Their rates belong to a bygone age, but still we put big banks in the driving seat

Melanie Bien asks why borrowers and savers put up with bad deals when they could go elsewhere

Despite low rates of interest on savings, the high cost of borrowing and poor service, customers are still choosing high-street banks to supply their financial products. So even after one of the worst business downturns in recent mem- ory, banks are enjoying record profits.

Royal Bank of Scotland (RBS), which owns NatWest, unveiled annual profits of £6.2bn last Thursday. It followed hot on the heels of Barclays, which earlier this month reported £3.8bn in profits. HBOS and Lloyds TSB are likely to report similar rises when they announce their results in the next couple of weeks.

Of course, the main priority for banks is to make money and keep their shareholders happy. But very few of their products offer the best value to customers: you can nearly always find a better deal away from the high street.

After all, it is no coincidence that at the same time as banks report record profits, consumers are taking on more debt than ever. Borrowing is expensive and this is where the banks make their money. Take overdrafts: RBS charges 17.9 per cent for authorised borrowing or 33.7 per cent unauthorised - practically the most expensive on the market.

On credit cards, Lloyds TSB offers one of the worst rates - 17.9 per cent - although there is an introductory 0 per cent on purchases and balance transfers for six months. The situation is similar with personal loans: the best rates aren't available on the high street. The charges set by internet bank Cahoot start at 5.9 per cent, and at Liverpool Victoria friendly society it's 6.2 per cent (both depend on credit ratings). Direct Line offers a standard 6.2 per cent. By contrast, RBS charges 8.9 per cent interest to borrow £5,000, rising to 13.9 per cent at HSBC.

Customers don't have to put up with high charges on borrowing or low savings rates, as there is so much choice around. Instead of accepting the deal on offer at your bank, see if you can find a better rate on the internet or by calling several lenders on the telephone.

Indeed, too much choice is more likely to be a problem than not enough, as it can be hard to compare products. The best way of narrowing down the field is to think about your own needs before you start searching. For example, if your current account slips into the red every month, a cheap overdraft will help you more than good interest rates on balances.

Switching accounts is much easier than it used to be. Some providers, such as Norwich & Peterborough, will handle the whole process: you just sign a piece of paper authorising them to do so. Other banks and building societies will want details of your standing orders and direct debits before transferring these on your behalf. See www.switchwithwhich. co.uk for details.

Whether you are switching a mortgage or credit card, don't switch off yourself. What is a headline-grabbing rate now may look uncompetitive after a year or two, so be prepared to move if necessary.

Questions to ask before you sign up

Current accounts

Do you stay in credit each month? If so, find the highest rate of interest you can. Lloyds TSB pays 4.41 per cent to Classic Plus customers but only if they put in at least £2,000 a month and bank online six times every three months. If you are more likely to slip into the red, check the overdraft rates. If you overspend by a couple of hundred pounds a month, First Direct or Smile's fee-free buffer of £500 may do the job. If your overdraft exceeds this, Alliance & Leicester charges 6.9 per cent on authorised deals on its Premier account (in the first year, you can go overdrawn by up to £2,500 interest free).

Credit cards

Many providers offer 0 per cent introductory periods on purchases and/or balance transfers. Halifax One has the longest 0 per cent period (nine months) but you must remember to shift to another card charging 0 per cent when the offer expires, or you will pay interest from 9.9 per cent according to your credit rating.

If it will take longer than this to clear your transferred balance, a provider charging a low rate of interest until you have paid it all back might be more appropriate. Capital One charges 3.9 per cent.

If you clear your balance each month, look at added value rather than the interest. Egg, Morgan Stanley and Leeds & Holbeck offer cashback, while NatWest customers qualify for Air Miles.

Mortgages

If you want the security of knowing what your monthly repayments will be, go for a fixed rate. Discounted deals are cheaper but if interest rates do rise, as many predict, so will your repayments. Consult an independent broker such as Charcol, London & Country or Savills Private Finance to discuss the options.

Savings

The Halifax's new savings account pays 6 per cent gross interest on balances, as long as you save a regular monthly amount - anything between £25 and £250. If you want more flexibility, ING Direct pays 4.3 per cent on balances of £1. And don't forget mini cash ISAs for tax-free returns: Intelligent Finance's no-notice ISA pays 4.35 per cent.

Personal loans

There are some very cheap deals available at the moment, which is part of the reason why so many consumers are running up debts. Co-Operative Bank charges 5.9 per cent on loans of £5,000.