Comparing current accounts to find the best value is now almost impossible, meaning banks are boosting their profits by millions of pounds through consumer confusion.
Tesco Bank reckons a lack of understanding of the charges and interest paid on a current account makes it harder for people to move to new deal as they have “no effective basis for comparison”.
"People need a simple way to compare all the separate elements of a bank account," said Andrew Hagger of Moneycomms.
Tesco’s research suggests 55 per cent of people find it impossible to determine the value of their account, in terms of cost and what they receive in return. Many find it tough to make comparisons on overdraft fees, charges and credit interest. Meanwhile only 14 per cent of consumers believe there are large differences between current accounts.
The Competition and Markets Authority is currently investigating the current account market and is set to report later this year. Tesco said it has passed on its findings to the CMA.
Benny Higgins, Tesco Bank chief executive, said that more needs to be done to enable customers to understand the true cost and value of their current account. “Only then will customers be able to secure a fair return on their money, and avoid paying excessive overdraft charges,” he said.
A seven-day current account switching service was launched in autumn 2013, reducing the time it takes to switch from 30 working days. More than 1.1 million people switched current accounts in the last year, a 4 per cent increase over the previous 12 months.
Harriett Baldwin, economic secretary to the Treasury, said: “The government is committed to increasing competition in banking to improve outcomes for consumers: more competition means banks have to strive to offer the best possible products and services to their customers.”
The research, published as part of a Tesco Bank/TNS White Paper – ‘Current Account Switching – The Consumer Reality’ identifies the following five conditions that need to be met before someone will switch.
1. Openness to switching: would I consider switching my current account?
2. Understanding the value of a current account: can I determine the value of my current account?
3. The benefits of switching: can I be sure that I will be better off if I switch?
4. Ease of switching: will it be easy and hassle free?
5. Making the right choice: can I be confident that I have made the right choice?
“The switching process is now quicker and easier, but if consumers aren’t confident that moving their account will be of financial benefit then they’ll stick where they are, even though their existing account may be a bad fit,” pointed out Mr Hagger.
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