THE long-awaited challenge to the high street banks had finally been laid down in earnest when M&S Money launched its new current account last year. Or so it was claimed.
If one of the best-known and respected brands on the high street was going to offer its millions of customers an attractive bank account, surely it was time the big banks raised their game.
There’s little evidence of that having happened, however.
Now the Post Office is getting in on the act. It is preparing to roll out a new current account that will eventually be available in all 11,500 of its outlets – a greater high street presence than all the UK banks combined.
Details of the account – to be provided by Bank of Ireland –remain under wraps. However, they’re eagerly anticipated by anyone who believes that greater competition can provide the shake-up the banks need.
The Post Office can deliver, but it must get it right. That means resisting the temptation to go down the conventional and increasingly tired packaged account route, although I fear that it will. M&S Money took this path when it launched the new current account last year and its caution was a disappointment. At £20 a month it’s not cheap (although it’s lowered to £15 a month if the insurance benefits are removed).
M&S boasts that the full benefits, including M&S vouchers and loyalty points, are worth £500, but the reality is that few people will use them all. If they did, M&S wouldn’t be so generous.
In that sense it’s typical of most packaged accounts. The majority are poor value, since so few people use the benefits for which they fork out an average of some £15 a month.
But there are two reasons why the Post Office’s timing could be perfect, provided its new account catches the eye.
New rules that took effect on 31 March force banks to make it clearer to customers what they’re getting for their money. They must now send all account holders annual eligibility statements including details of any insurance bought through a packaged account and a reminder to check that benefits meet their needs.
Those statements will tell many customers what they may have already suspected – that they were mis-sold their current account. Some banks responded to the rules by withdrawing their packaged accounts from the market, clearly fearful of a new wave of mis-selling claims.
Then in September we’ll see the introduction of seven-day switching, which is the length of time that current account providers will be given to complete transfers.
The aim is to boost switching levels in a market in which four banks – Barclays, Royal Bank of Scotland, Lloyds and HSBC – account for three-quarters of accounts.
The system has its flaws – for some reason there’s no requirement for cards and PINs to arrive within seven days – but it should boost confidence in the switching system and get more people voting with their feet, as they increasingly do with utilities suppliers.
So if the Post Office can resist the temptation to just charge a monthly fee for the account in return for the insurance deals already available through its branches, it might give the banks something to think about. But it has to be a first-class deal.
Taxman sets his sights on rebates
Everybody loves a tax rebate. But a rebate tax? That’s a little bit different, as many investors will discover to their cost. Investors who use fund supermarkets or platforms such as Hargreaves Lansdown, Bestinvest and Alliance Trust Savings can receive cash rebates of some or all the commission paid, as part of a discount that helps make such services more attractive.
HM Revenue & Customs has now decided that those payments are part of the investors income and so should be charged at their highest rate of income tax, even though they’re essentially just a refund of their charges.
Tax-efficient vehicles such as Isas and pensions aren’t affected, while there will be no retrospective taxation of rebates. But investors face a charge they won’t have been expecting, while they could also foot the bill as platforms implement the changes.
It’s good news in the long run, however, as those changes include a shift to “clean” funds, which are commission-free and therefore more transparent. While you might pay 1.5 per cent a year where the commission is included in the cost, the rebate lowers that.
“Clean” funds are cheaper, on the face of it, but investors should be vigilant.
While annual charges should be lower without having to cover commission costs, you can expect some fund providers and platforms to quietly raise their “clean” charges.