Searching for the best bank deal

Fed up with your current account? You're not alone. Maybe it's time to think about making a move

We all need a bit of stability. No matter how fast our lives are moving and changing, most of us appreciate the little things we can depend on not to change - year after year. Is this why current accounts have become the comfort blankets of the financial world?

We all need a bit of stability. No matter how fast our lives are moving and changing, most of us appreciate the little things we can depend on not to change - year after year. Is this why current accounts have become the comfort blankets of the financial world?

According to a Mintel report, 83 per cent of consumers have not changed their current account in the past five years, and 50 per cent have never changed their account provider. However, 46 per cent said they were not satisfied with the value for money of their current banking arrangements, says the report, commissioned by the Virgin One account.

It is easy to see why. Even though most current accounts now pay interest on credit balances, the rates are pitiful. Most pay less than 1 per cent a year on balances of less than pounds 10,000. But could a new generation of Internet banks change all that?

The first Internet-based current account in the UK will open for business later this month. Smile, set up by the Co-operative Bank, offers 4 per cent gross interest a year on credit balances. And the bank says it will be able to sustain competitive interest rates.

"We're not offering loss leading interest rates," says Bill Eyres, Co- operative Bank spokesman. "It's based on the costings of the bank and how much it costs to run." Banks with branches have the highest costs, those with telephone centres are cheaper, but Internet banking is the cheapest, says Mr Eyres.

There is no doubt Internet banks will be able to offer good value, but for now the majority of customers will stick with the more traditional accounts. Most people still do not have access to the Internet, others are wary of the new technology and many want to deal with bank staff face to face.

But it may still be worth shopping around for a better deal on your current account. Interest on credit balances is very low at most current account providers but there are exceptions. Citibank pays 2.5 per cent gross per annum on balances over pounds 2,000, and, for students Halifax pays 2 per cent on credit balances.

However, terms for overdrafts vary widely. Although you have to put up with a branch network of only three, Citibank charges no fee or interest on an overdraft of up to pounds 500. Borrowing on this level would cost pounds 94 a year at Lloyds TSB. Other banks, including the Co-operative, Barclays and NatWest offer an overdraft buffer, waiving charges and interest if you dip into the red for three working days or less each month.

Being charged for using a cash machine, or worse - being unable to use the only one around - are annoyances most of us could do without. So access to a wide range of ATMs is an important feature. Many accounts now offer cards which allow free cash withdrawals at any of the 25,000 machines displaying the Link logo. But at Abbey National, access is only free at 6,800 machines, and with Woolwich at 550 terminals.

So why are we so reluctant to ditch our current account in favour of a better one? Many people believe it is good to build up a long-standing relationship with their bank. If the going gets tough, this loyalty may work in their favour, they reason. But is this a delusion? Certainly many banks are under more commercial pressure, and the traditional bank manager's relationship with account holders is no more."Customers think if they keep their bank account nice and tidy for a long time the bank will help them. But that's a very old-fashioned attitude," says Julie Lord of financial planners Cavendish Financial Management in Cardiff. "The real reason people don't move accounts is the hassle factor," she says.

The more regular automated payments going into or coming out of your account, the more trouble it will be changing providers. "Even those who have made the switch... report nightmare after nightmare," says Ms Lord. For example, errors in transferring direct debit s can lead to insurance premiums being unpaid.

But a new pilot scheme launched this month could change all this. The new direct debit transfer system aims to make it easier for customers to move direct debits and standing orders from one bank account to another. The system enables a customer's new bank to receive a list of payments from the old bank, and do all the legwork itself.

Only Abbey National, the Co-operative Bank, Halifax, Ulster Bank, Virgin One and Woolwich are fully involved in the pilot and will do the work for you. But under the scheme all UK banks will now give customers a list of their current direct debit and standing order arrangements.

This makes the change smoother, but switching accounts is still an upheaval. "If you are broadly happy with your current account and it pays you a bit of interest, stick with it," says Julie Lord. "You shouldn't be keeping huge amounts in a current account, so the fact that it doesn't pay much interest shouldn't be of much relevance."