Green lights needed for account switching to take off

Meanwhile the eight biggest banks last year made profits of £7.5billion out of the other 19 of us, according to the Competition and Markets Authority.

But with the ‘big four’ perhaps less unpopular than they were a few years ago, how can their customers be sure that a move would really be worthwhile?

The CMA is about to report on the barriers to competition, and Tesco Bank this week highlighted its call for an at-a-glance labelling system that would enable people easily to compare the complex features of different accounts.

Benny Higgins, chief executive of the Edinburgh-based bank said: “Banks have lost the trust of their customers and it is about time that the industry took concrete steps to restore faith in the sector. If we don’t use this opportunity to make the market more transparent, we are unlikely to see sufficient competition and customers will continue to be poorly served by their bank.”

Using the ‘traffic light’ system proposed by Tesco, independent analyst Andrew Hagger of MoneyComms.co.uk has drawn up a comparison of 11 major accounts in the market, dividing them into credit interest on £1000, £3000 and £5000, monthly overdraft cost for three, 14 and 21 days, and unauthorised borrowing for six days with two paid items.

The traffic lights show the ‘big four’ can only muster two greens and eight ambers out of 28 features, the rest showing red or bad deal.

Tesco, perhaps unsurprisingly, has four greens and three ambers, the only bank to avoid a red altogether, while NatWest (RBS) has six reds and an amber.

But the scheme’s advantage is that customers can see at a glance how banks compare on the features they value most. So people with a £5000 credit balance would be better off at Santander, Lloyds, TSB or Nationwide than at Tesco Bank and those with 14 or 21 days monthly overdraft would pay less at HSBC than at TSB, Santander or Halifax.

Hagger said: “The wide variation in tariffs for overdrafts and credit interest means comparing bank accounts is too complex and a key reason why people don’t feel confident to switch provider.

“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.

“The labelling isn’t restricted to online use, and could easily be produced in leaflet format with the colour-coding becoming an integral part of all future current account marketing material.”

In the second year of the switching service, Santander’s heavily-promoted 123 account made the bank a net gain of over 186,000 customers, attracted by its three per cent interest on balances between £3000 and £20,000, and the one, two and three per cent cashback on council tax, energy and telecoms bills.

But the bank has now claimed it got its sums wrong, and the account fee will have to rise from £2 to £5 a month, wrongfooting many new customers for whom the switching benefit is now more marginal.

Tesco Bank has gone the other way, scrapping its £750a month minimum deposit for customers to earn its credit interest of three per cent up to £3000.

Hagger said Santander’s move highlighted the risk with a new account that “the monthly fee gets increased in years to come but the reward levels don't move in line”.

Halifax was the other big gainer from switching with over 150,000 net new customers, attracted by its £5 a month Reward alternative to credit interest. But the traffic lights show both Halifax and Santander are expensive for borrowing.

In April Barclays, which lost over 98,000 customers via switching last year, unveiled a reward account with a £3 monthly fee but a return of £7 a month uowards depending on how many Barclays products are held.

Then last week RBS launched its own counter-attack, having with NatWest lost over 71,000 switching customers last year. Its new account, which has borrowed the ‘Reward’ name from Halifax, costs £3 a month and offers three per cent cashback on seven types of household bill. The bank says anyone paying eligible bills of more than £100 per month will make a profit, average gains will be £90 a year, and (unlike other schemes) there is no ceiling on cashback payments.

Hagger said: “This NatWest/RBS deal is good news for people who have say £200 or £300 worth of qualifying direct debits as they'll earn a net £3 or £6 per month respectively for doing nothing.

“However the tariff for agreed overdrafts is expensive, so customers who dip into the red for a couple of days each month or longer may be better off looking elsewhere.”