.
"We offer replacement cards on the spot, free transactions abroad, coin counting machines and safety deposit boxes," says Beth Murray of Metro Bank. "Most importantly, the staff are not incentivised to sell products. We're open early and late seven days a week, 361 days a year and our call centre puts you through to a real person."
So how do you go about switching current accounts? It's not as difficult as you might think. "Many people are put off switching current accounts by the perception that it can be a complex process. But the reality is that nowadays switching is fairly easy, with many banks having dedicated teams to ensure the move runs smoothly," says Mr Mountford.
Once you've chosen the bank you wish to switch to, visit the local branch with some photo ID (passport or driving licence) and a utility bill or current bank statement to prove your address.
If you want the same overdraft facility as you've had at your existing bank, it's also worth taking along the last three to six months of statements so you can show you've run the account within the agreed limit.
The new bank will contact your old bank and arrange for your direct debits to be switched across – you'll need to advise your employer and anyone else that pays you of your new sort code and account number.
"Most banks will give you an interest free overdraft for a couple of months just in case you go into the red while the change of bank accounts is taking place, so you should never be out of pocket due to a timing issue of switching salary payments or direct debit payments from one bank to the other," says Mr Hagger.
"The bank will agree a date with you when the balance on your account will be switched across, but they will ensure you have your new debit card and cheque books before the old account is closed."
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