The Goliaths of banking face a new challenge
Fed up with scandals? There are alternatives, as Chiara Cavaglieri and Julian Knight report
Ask anyone what they think of their bank and many will use words such as "greedy", "unethical" and possibly add a few expletives.
The high-street banking giants – Barclays, HSBC, Lloyds, RBS and Santander – have been plagued by mis-selling scandals, rate-rigging, unfair overdraft charges, bonus rows and even a computer meltdown. But if you're looking for an alternative, what are the options?
With confidence so low, the current account market is there for the taking. Last year, Marks & Spencer Money launched an account and last week, the Post Office announced it is to trial an account in a small number of branches this spring before a wider roll-out next year. Virgin Money (having bought Northern Rock) and Tesco are also expected to enter the fray at some point.
"We know people want to switch from the dominant high-street banks. Customers are demanding more than criminal activity, mis-selling and big bonuses," says Laura Willoughby from consumer campaign moveyourmoney.org.uk. "Moving your money sends a strong message to the big players that enough is enough."
It may be tempting to stash your cash under the mattress but, realistically, we all need to receive and make payments. The good news is that if you are determined to abandon the Big Five there are options.
Building societies have already taken business off the banks with a stream of customers switching after last year's NatWest IT problems and Libor-fixing fiasco. The difference is that while banks are owned by shareholders and therefore driven to maximise profits, a building society is run for its members.
Not all offer current accounts and some only have a handful of branches but two of the largest include Nationwide and Norwich & Peterborough. The former offers the FlexAccount with incentives such as free European travel insurance and access to special offers on loans, savings and mortgages if you pay in £750 a month. The N&P Gold account is fee-free as long as you pay £500 in a month and comes with a debit card which is free to use abroad. The Building Societies Association has a full list of the UK's 46 brands (bsa.org.uk/aboutus/buildsocmember.htm).
Ethically driven banks, such as the Co-operative and Triodos, are another option and focus on greater transparency. "First, we show all our customers every loan we make and exactly how we use their money, so there is no confusion about what the money they deposit with us is being used for," says Huw Davies, the head of personal banking at Triodos.
"We only lend money to businesses that deliver a positive social, environmental or cultural impact. Moreover, we have a very clear bonus and remuneration structure – we don't pay contractual bonuses, and the ratio between the highest and lowest paid worker's salaries is just 9.5 times."
Triodos offers current accounts for businesses and charities but currently only the Co-operative offers customer current accounts (which are also available via its online arm Smile and Britannia BS). The Co-op Current Account Plus has no monthly fee – if you deposit at least £800 a month – and comes with a fee-free £200 overdraft facility and access to exclusive mortgage rates. It used to offer packaged accounts with benefits such as worldwide travel insurance for a monthly fee of £9.50 or £13 but these are no longer available to new customers.
Lesser-known banks may be worth investigating, for example, Handelsbanken is the biggest in Sweden but it also has more than 100 branches in Britain. It prides itself on offering a more "traditional" model by encouraging customers to have a relationship with their branch manager. Rates for all products are set on an individual basis and there are no call centres.
Metro was the first new high-street bank for more than 100 years when it was launched in 2010 and it offers a current account with free transactions abroad. Telephone and online banking is available and branches are open seven days a week, but these are only in and around London for the time being.
The Secure Trust Bank current account is open to anyone over 18, regardless of their credit history and instead of using financial market funding, it lends out less than it takes through deposits. There is no overdraft facility nor charges for bounced standing orders or direct debits, however, ATM transactions cost 50p a time, there's a hefty £12.50 a month to manage the account, and instead of a debit card you get a MasterCard Prepaid Card which you have to "load" with money before you spend.
Credit unions stand apart from banks for many reasons. First of all, they are not-for-profit co-operatives. They are also set up to borrow and lend money to people in a particular area, community, or to groups of people with a common bond such as the same occupation. A decent number of UK credit unions offer current accounts, although some charge a small monthly fee (Leeds City Credit Union charges 75p per week). Find your nearest credit union at findyourcreditunion.co.uk/home.
Before you make the switch ensure you know exactly what you're getting. Many alternatives have a clearing bank to run their systems, the Post Office, for example, is a partner of Bank of Ireland UK. M&S Money is owned and run by HSBC and it only offers packaged current accounts which cost from £15 a month. If you don't use all the incentives, such as loyalty points, £40 M&S vouchers and a £100 interest-free overdraft, forking out £15 a month could be a waste of money.
"When you're choosing a current account, consider what is most important to you," says Andrew Hagger of Moneycomms. "The four main areas are: overdraft charges, credit interest and rewards, the cost of using a debit card abroad and customer service."
You also need to take sort out the practicalities, for example, you will need to repay any overdraft in full before switching. The process should be straightforward – you set a switching date with the new bank who will request a list of direct debits and standing orders from your current bank (which has three days to comply). And a seven-day switching promise from September should make the process even easier.
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