Why the return of TSB to the high street feels like shotgun divorce

Forced to split from Lloyds by competition rules, it ought to offer more to customers. By Chiara Cavaglieri and Julian Knight

If you are of a certain age, it is the return of the "bank that likes to say yes"; if you are younger, it is a new player on the high street with a rather archaic name. The Trustee Savings Bank – or TSB for short – is back, nearly two decades after its merger with Lloyds.

This rebirth of the TSB as a brand – on its appearance this week it became the eighth biggest bank in the UK – was greeted with lukewarm headlines; the de-merger feels a little forced for customers and public alike. Both banks will remain part of Lloyds Banking Group until TSB is sold off, which is expected to take place next year; but millions of customers have already been moved across to the TSB brand. Greater competition is usually to the advantage of consumers, but is this really going to be a contender to the five banks currently dominating the market?

The Lloyds group, which also includes Halifax and Bank of Scotland, has been forced to offload its TSB branches under European competition rules. More than 4.6 million customers have now been switched to the new TSB bank, although some people will be customers of both Lloyds Bank and TSB if they opened different accounts at different branches.

The TSB was established in 1810 by the Rev Henry Duncan in Ruthwell, Scotland. The focus then was very much on helping local families and it seems the bank's new mission statement is harking back to former glory.

"Bringing TSB back to the high street means so much more than putting a new sign above the door," said Roy Beale of TSB. "It's about bringing more competition and choice to the high street with a focus on the local customers, local businesses and local communities."

Lloyds chief executive Antonio Horta-Osorio has also described it as a "completely clean bank" but Moveyourmoney.org.uk is not convinced. The consumer campaign group insists this is a case of "new logo, same old bad bank" pointing to the fact that former Lloyds customers have been forced to switch to the new brand.

"It's the same old behaviour, taking customers for granted and not asking them what they want," said Laura Willoughby of moveyourmoney. Suddenly people will not be able to use their local branch as it has rebranded out of existence. There has been no consultation and no option to choose based on individual banking needs."

Ms Willoughby has called on customers to dump both banks, reminding them of a few home truths: a Which? survey of bank customer satisfaction last year gave Lloyds TSB a rating of only 57 per cent; the banks' bonuses topped £365m in 2012 – despite making a loss of over £570m; they had to set aside £7.28bn to cover the cost of PPI compensation; they mis-sold interest-rate swap products to small businesses; and they are currently under investigation for interest rate rigging as part of the Libor scandal.

It is too early to tell whether TSB will be able to separate itself from what has gone before, but the early signs are hardly reassuring – customers' bank account numbers and sort codes have remained the same, but embarrassingly there have already been a few hiccups with customers unable to log in to their online banking services on the first morning of the switch.

More importantly, when it comes to the products on offer, it is business as usual – with no new deals for TSB customers.

Michael Ossei, personal finance expert at uSwitch.com says: "While the relaunch of TSB should provide greater choice, in reality there is little reason to jump for joy, with the rates and products mirroring those of the current Lloyds bank range."

Customers are sitting on the same old Lloyds bank accounts, savings and credit cards, but with a new name – and some of these aren't even close to the best buys. The TSB Cash ISA Saver, for example, pays only 1 per cent AER on deposits of £5,000, while the two-year fixed ISA pays up to 1.90 per cent AER on deposits of £10,000. Nationwide pays a far more generous 2.25 per cent on its easy-access ISA (open to its current account customers) and Britannia offers a two-year fixed ISA also paying 2.25 per cent, rising to 2.60 per cent to Co-operative bank account customers; and both accounts can be opened with minimum deposits of just £1.

The TSB Platinum balance transfer card does offer a competitive deal with 24 months interest-free, but Barclaycard is letting you shift debts for 28 months at 0 per cent. On the current account front, TSB is also being left behind with First Direct offering a permanent £250 interest-free overdraft and a £125 sweetener to new customers switching to them. Nationwide's FlexDirect also has a 0 per cent arranged overdraft, this time for the first 12 months, although both accounts require you to pay in at least £1,000 a month.

At present, TSB doesn't seem a meaningful challenger to the biggest high street banks. It does now have its own banking licence, so if you have money in both Lloyds and TSB you enjoy separate protection for your deposits up to £85,000 under the Financial Services Compensation Scheme should they go bust. Yet both Lloyds and TSB customers should take the opportunity to look at all of their financial products and consider switching elsewhere.

In the UK, 83 per cent of retail bank accounts are controlled by one of five names – Lloyds, RBS, Barclays, HSBC and Santander – all of which have been caught up in scandals such as colossal director bonuses, fixing the Libor interest rate and mis-selling PPI. Current accounts are big business for all of the banks and building societies, but at present it takes as long as 30 working days to switch your account from one bank or building society to another.

This should all change next week, when a new seven-day switching guarantee comes into force. This means that payments going out, such as direct debits, and those coming in, such as your salary, will be moved from your old bank account to the new one within seven working days, making it far less hassle to switch. Hopefully, this will encourage more people to take action and find the best products for their needs.

Various organisations are launching tools to encourage switching including the moveyourmoney Switching Scorecard (ranking banks on customer service, impact on the economy, culture and ethics) and the Money Advice Service has a new current account comparison table which will be available from tomorrow (moneyadviceservice.org.uk).