David Prosser: Not currently pulling in the punters

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The Independent Online

Outlook One reason banks give for not lending greater sums at very low interest rates is their desire to be fair to savers as well as borrowers. That's laudable enough, but if the current account market is anything to go by, you shouldn't expect a great deal if you're in credit with your bank.

Three years ago, before the credit crisis, the battle for current account customers was fierce. The big five banks sensibly reasoned that if they could get customers for these very basic products, they'd be able to sell them all sorts of other products and services. A price war ensued.

No longer. An interesting piece of research published by the personal finance specialists Moneyfacts yesterday reveals that 83 per cent of current accounts now pay less than 0.1 per cent annual interest on credit balances. Some 49 per cent pay no interest at all.

The deterioration in value has been drastic and quick. Even a year ago, the respective figures were only 57 per cent and 19 per cent. Gone are the days when banks tried to draw in new customers with a potentially loss-leading current account proposition.

Lower base rates, by the way, do not fully explain what has gone on. If they did, you would expect banks' overdraft rates to have fallen too – in fact, the average current account overdraft is now priced at 13.52 per cent compared to 12.99 per cent a year ago.

Don't bank on much of an improvement in the short term, particularly if the Office of Fair Trading wins the test case it is fighting over unauthorised overdraft charges, which would do substantial damage to the current account business model. We may even be close to the time when current account charges outweigh the value of any interest earned.