Money Insider: Which bank will be a credit to customers?

This week M&S Bank launched a mass market current account, another example of challenger banks offering customers a credible alternative to the often criticised high street banks.

There is no single current account that works out best for everyone, so it's worth looking at the individual key components to see how the banking players, old and new, stack up.

Agreed overdrafts

It's difficult to pinpoint the cheapest overdraft as it depends on how much and how long you're in the red each month, but if you use an overdraft of £400 for only four days each month, the total annual cost is less than £10 with First Direct, M&S Bank, Post Office, Metro Bank and Nationwide Building Society FlexAccount.

Compare this with a yearly bill of around the £80 mark for the same borrowing scenario with Lloyds Bank (Club Lloyds), TSB Classic Plus and NatWest and RBS Select.

Unauthorised overdrafts

M&S Bank has boldly decided that for unauthorised borrowing you will simply pay the same interest rate as per your agreed overdraft at 15.9 per cent EAR with no paid referral fees, unpaid fees or daily or monthly charges.

Unauthorised bank charges may be a useful revenue stream for the banks but the flipside is that they simply upset and alienate those customers whom they worked so hard to attract in the first place and pretty much destroy any chance of future loyalty.

Putting it in hard cash terms, if you make two debit card payments on the same day that put you into unauthorised overdraft by £120 for three days, M&S Bank will charge you just 15 pence.

At the other end of the charging spectrum, Lloyds Bank and TSB will both charge you £36.20, Norwich & Peterborough Building Society £49.18 and Nationwide Building Society (FlexAccount) £50.19 for the same short-term oversight or indiscretion.

Debit card charges abroad

The M&S Bank decision not to charge for ATM cash withdrawals overseas helps put it in the top five cheapest accounts to use abroad, along with Norwich & Peterborough BS, Nationwide BS and fellow challengers Metro Bank and Post Office.

A typical family holiday scenario could easily set you back nigh on £100 in charges with Lloyds Bank, TSB, Santander and Halifax.

Credit Interest

There's no credit interest payable with the new M&S Bank account – or with Metro Bank or Post Office.

But it's interesting to note that the banks that are offering the top deals for in credit interest/rewards (Lloyds, Halifax and TSB) are also the most expensive for debit card charges abroad and at the more expensive end of the table for overdraft costs, so it's akin to robbing Peter to pay Paul.

Customer service

Good customer service is essential if new banks want to attract new customers year after year, and it's an area where the challenger banks have a real opportunity to differentiate themselves from the patchy and mediocre service offerings from the established banks.

M&S Bank (23rd) and Post Office (92nd) were two of only eight financial players to appear in the top 100 brands in the latest Nunwood customer experience excellence results.

Summary

There are plenty of positive aspects to the M&S Bank account, and if it can maintain and build on its reputation for good value and good customer service, its share of the UK current account market, along with fellow challenger banks, could grow rapidly over the next few years.

Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk